Reporting Practices and Ethics HCS/405 Reporting Practices and Ethics A major aspect of health care organization operation is that of financial management. Financial management of health care organizations incorporates ethical standards and proper reporting practices. Financial practices and ethical finance concerns are important to the success of any organization, particularly within the health care industry. The four elements of financial management, generally accepted accounting practices (GAAP), and general financial ethics standards are part of ensuring fair and accurate financial reporting from health care organizations.
Examining examples of ethical standards of conduct and reporting standards helps to understand the impact of financial reporting on an organization. Financial Management Financial management is a vital component to organizational success in health care. Financial management is defined as the planning, directing, monitoring, organizing, and controlling of financial resources within an organization (Business dictionary, 2011). There are four elements or components of financial management. The four components of financial management include planning, controlling, organizing/directing, and decision making (Baker & Baker, 2011).
The first element of financial management is planning. Financial planning occurs when one identifies the steps that need to be taken for an organization to reach its objectives or goals. The second element of financial management is control. This includes controlling each area of an organization, making sure there is a plan in place, and making sure that plan is being followed by staff of the organization. The third element of financial planning is organizing and directing. When organizing, one should decide how to use resources most effectively for the financial gain of the organization.
Directing allows an individual know everything is running smoothly and effectively. The last element of financial planning is decision making. The decision making process is used at every level of financial planning. Without decisions being made financial planning would be at a stand-still. Accounting Practices Additionally there are two major types of accounting; financial accounting and managerial accounting. Financial accounting focuses on third parties that are outside of an organization such as government ran programs.
Financial accounting involves primary dealings with external recipients of financial data. For example, this type of financial reporting would be used for Medicare, Medicaid, Insurance companies, and stock-holders. The reports must adhere to and follow the guidelines set forth by the generally accepted accounting principles (GAAP) and other laws that are applicable to financial reporting. Managerial accounting primarily focuses on the internal aspects of an organization’s financial standing as well as factors that build budgets and financial projections.
This is generally used to track daily expenses and transactions. This information is important when trying to determine where a company stands financially (Baker & Baker, 2011). Generally Accepted Accounting Practices (GAAP) Generally Accepted Accounting Principles or GAAP are the basis of financial accounting for organizations and are also the reflection of federal financial accounting standards. Generally Accepted Accounting Principles are a collection of processes used to process, prepare, and present financial information.
Most GAAP principles are general so that they can be applied to various types of organizations. GAAP is followed by most industries in the United States. Additionally, several different agencies attribute to GAAP guidelines and standards. These agencies include the Financial Accounting Standards Board (FASB). The Financial Accounting Standards Board is an agency that has been granted the authority to establish generally accepted accounting principles (GAAP) by the (SEC) Securities and Exchange Commission (Financial dictionary, 2011).
General Financial Ethical Standards General financial ethical standards are an important aspect of GAAP and fair and factual financial reporting. “ In order to prevent fraudulent financial reports and statements, the American Institute of Certified Public Accountants(AICPA) has created ethical standards” (Ethical standards in a financial statement, 2011). These standards aim to make financial professionals accountable for their accounting practices. This includes the integrity of financial reporting and ensuring financial reporting is done fairly and factually.
Financial accountants and professionals should maintain professional integrity, objectivity, and independence to reduce the risk of resulting legal action, loss of profits, and a poor reputation if improper financial reporting is done (Ethical standards in a financial statement, 2011). Examples of Fraudulent Financial Reporting in Health care According to the article Anatomy of a Financial Fraud (2004), A forensic audit conducted by PricewaterhouseCoopers concluded that HealthSouth Corporation’s cumulative earnings were overstated by anywhere from $3. 8 billion to $4. billion, according to a January 2004 report issued by the scandal-ridden health-care concern. HealthSouth acknowledged that the forensic audit discovered at least another $1. 3 billion dollars in suspect financial reporting in addition to the previously estimated $2. 5 billion. The scandal’s postmortem report found additional fraud of $500 million, and identified at least $800 million of improper accounting for reserves, executive bonuses, and related-party transactions. This billion-dollar-plus admission failed to garner financial media headlines, further evidence of the public’s inurement [SIC] to financial reporting scandals.
The HealthSouth Corporation faced legal action stemming from several financial reporting implications. Three of the most relevant violations included: • Revenue recognition, including fraudulent reporting of fictitious sales, inaccurate timing of revenue recognition, and improper valuation of revenue. • Expense recognition, consisting of including improper capitalization or deferral of expenses, incorrect use of reserves, and other understatements of expenses. • Business combinations, relating to myriad improper accounting activities used to effect and report combined entities.
These fraudulent financial reporting practices lead to legal action and had severe negative aspects on the HealthSouth Corporation. As a result the company’s CEO was indicted on 85 fraudulent charges as well as 13 financial officers for the company pleads guilty to fraudulent financial reporting charges (Weld et al, 2004). To this day, HealthSouth Corporation works to rebuild its ruined reputation in the health care industry. Financial management plays a vital role in health care organizations.
Incorporating ethical standards and Generally Accepted Accounting Principle (GAAP) helps to ensure fair and factual financial reporting in health care organizations. Adhering to a standard set of ethics and reporting principles is important to avoid legal action and the financial ruin of an organization. Examples such as HealthSouth Corporation and its past fraudulent financial reporting practices show the demise improper financial reporting may result in.
Reference Baker, J. J. , ; Baker, R. W. (2011). Health care finance: Basic tools for nonfinancial managers (3rd ed. ). Sudbury, MA: Jones ; Bartlett Publishers. Business dictionary. (2011). Financial management. Retrieved from http://www. businessdictionary. com/definition/financial-management. html Ethical standards in a financial statement. (2011). eHow. Retrieved from http://www. ehow. com/list_7428290_ethical-standards-financial-statement. html#ixzz1Jo5j0AVn Financial Dictionary (2011). Generally Accepted Accounting principles. Retrieved from http://www. financialdictionary. nete/define/Generally+Accepted+Accounting+Principles+(GAAP)/ Weld, L. G. , Bergevin, P. M. , ; Magrath, L. (2004). Anatomy of a Financial Fraud. CPA Journal, 74(10), 44. Retrieved from EBSCOhost.