I have to Reply to at least two of My classmates (appx. 150-250 words).

My class is Accounting for Healthcare OrganizationS.

Discussion Board – Module 1

(Introduction to Key Financial Statements- Chapter 5) The outside reading article entitled, ?Clear as Glass? by Robert M. Valletta, briefly discuss the information in the article and relate it to financial information that you are currently receiving (Department Budget Reports, Dashboards, Financial Reports etc.) and comment on how the data can be improved.
(Valuation of Assets and Equities- Chapter 6) Briefly discuss the challenges that are faced by users of GAAP valuation methodology (based on historic cost) are encountered when using this financial data for insurance coverage, sale of Physician practices and equipment replacement?

I have to Reply to at least two of My classmates (appx. 150-250 words).

My first classmate Discussion.

1- . The outside reading article entitled, ?Clear as Glass? by Robert M. Valletta, briefly discuss the information in the article and relate it to financial information that you are currently receiving (Department Budget Reports, Dashboards, Financial Reports etc.) and comment on how the data can be improved.

Clear as glass article is focused on the significant need of hospitals and health systems to have transparent financial disclosure. And by being transparent in financial reporting, means the healthcare setting is more responsible for presenting the financial performance to the community same as it is done with clinical quality results. They need internal controls to reduce the level of complexity throughout the organization by creating standardized processes. Nontransparent financial reports give a blurred picture of financial position of the organization and therefore, they don?t serve as valuable information in which decision-making process should be based on. According to ?Clear as Glass? article by Robert Valletta, to be transparent, financial information needs to be easily accessible, timely, content-rich, and narrative. However, achieving the transparency is a challengeable goal in healthcare associated with complexity of the healthcare delivery system, voluminous process and transaction, and inefficient way that technology is used for operations. The article suggests that not-for-profit hospitals and health systems should report detailed financial information quarterly. Regarding attesting the accuracy of financial reports, non-profit organization should implement internal processes to assist officers in certifying the accuracy of financial materials. In addition, internal controls or audits are essential in achieving accurate financial reports and reducing the complexity within finance department and throughout organization. However, these internal controls should be well defined and formally established in order to avoid confusion and miscommunication, since different people may have different meanings for internal controls, and assessment of internal financial controls should be included in organization?s annual report. Every non-profit health care setting needs to have transparent policy guidelines which are readily available and not based in hospital charges. The transparency of budget reports, financial performance dashboard, financial reports, is a great indicator for an expert to evaluate opportunities for future investments, because of simplicity and transparency in financial reporting.

Reference:

Valletta, Robert (2005). Clear as glass: transparent financial reporting. Journal Of The Healthcare Financial Management Association. ISSN: 0735-0732, 2005 Aug; Vol. 59 (8), pp. 58-64, 66.

2. Briefly discuss the challenges that are faced by users of GAAP valuation methodology (based on historic cost) are encountered when using this financial data for insurance coverage, sale of Physician practices and equipment replacement?

The GAAP requires the use of historical cost information for some assets, and fair value accounting, replacement cost and net realizable as other assets methods of assets evaluation. Each method is chosen based on information needed for specific decision-making process. Historical cost accounting is well-defined and verifiable, and it stays fixed as long as the entity owns the asset. However, the biggest disadvantage of that makes obsolete historical cost value is inflation (Jianu, 2012).

Under historical cost, expenses with inventory and amortization from operating profits are undervalued. The lack of synchronization between elements putted at historical cost and the present value, causes an increase of price without a real basis. In addition, historical cost is outdated and cannot be used to realistically predict future cash flows related to assets based on cost at the time of acquisition. Therefore, the historical cost method is not the most accurate method when it comes to insurance coverage, physician practice sales and equipment replacement. Another disadvantage of historical cost is that it can be used to manipulate the figures on depreciation in order to increase the useful life of an asset. In that case, the company will overestimate its income, as it can be more attractive to investors.To determine the value of assets, the valuation method that provides the most useful information, should be selected.

References:

Jaijairam, Paul (2013), Fair Value Accounting vs. Historical Cost Accounting. Volume 17, No.1

Munteanu, Victor and Zuca, Marilena. Debate Regarding Measuring Accounting Value: Historical Cost against Fair Value. Academic Journal of Economic Studies. Vol. 1 (4), pp. 91?102,

My second classmate Discussion.

Finance executives face increasing scrutiny by numerous agencies and stakeholders as finance is an important part of modern healthcare whether in for-profit or non-profit institutions. Since such institutions depend on donors and others, transparency is crucial in efforts to inspire confidence among its benefactors This makes it imperative for non-profit institutions to reveal their financial records to ensure transparency and accountability in their financial management and practices (Valletta 1). While our budget reports, dashboards and financial reports are accurate and well organized, they could be better managed in terms of transparency and security. This could be done by following GAAP more closely.

In Database design for mere mortals, the author makes several useful suggestions on how financial data in medical institutions can be improved (Hernandez ch. 5). One method highlighted is accrual accounting as opposed to solely cash accounting. The former offers greater benefits as it is less open to manipulation and better in determining profits made from patient care.

Operating statements may be better than cash flow to establish the profitability of a firm when collecting financial data. Better adherence to these financial practices would bring our data into accordance with widely recognized norms.

GAAP uses acquisition or historical cost in asset valuation, which results in inaccuracy due to inflation since the latter affects prices of assets such as land. For example, an asset which was initially valued at $110,000 might remain so in the balance sheet despite its actual value being $10 million due to inflation, creating a disparity in valuations. This does not show a true picture for insurance purposes. Thus, unlike international standards, GAAP is inflexible and unsuitable in cases where asset valuation has been altered by inflation.