Financial Statement Presentations

These lectures CPA lectures covering personal financial statements including statement of financial condition, statement of changes in net worth and OCBOA

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Basis of Presentation

Users of personal financial statements rely on them for making financial and economic decisions with the focus primarily on an individual’s assets and liabilities. They believe it is more relevant to portray current values of assets and estimated current amounts of liabilities rather than historical cost information. Lenders require the use of estimated current value information to assess collateral. Personal loan applications generally require current value information. Estimated current values are required for estate, gift and income tax planning, and estimated current value information about assets is often required in federal and state filings of candidates for public office. Recognizing this, the AICPA Accounting Standards Division, issued SOP 82-1, which states that personal financial statements should present all assets at their estimated current value and liabilities at their estimated current amounts.

Presentation of Personal Financial Statements

Presentation of assets and liabilities in personal financial statements should be made in the most useful and readily understood manner. Thus, assets and liabilities should be presented in order of liquidity and maturity, without classification as to current and noncurrent status because the working capital concept applied to business entities is inappropriate.

Statement of Financial Condition. The statement of financial condition is the basic personal financial statement that presents estimated current values of assets, amounts of liabilities, income taxes on the differences between the estimated current values of assets and amounts of liabilities and their tax bases, and net worth at a specified date. The term net worth is used in the statement of financial condition to designate the difference between the total assets and total liabilities.

Statement of Changes in Net Worth.

This statement is not considered a basic financial statement; its presentation is optional pursuant to SOP 82-1. The statement of changes in net worth presents the major sources of changes in net worth as follows:

* Income and expenses;

* Increases and decreases in estimated current values of assets;

* Increases and decreases in the estimated current amount of liabilities; and

* Changes in estimated income taxes on the differences between estimated current values and amounts and tax bases.

The presentation of comparative financial statements for the current period and one or more prior periods may be desirable. SOP 82-1 states that comparative financial statements can be more informative than the presentation of financial statements for only one period. However, the presentation of comparative financial statements is optional.

When personal financial statements are prepared for one individual from a group of joint owners of assets, only that person’s interest as a beneficial owner–determined under the property laws of the state having jurisdiction–should be included in personal financial statements. Legal advice may be required to determined whether an interest in property should be included as a person’s asset, especially when property is held in joint tenancy, as community property, or through a similar joint ownership arrangement.

If an individual’s business interest constitutes a large part of total assets, that interest should be shown separately from other investments. The estimated current value of an investment in a separate entity, such as a closely held corporation, a partnership, or a sole proprietorship, should be shown in one amount as an investment if the entity is marketable as a going concern. Assets and liabilities of the separate entity should not be combined with similar personal items.

The estimated current values of assets and the estimated current amounts of liabilities of limited business activities, such as an investment in real estate and a related mortgage, should be presented as separate amounts, especially if a large portion of the liabilities may be satisfied from soures unrelated to the investment.

The Use of OCBOA

As for other entities, personal financial statements may be prepared in conformity with a comprehensive basis of accounting other than GAAP. For purposes of personal financial statements OCBOA includes, for example, the tax return, historical cost, and cash receipts and disbursements bases. Such statements should clearly state that the basis of accounting used is not GAAP and the CPA’s report would follow the guidance in SAS 62, Special Reports and The Personal Financial Statements Guide.

Guidelines for Determination of Current Values and Amounts

SOP 82-1 states the estimated current value of an asset in personal financial statements is the amount at which the item could be exchanged between a buyer and seller, each of who is well informed and willing, and neither of whom is compelled to buy or sell. In determining estimated current values, costs of disposal, such as commissions, if material, should be considered.

Estimated current value is sometimes difficult to determine and the cost of obtaining estimated current values of some assets directly may exceed the benefits of doing so. SOP 82-1 recognizes those difficulties and states judgment should be exercised in determining estimated current value.

Recent transactions involving similar assets and liabilities in similar circumstances generally provide a statisfactory basis for the determination of estimated current values of assets and estimated current amounts of liabilities. However, if recent sales information is unavailable, other methods may be used. Other methods might include the capitalization of past or prospective earnings, the use of liquidation values, the adjustment of historical cost based on changes in a specific price index, the use of appraisals, or the use of the discounted amounts of projected cash receipts and payments.

Specialists may need to be consulted for gathering information necessary for determining estimate current values of some assets. (Examples are works of art, jewelry, restricted securities, investments in closely held businesses, and real estate). In deciding whether the use of a specialist is necessary, the nature of the item and its materiality with respect to the individual’s financial condition should be considered. Previous estimates may have been made by a specialist. If so, consideration should be given to the date of the previous estimate, the extent of changes in the circumstances since that date, and the method of up-dating the estimate.

Methods to determine estimated current values of assets and the estimated current amounts of liabilities should be consistently applied from period to period, unless facts and circumstances dictate a change. Significant changes in estimation methods should be disclosed.


Personal financial statements should include sufficient disclosures to make the statements adequately informative. The disclosures may be made within the body of the financial statements or in footnotes. Types of information that ordinarily should be disclosed are:

* A clear indication of the individuals covered by the financial statements;

* The methods used in determining the estimated current values of major assets and the estimated current amounts of major liabilities or major categories of assets and liabilities, since several methods are available, and changes in methods from one period to the next;

* If assets held jointly by the individual and by others are included in the statements, the nature of the joint ownership;

* If the individual’s investment portfolio is material in relation to his or her other assets and is concentrated in one or a few companies or industries, the names of the companies or industries and the estimated current values of the securities.

* If an individual has a material investment in a closely held business, at least the following information:

a. The name of the company and the individual’s percentage of ownership;

b. The nature of the business; and

c. Summarized financial information about assets, liabilities, and results of operations for the most recent year based on the financial statements of the business, including information about the basis of presentation (for example, GAAP, income tax basis, or cash basis) and any significant loss contingencies.

* Descriptions of intangible assets and their estimated useful lives;

* The face amount of life insurance the individual owns;

* Non-forfeitable rights that do not have certain characteristics, for example, pensions based on life expectancy;

* The following tax information:

a. The methods and assumptions used to compute the estimated income taxes on the differences between the estimated current values of assets and the estimated current amounts of liabilities and their tax bases and a statement that the provision will probably differ from the amounts of income taxes that might eventually be paid because those amounts are determined by the timing and the method of disposal, realization, or liquidation and the tax laws and regulations in effect at the time;

b. Unused operating loss and capital loss carryforwards;

c. Other unused deductions and credits, with their expiration periods, if applicable; and

d. The differences between the estimated current values of major assets and the estimated current amounts of major liabilities or categories of assets and liabilities and their tax bases.

* Maturities, interest rates, collateral, and other pertinent details relating to receivable and debt; and

* Non-cancelable commitments for example, operating leases.

GAAP other than those discussed in SOP 82-1 may apply to personal financial statements. SFAS 57, Related Party Disclosures, provides guidance on related party disclosures, and SFAS 5, Accounting for Contingencies, and related amendments and interpretations, provides guidance on accounting for contingencies and are examples of such GAAP requirements.


A CPA may be asked to audit, review or compile personal financial statements. Standards for compilations, reviews, and audits are prescribed by SSARS 1 and GAAS, and are applicable for personal financial statements as for other financial statements.