Special purpose frameworks: classify, present, and recognize

The rules, one page each

1. Which special purpose framework is it? Source of criteriaSide by side

   Classify by the source of the accounting criteria: income-tax basis follows tax-return rules; regulatory basis follows a regulator; contractual basis follows a private agreement that prescribes definite rules for all material items; modified cash basis starts from cash with limited, well-supported modifications. A management-designed hybrid is not a recognized special purpose framework.

2. Contractual-basis framework: does the agreement itself set complete accounting rules?Contrasting cases

   A contractual basis is a recognized special purpose framework when a private agreement prescribes definite recognition, measurement, and presentation criteria for all material items; covenant schedules or GAAP‑with‑tweaks are not a contractual basis for the statements.

3. Regulatory-basis special purpose framework: when to useSide by side

   Financial statements that follow recognition and measurement prescribed by a governmental or regulatory authority use a regulatory-basis special purpose framework; who receives the statements does not change the basis.

4. Modified cash basis: what qualifies and what is not allowedContrasting cases

   Modified cash basis recognizes cash receipts and disbursements plus a limited, well‑supported set of modifications (for example, capitalize and depreciate equipment and accrue current income taxes payable). Recognize only the stated modifications; broad accruals or unsupported remeasurements break the basis.

5. Income-tax-basis recognition rules: no deferred taxesContrasting cases

   Income‑tax‑basis financial statements follow the tax‑return recognition and measurement for the period and generally recognize only current income taxes; GAAP’s deferred tax model is not used in the primary statements.

6. Titles and basis identification: how to label and describe SP framework statementsStep by step

   Special purpose financial statements must clearly identify the basis in the statement titles or a prominent header and include a basis‑of‑accounting note that describes the basis and significant accounting policies; do not use generic GAAP‑style titles without identification.

7. Special purpose framework disclosures: what required, what omittedSort it

   Provide informative disclosures similar to GAAP when they are material and not inconsistent with the chosen special purpose framework. GAAP-only measurement disclosures, such as deferred-tax rollforwards or the fair value hierarchy, are not required in special purpose framework statements.