Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

Which of the following does NOT represent a comprehensive basis of accounting in conformity with reporting standards?

1. Cash, accrual, or tax basis reports

2. Modified cash basis accounting

3. Financial statements prepared under sole proprietorship standards

4. Reports aligned with IFRS

The correct answer is: Financial statements prepared under sole proprietorship standards

The correct choice indicates that financial statements prepared under sole proprietorship standards do not represent a comprehensive basis of accounting in conformity with reporting standards. Sole proprietorship standards are not recognized as a formal framework of accounting principles, unlike the other choices. Comprehensive bases of accounting in conformity with reporting standards typically include widely accepted accounting frameworks such as Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), and specific bases like cash, accrual, or tax basis, which are recognized for their structured approaches to financial reporting. The modified cash basis, for instance, is an example of an accounting basis that combines certain elements of cash and accrual accounting, which can be suitable for specific reporting purposes but still does not have the same level of formal recognition as GAAP or IFRS. Reports aligned with IFRS represent an established comprehensive basis and are globally accepted for financial reporting, ensuring consistency and comparability across financial statements prepared by different entities. Thus, while cash, accrual, tax basis, modified cash basis, and IFRS align with recognized standards, sole proprietorship standards lack the comprehensive formal framework necessary to be considered in conformity with established reporting standards.