This article presents the results of a study of banker perceptions and decisions concerning tax basis versus GAAP, and review services versus audits. An understanding of these perceptions and decisions should be helpful to both small business owners seeking loans and their CPAs. Several CPAs observed that tax basis statements are less costly than GAAP statements. SAS 62, Special Reports, superseding SAS 14, continues to recognize the tax basis. Yet little knowledge exists about how loan officers react to tax basis statements.
Accountants can also offer a review to clients instead of an audit.
Overview of the Study Loan officers consider financial statements and many other factors when deciding whether to approve a loan request. For secured loans, the most important determinant in the loan decision process is the value of collateral. When a small business applies for an unsecured loan, however, the financial reporting basis and the service provided become important questions, because the financial status of the business is especially pertinent to the loan approval decision. National Commercial Lending School were asked to evaluate loan requests accompanied by both GAAP and tax basis statements and subjected to both reviews and audits. A reviewed financial statement prepared on an income tax basis.