Special-purpose financial statement definition
/What is a Special-Purpose Financial Statement?
A special-purpose financial statement is a financial report that is intended for presentation to a limited group of users. A special-purpose statement may accompany a complete set of financial statements that is intended for general use, or it may be presented separately. This type of statement is usually required by a government entity, and is intended to present a specific set of information in a predetermined format. The information required and the reporting format used is laid out in a reporting framework.
The specialized reporting frameworks on which special-purpose financial statements are based are typically promulgated by the entities that plan to use the resulting financial statements.
Examples of Special-Purpose Financial Statements
For example, reporting frameworks may be applied to the generation of special-purpose financial statements in the following areas:
Tax reporting. Typically includes the treatment of complex tax situations.
Family member owners. The statements may be formatted to show the base compensation and bonuses paid to individual family members.
Real estate landlords. The statements may include rental income, if the landlord is entitled to a percentage of that income.
Disadvantages of Special-Purpose Financial Statements
The main concern with special-purpose statements is that they might be read by parties other than those who specifically requested them. This can be a significant concern if the statements contain line items not normally included in an entity’s normal financial statements, or alter the presented results in some way that differs substantially from the organization’s normal reporting.
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FAQs
Can a special-purpose statement accompany GAAP financial statements?
Yes. A special-purpose financial statement may accompany GAAP financial statements when management needs to present information under an alternative basis, such as tax or cash. It supplements, rather than replaces, the general-purpose statements and must clearly disclose the reporting framework used to avoid user confusion.