Question

Discuss why notes to the financial statements are important, specifically for healthcare organizations. Research online (and cite correctly) financial accounting issues (scandals) that were identified in any organization (healthcare or non-healthcare). Provide the links to your findings so we can all review what you found.

Provide two examples of how notes to an organization’s financial statements may have helped to better clarify the ‘hidden information’ not evident on the statements themselves.

Answer 1

Notes to the financial statement present all such information which cannot be presented on the face of income statement, balance sheet, statement of cash flows and statement of changes in equity.

Typical notes to the financial statement are:

1. An introduction of the business outlining its legal status, its country of incorporation and the name of its parents if any and a statement about the company's areas of business and its operations.
2. A summary of accounting policies related to revenue recognition, inventories, property, plant and equipment, financial instruments, etc.
3. A schedule of property plant and equipment showing the addition and deletion of assets, related movement in the accumulated depreciation account and book value.
4. A breakup of cost of sales, selling expenses and administrative expenses.
5. A detailed disclosure of different classes of financial instruments and their related risks.
6. A breakup of the gross amounts and present values of lease obligations of the business.
7. A detail of transactions with related parties.
8. A detail of contingencies that may affect the business in future, for example legal proceedings against the business.

A description of major events that occurred after the balance sheet date, etc..so these notes on the financial statements carry big importance in understanding the internal and external growth of the industry.why these are so important for a healthcare orgnisation;

 Health care accounting and auditing is complex . Complexity is due in large measure to “patient service revenue” being provided by third-party payors . Competency in managerial cost accounting is critical for managers of health care providers.

financial accounting issues;

There are several issues that can lead to financial accounting problems. These include the elements of financial performance that a company tracks, the basis on which it records transactions, and the way it handles depreciation. In contrast, mathematical errors are unlikely to cause major problems thanks to the built-in checkpoints of double entry accounting.

One of the more simple sources of financial accounting problems is a failure to cover all three of the main types of financial documents. The first is a simple record of transactions, which is aggregated into a profit and loss account. The second is a record of cashflow, which does not always match up with transactions because of credit agreements and delayed payments; cashflow forecasts are also important. The third is a balance sheet, which lists the overall assets and liabilities of a company, effectively measuring its financial health. Not having all three of these documents in place can reduce the opportunities to identify problems with a company's finances and potential solutions.

Some financial accounting problems can be caused by inconsistencies in the basis on which the accounts are prepared. One such area is the decision whether to record transactions at the time of payment, or the time when goods or services are physically delivered. Not using the same basis for all transactions can cause confusion. This is particularly true where the payment takes place in one accounting period and the delivery in another.

Depreciation is another source of financial accounting problems. It is the accounting process used to take account of the fact that an asset loses value over time, such as how long it takes to physically wear out. Because depreciation has to be fixed in advance, it is effectively an estimation. Different methods can vary in how long the depreciation period is set for, the rate and pace of depreciation, and what, if any, final value is given to the asset. A company deciding on a depreciation method will often have to settle both legal accounting requirements and the rules set down by tax officials.

Perhaps surprisingly, mathematical errors are not a major source of financial accounting problems. This is because of the use of double entry bookkeeping in which each transaction is recorded twice, once as a debit and once as a credit. This involves looking at both sides of a transaction; for example, a store making a sale increases its cash balance, but sees a corresponding decrease in the value of its unsold stock. The double entry system means that over any period of time, the total value of entries in the credit column and the debit column should be identical. Checking this regularly for disparities can uncover errors quickly, before they cause major problems.

two examples are; 1.accounting policies are included in notes to financial statements.this may help to understand the accounting treatments which vary according to different policies the organisation may undertake due to strategical and economical changes.

2.schedule of property plant and equipment presented in the notes may help to understand how the depreciation, appreciation accounts in the company.