Special Purpose Frameworks: Cash, Tax, Regulatory, and Contractual Bases
The first question is not whether the statements follow GAAP; it is whether they are fairly presented under the identified special purpose framework.
Common frameworks
Special purpose frameworks can include cash basis, tax basis, regulatory basis, or a contractual basis of accounting.
Reporting focus
The auditor evaluates the statements against the framework management selected rather than automatically treating every departure from GAAP as an error.
Disclosure and report language
The financial statements should describe the basis of accounting, and the auditor's report includes appropriate framework-specific language and alerts when required.
Exam strategy
Identify the framework before evaluating presentation. A tax-basis statement should not be judged as though management claimed it was GAAP.
The takeaway
Special purpose statements are audited against their stated framework, not automatically against general-purpose GAAP.
Related Summit resources
FAQ
Is cash basis a special purpose framework?
Yes.
Can tax basis be an acceptable reporting framework for certain users?
Yes.
What should you identify first?
The basis of accounting management used.