Parties responsible for hiring the top management of hospital
1. Parties responsible for hiring the top management of hospital.
2. Major and regular source of financial information.
3. Types of information contained in the financial statements prepared under GAAP.
4. Individuals interested in using the information in the financial statements.
5. Decisions that can individuals can make based on the financial statements under GAAP.
6. Difference between the external reporting of GAAP based financial reports for a non-profit and for-profit hospital.
7. Government regulators that can demand financial information.
8. Explanation of the statement - “No margin, no mission”.
9. Justification for the reimbursement for the blood draws the “fair market value”.
As per the regulations stipulated under US Generally Accepted Accounting Principles, the Board of directors appoints the chief executive officer (CEO) of corporations. The board of directors represents a body of elected or else appointed members that are responsible for overseeing the overall activities of the organization (Maher et al., 2012). The hospital administrator also needs to know the parties responsible for hiring the top management of the hospital. The hospital administrator is also a stakeholder of the firm and have own interest in knowing the objectives, policies and the dealings of the management.
Company utilizes major source of financial information at the time of conducting financial analysis. These sources of information are of sufficient quality for rendering undistorted description of company financial situation of the hospital top management at the time of periodic meetings. External financial information and quantifiable financial information are necessary for the top hospital management for gaining feedback at the time of periodic meetings (Maher et al., 2012). Annual reports of the company come as best source of financial information in making the financial analysis in the most appropriate way. Annual reports are majorly prepared by the accounting units for getting financial statement figures checked by an auditor for detailed accounting statement. Unlike other financial statement, annual report does not focus on past data and contains data concerning facts presented by Senior Management at periodic meetings. The Ministry of Finance provision helps in enabling every interested person to assess the annual reports. Its major financial parts are mainly approved from outside from major accounting units in the final accounting statement in the most effective way (Maher et al., 2012). The Board of Directors of the Blue Sky can collect the important information from different accounting standards stipulated under the Accounting Standards Codifications (ASC) developed by the Financial Accounting Standards Board. Again, the ASC can be regarded as the only source of trustworthy GAAP in US. The public corporations can also prepare and present the financial information based on the records of the different financial actions, positions of a particular business. In addition to this, the board also gathers financial information of the balance sheet from various reports on assets, liabilities, equity of the owner of the Hospital. Furthermore, the Board of Directors also presents the income statements founded on reports on revenues and expenses enumerated as per the guidelines in the Generally Accepted Accounting Principles (GAAP). The statements is a comprehensive version of all the information on the company regarding the liquidity position, different resources of the capital, different revenues, cost of revenues and expenses.
Major and regular source of financial information
The types of information contained in the financial declarations prepared under GAAP include the scope of the declarations. The financial declarations of Blue Sky concerning the income statement illustrates the sales and revenues, cost of sales, operating expenses, non-operating income as well as expenses, other requirements of presentation, allocation of expenses to different subsidiaries for the private corporations (Reeve et al., 2012). The operating expenses mainly includes information on advertising expense, provision for different doubtful accounts, depreciation as well as amortization of long-lasting assets along with research and development expenses among many others. The income statement provides the information concerning different items of the non-operating income and expenses. In addition to this, information also includes the interest expense and amortization of debt discount, gains or losses on the sales in addition to the government grants (Horngren et al., 2012). The income statement also contains the information regarding the presentation requirements that comprises of the income or loss before different income tax expenditures, income tax expenditures, equity in earnings of unconsolidated business entities, records of income and losses from different continuing business operations. The profit or loss statement also explicates the information regarding different discontinued business functionalities, registered income or else loss from different extraordinary items and cumulative effects of alterations in different accounting principles (Needles et al., 2013). Again, the profit and loss statement also presents useful information regarding the allocation of expenses to different subsidiaries and considerations for diverse private corporations. The financial report also helps in gaining information regarding the equity of the shareholders. The report on shareholders’ equity thereby helps in acquiring information concerning the scope of the declarations, disclosures for different classes of securities, common stock, preferred stock, retained earnings, treasury stock, additional paid-in-capital, dividends, and stock splits among many others. The statement of the cash flow provides information regarding the cash and cash equivalents, gross and net cash flows of a particular business concern, different classifications of cash, foreign currency cash flows and cash flows from operational, investing and financing activities. The balance sheet statement prepared as per the GAAP (ASC 205) helps in acquiring information regarding the operating cycle, current assets, non-current assets, current liabilities, non-current liabilities, commitments and contingent liabilities, shareholders’ equity, additional paid-in capital (Maher et al., 2012).
In the above case study on Blue Sky, there are various users of financial statements. The main aim of a financial statement is to provide information regarding the financial position as well as changes in wide-range of users in making final economic decisions as per the IASB Framework. Some of the users of financial statements are as follows:
Types of information contained in the financial statements prepared under GAAP
Managers and in other words the administrators of the hospital are the individuals who require financial statement in managing the business affairs of Blue sky. It aims at assessing the financial performance as well as taking most important business decision-making processes (Maher et al., 2012).
Shareholders of the corporation Blue Sky are the individuals who use financial statements who assess risk as well as return on investment in Blue sky. They mainly take investment decisions based upon the analysis.
General Public consists of those individuals who may be interested in effects of company on economy as well as environment and local community at the same time. The people in the community are also interested in the reports of the healthcare company Blue Sky as the company contributes towards overall well-being of the community.
Competitors are those individuals who compare their performance with rival companies to learn and develop strategies for improved competitiveness .Government majorly requires financial statements in determining the correctness of tax as declared in the tax returns. They also keep track of all the economic progress with the help of the financial statement of business from various sectors of economy (Maher et al., 2012).
Employees are the individuals who use financial statements in assessing Blue-sky profitability as well as its consequences on future remuneration and job security.
Managers- Under GAAP, managers of Blue-sky hires experienced professionals those who are entrusted with the responsibility of operating business. They mainly act as agents of business owners of Blue-sky.
General Public- Under GAAP, anyone outside the company such as students, analysts as well as researchers and others shows interest in financial statements in the present case study.
Government- Under GAAP, Government bodies of the state involves the tax authorities in the final entity financial information especially for taxation and regularity purpose. Taxes are mainly computed for resulting operations and other related tax bases. In general, implications, state requires in knowing the rate of the taxpayer for determining in the tax due for particular time (Needles et al., 2013).
Employees- Under GAAP, employees are mainly shows interest in Blue-sky profitability as well as stability. They are actually proves for viewing at the ability for paying salaries as well as employee benefits at the same time (Needles et al., 2013). They are even interested in understanding the financial position as well as performance in assessing company expansion possibilities for related career development opportunities.
Individuals interested in using the information in the financial statements
In addition to this, there are internal and external users referred as managers, who use the accounting information in the final decision-making activities in relation with the company operations. On the contrary, external users are those users who are not directly involved in operational activities of the company but possess financial interest (Needles et al., 2013).
There are several differences between the external reporting of GAAP based financial declarations for profit and not for profit organizations. There are variances in the treatment of tax, preparation of the balance sheet and income statement (Harrison et al., 2015).
- The for-profit organization needs to make payments for tax on the income earned. However, this is not the case for the non-profit firms in case if the non-profit business unit is exempt from tax. The non-profit organizations are subject to different taxes that are essentially secondary to the scope of the organization such as the sales tax and the estate tax. Again, the non-profit business concerns that submit the tax returns to the IRS (Internal Revenue Service), the business units are primarily assessed for different secondary taxes. On the contrary, the IRS also investigates earnings of different for-profit organization along with the secondary taxes.
- The for-profit business concern prepares and presents the balance sheet every quarter and lists the owner’s equity of the corporation. The owner’s equity comprises of assets that a company owns in addition to different liabilities that the corporation owes to others (Reeve et al., 2012). Again, the non-profit organization also cannot make use of the balance sheet, as it has no owner.
- The financial declarations need to compile the statement of financial condition. The addition of the assets to the liabilities provides the net assets of the corporation. The professional accountants of a corporation can examine the net assets to evaluate the financial size of the particular non-profit. Again, along with the balance sheet of a for-profit business concern, the for-profit business units also need to prepare the income statements every quarter.
- The income statement of the firms declares the revenues, profits, expenses as well as losses of a business concern (Needles et al., 2013). The primary aim of the income statement is to evaluate the financial performance of the corporation on a quarterly basis. The assessment of the financial performance exerts immense influence on the value of the corporation and price of the shares (Needles et al., 2013). The stockholders of the business concern have a lawful authority to the income statement. On the contrary, the non-profit business concerns do not amass the income statement but can prepare the declaration of activities each quarter. This particular document can simply chart the revenue of the organization after deduction of the expenses and addition of the assets.
Difference between the external reporting of GAAP based financial reports for a non-profit and for-profit hospital
The government regulators in US that demand financial information include the Federal Housing Finance Agency (FHFA), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) and Financial Stability Oversight Council (FSOC) among many others. The OCC is a prudent regulator of the bank; SEC is the regulation of the Securities and Exchange Commission. Again, the FHFA is essentially the regulator of other actions and the FSOC is the coordinating forum. The primary objective of the financial regulator is to gain information regarding the confidence of the market, stability of the business, regulation regarding the foreign participation and decrease in the financial crime.
The for profit organizations and the not for profit business concerns have different goals and objectives and both of them need to design the financial models that can the organizations to thrive. The policy of no margin and no mission can help the nonprofit organizations to gain admittance to professional guidance so that the organizations can explore new ways to develop organizations with different revenue sources. This in turn can sustain and at the same time extend the capacity to perform good activities in the society (Horngren et al., 2012). With increase in the profit margin of an organization, the corporation can extend the entire mission and purpose of the organization. Therefore, the initiative is all about igniting interest in total income earned, exploring opportunity, distributing as well as connecting different experiences and planning. The initiative of no margin and no mission can help in the implementation of income earned policies in the non-profit business concerns throughout different areas. The statement “no margin” refers to the fact that the owners having no profit margin do not have any mission (Horngren et al., 2012). The objective of the margin in the wider context of the mission of Blue Sky is to manage different resources that the company is entrusted with for sustainable development. Again, the enhancement of the margin of Blue Sky can also be carried out by the process of establishment of predetermined goals founded on long-term solvency, plant and equipment impairment techniques, recruitment and benefits of the employees. The development of the margin can thereby help in the achievement of the mission of the corporation.
The reimbursement for the blood draw the “fair market value” as it provides an estimate of the market value of a particular property based on what well-informed, willing purchasers can pay to knowledgeable, eager and unpressured sellers in a specific market. The fair market value is considered in this case as the probable price at which the enthusiastic purchasers can purchase from the willing sellers at the time when both are un associated, knows the pertinent facts and is neither under any kind of compulsion to purchase or sell (Weil et al., 2013). However, the fair market value is generally for the tax assessment as well as court awards. The HDL is S Corporation, a limited liability corporation that follows the US tax laws where the liability for the tax is borne by the shareholders of the corporation. The company used to make payments to doctors for the blood sample tests. However, the company stooped making the payments after the generation of the alert from the US Department of Health and Human Services that signaled a considerable risk of fraud. The HDL also put forward the argument that it fairly compensated the doctors for drawing the blood samples that is for the labor cost involved in the activity. The company has argued that it has paid the fair market value for the entire process involved in handling the blood sample that includes vial labeling, cooling and shipment coordination among many others. The payment or the reimbursement is in fair market value as the terms of agreement is established in advance. The aggregate compensation is steady with the fair market value in different arms length transactions and is not set in a manner that takes into consideration the volume or else the value of any kind of referrals generated between different parties. The reimbursement for drawing the blood sample is therefore, considered to be in fair value as the purchaser paid to well-informed, willing and unpressured seller in the specific market. The company HDL made payments to the doctors for the blood drawing as per the contracts to which they willingly agreed. Therefore, the fair market for the reimbursements for the blood draw is completely justified in this present case. The estimate of the fair market value is justified, as the notion is subjective owing to different state of affairs, places, time, and existence of different comparable precedents and analysis of principles of different individuals involved.
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Maher, M. W., Stickney, C. P., & Weil, R. L. (2012). Managerial accounting: An introduction to concepts, methods and uses. Cengage Learning.
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