Cash-Basis Financial Statements

For organizations that choose to present their financial statements on the cash basis, a question often arises as to what, if any, note and other disclosures should be made in the financial statements. Generally accepted accounting principles require many different disclosures in accrual-basis statements, but are mostly silent about the requirement to make such

disclosures in cash-basis statements. Some guidance, however, has recently been issued that will assist financial statement preparers (and auditors) in determining what disclosures, cash basis financial statements, as well as financial statements prepared on the modified cash basis (discussed later in this chapter) and the income tax basis. During 1998, the Auditing Issues Task Force of the AICPA issued an Auditing Interpretation (Evaluating the Adequacy of Disclosure in Financial Statements Prepared on the Cash, Modified Cash, or Income Tax Basis of Accounting) of Statement of Auditing Standards 62, Special Reports. The Interpretation concludes that the discussion of the basis of accounting needs to only include the significant differences of the accounting basis from generally accepted accounting principles and that these differences do not have to be quantified.

In addition, if the financial statements prepared on these accounting bases contain elements, accounts, or items for which generally accepted accounting principles would require disclosure, the financial statements should either

• Provide the relevant disclosure that would be provided under generally accepted accounting principles, or

• Provide information that communicates the substance of that disclosure

Qualitative information may be substituted for some of the quantitative information required in a presentation in accordance with generally accepted accounting principles. In addition, disclosure requirements under generally accepted accounting principles that are not relevant to the measurement of the element, account, or item need not be considered. The disclosures described in the following section would be consistent with this Auditing Interpretation, although clearly cash-basis financial statement preparers should consider all disclosures that would be made under generally accepted accounting principles and then apply the above guidance to determine if they are relevant to the cash-basis statements.

Taken From : Wiley Not-for-Profit Accounting Field Guide 2003

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