ReportingPractices and Ethics
Elementsof financial management
Financialmanagement is one of the key branches of finance that focuses on themanagerial significance of the techniques used in the field offinance. Financial management involves planning, directing,organizing, and controlling financial activities. There are fourbasic elements of financial management. First, financial planning isan element that ensures that sufficient finances are made availableto address the needs of the business at the right time (Hicks, 2014).Business needs that call for financial planning include theshort-term requirements (such as employees’ payments and investmentin stock) and long-term requirements.
Financialcontrol is the second element and it aims at making certain theorganizational goals are met. This is achieved by ensuring that theassets are utilized in an efficient way, enterprise assets aresecure, and ensuring that the management doing the best to addressthe interests of the business shareholders (Hicks, 2014).
Thethird element is financial decision making, which relates toinvestment, financing, and dividends. This element states thatfinances should be invested in one way or another, but with theconsideration of the available investment alternatives (Hicks, 2014).This means that viable decisions should be made on means of raisingfinance and the most appropriate options of investing the raisedfinances.
Lastly,directing is an element of financial management that deals with theinterpersonal issues of managing finances (Hicks, 2014). Under thiselement, members of staff are led to comprehend and contributetowards effectiveness and efficiency in the management of finances inways that result in the achievement of the organizational goals.
Generallyaccepted accounting principles
GAAPrefers to an international convention comprising of the bestaccounting principles. GAAP is based on the core principlesconsidered in this section. First, the business entry is a conceptproviding that accounting practices for the business should beseparated from personal affairs (Laferla, Magala & Chiliza,2014). This implies that business owners should not include personalassets in the business’s balance sheet.
Thecontinuing concern is a concept that assumes that the organizationwill continue operating indefinitely. This means that the businessassets do not have to be disposed at fire-sale value or debts paidbefore maturity (Laferla, Magala & Chiliza, 2014).
Revenuerecognition is a concept that requires revenue to be recognizedduring the period in which the transaction is completed. For example,most health care facilities provide programs that allow patients topay less than the amount of full charge. Most of the bill balancesare subject to review, adjustments, or retroactive measures(Richards, 2014). GAAP address this challenge by requiring thehospital accountants to report revenue that is related to patientsaccounts receivable net of any adjustment, including the contractualpayments (Richards, 2014).
Conservatismis a GAAP principle providing that accounting for a given businessshould be done in a reasonable and fair way. Accounting professionalsare required to make estimates, select procedures, and deliveropinions without overstating or understating the affairs of theorganization.
Objectivityis a GAAP principle stating that recording of accounting should bebased on objective evidence instead of subjective opinions andfeelings.
Theprinciple of matching holds that all items of expenditure associatedwith revenue earned should be recorded in the same financial year asthe revenue they assisted the business to earn.
Theprinciple of cost holds that the accounting made for purchases shouldrecorded at the cost price of those purchases.
Theprinciple of consistency states that accountants should apply thesame procedures from one financial period to another.
Theprinciple of materiality holds that accountants should use the GAAPunless their application is too expensive, difficult or theirviolation will not make real differences.
Theprinciple of full disclosure holds that all information affecting thefull understanding of financial statements of a given company shouldbe included in the statements. For example, although health carefacilities are allowed to avoid the inclusion of bad-debt clients intheir revenue, such money from defaulting patient should be disclosedunder the item referred to as the contra asset (Richards, 2014). Thesignificance of this provision is to ensure that all relevantinformation is disclosed to the stakeholders of the health carefacilities.
Generalfinancial ethical standards
Accountantsshould observe some ethical standards (such as competence,objectivity, and confidentiality) while practicing the GAAPprinciples. Competent financial professionals and accountants shouldlearn new information affecting their practices in addition to theireducational requirements (Morley, 2014). Financial professionals andaccountants should avoid the conflict of interest while preparingfinancial statements by being objective. The confidentiality standardrequires accountants to avoid disclosing the clients’ financialinformation or using such information to get illegal or unethicaladvantages.
Inconclusion, GAAP and ethical standards practiced in the field offinancial management ensures that accountants provide all financialinformation that is relevant to the stakeholders. GAAP providesimportant provisions that guide accountants in preparing a hospitalfinancial statement using the generally accepted procedures. Thisovercomes the unique challenges (such as bill adjustments andretroactive measures) that health care finance departments face.
Hicks,J. (2014). The role of accounting in the medical office. About.com.Retrieved September 25, 2014, fromhttp://medicaloffice.about.com/od/reimbursements/a/The-Role-Of-Accounting-In-The-Medical-Office.htm
Laferla,B., Magala, N. & Chiliza, B. (2014). Generally acceptedaccounting principles (GAAP). Directoryof Choice.Retrieved September 25, 2014, fromhttps://www.findanaccountant.co.za/contact
Morley,M. (2014). Accountingprinciples & general financial ethics standards.Houston: Houston Chronicle.
Richards,J. (2014). Howdoes a GAAP aid in health care?Houston: Houston Chronicle.