Measurement and frameworks
The Framework Basis
Special purpose frameworks are honest about not being GAAP: different titles, a described basis, and full audits are still possible.
How the exam words it
- -The stem prepares statements on the cash, modified cash, tax, regulatory, or contractual basis and asks how an item 'should be recognized'.
- -It asks 'which modification to the standard report is required' when auditing a special purpose framework.
- -Statutory accounting principles (SAP) or another regulator-mandated basis 'is best described as' a framework type.
- -Personal financial statements ask 'at what value should personal assets be reported?'.
The playbook
- 1Name the framework: cash recognizes on receipt and payment, tax basis follows the return, regulatory and contractual follow the mandating document, personal financial statements use estimated current value.
- 2Modified cash is acceptable when the modifications have substantial support, such as capitalizing fixed assets and recording the related debt.
- 3Use non-GAAP titles ('statement of assets, liabilities, and equity - tax basis'), and describe the basis in the notes and the auditor's emphasis-of-matter paragraph.
- 4Full audits and opinions are allowed; only regulatory and contractual basis reports are restricted use.
The trap
Assuming special purpose framework statements cannot be audited. Auditors can express a full opinion on them; the report just adds an emphasis-of-matter paragraph describing the basis.
How the exam varies it
The same pattern, re-skinned along these axes:
Which framework: cash, modified cash, tax, regulatory, contractual, or personalMeasurement and recognition versus titles and presentation versus the auditor's reportGeneral use versus restricted use
Drill this pattern
8 questions of The Framework Basis from across the AUD topics. Clear it by getting 5 right with a streak of 3.