There are four elements of financial management in health care finance. Also there are generally accepted accounting principles and general financial ethical standards that health care professionals should be aware of. Some examples from two different articles reflect ethical standards of conduct and financial reporting practices and there is some significance to these examples. According to (Baker, 2011), “The four recognized elements of financial management include planning, controlling, organizing and directing, and decision making.” Planning is when a financial manager finds ways and steps to perform the organization’s mission and objectives.
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Controlling is when a financial manager of an organization verifies that the plans there were set up are being pursued. Organizing is when the manager finds resources to use and how they should be used to make sure that their plans are carried out as they were previously established. With directing, which is part of organizing; directing is making sure that on a day-to-day basis that organizing is running effectively. Finally, decision making is when a financial manager makes alternative choices but it also happens at the same time as planning, organizing, and controlling. All four of these elements are important, if one of the elements is left out of the financial management process it is like a piece of the puzzle is missing.
“Generally accepted accounting principles (GAAP) are accounting standards used in the United States that allow the recording and reporting of financial information in a uniform manner. In health care, using generally accepted accounting principles allows companies to report revenue that still may be outstanding. Also, GAAP rules allow insurance companies and financial institutions to compare the health aid business to other businesses in the industry and determine credit worthiness. If an organization uses generally accepted accounting principles as a way of financial reporting it will allow the company to disclose their assets and still account for depreciation” (Richards, 2013). According to (Investing Answers, 2013), “The most insightful way to compare a company’s performance against prior periods is to review its non-GAAP financial measures.”
If an organization does not know where they
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stand financially reviewing their records our using non- GAAP financial measures is a way to start. Some good examples of non-GAAP financial measures are free cash flow, or adjusted income from continuing operations. Also according to (Ray, 2013), “GAAP aims to base its guidelines on ethical and moral values rather than on detailed rules and regulations. The goal of GAAP is to encourage objective standards for honest accounting that does not seek to manipulate information.
An example of this included in this article is, the principle of full disclosure requires accountants to connect the dots and give a broad statement of the company’s financial status even if the numbers themselves don’t make it obvious.” The significance of this example is that when reporting the organizations finances you must always be honest regardless if it might upset whoever is involved with the organizations finances. An example that reflects generally accepted accounting principles that is included in the article, (Richards, 2013) is when “A new company with a reported income of $250,000 may look good until compared to a similar new company with revenue over $1 million.”
The significance of this is that when GAAP is used in reporting the two different incomes of two different company’s it shows the credit worthiness. However, “GAAP records also show future revenue of an organization.” In closing, a manager must remember what the four elements in financial management are, what the elements mean, and why the elements are important. A financial manager and even a health care manager must always be aware of what the generally accepted accounting principles are. The manager must also know and understand what the goals of what GPPA is.
He or she must also be aware of what the ethical standards relating to these generally accepted accounting principles are. One way to know where an organization stands is start by looking at their non-GAAP financial measures. Finally someone may research and locate articles either on the Internet or the Library and find information about not only about GAAP but also GAAP in health care and find examples of GAAP. The importance of generally accepted accounting principles will be shown by these examples but can vary to everyone.See More on Finance