Financial competence is very important for healthcare leaders and organizations in today’s everchanging industry. Financial stability is a key indication of an organization’s success. Consistent financial reporting by healthcare organizations allows trends to be captured and evaluated. Without account trends, there is no way to know how to respond to financial challenges.
“Financial accountability ties directly to the organization’s mission, vision, values, and strategy in order to achieve mission-advancing financial performance: a balanced scorecard outcome” (Menaker, White, & France, 2020). There are three financial reporting statements that provide the overall health of an organization These reports include: balance sheet, income statement, and cash flow summary.
The balance sheet is a summarization of the organization’s assets, equity, and liabilities. It basically indicates what the organization’s net worth is. The balance sheet provides information on how the organization is performing.
Next financial report is the income statement. This report provides both revenue and expenses incurred. It is a way to trend expenses and revenue over time. These values are what provides the bottom line.
Lastly is the cash flow summary. This report summarizes and explains what the sources and use of cash are. This includes from operating, investing, and financing activities. It identifies where cash payments are made, which can assist in determining what the organization’s requirements are for cash to run the business.
Menaker, R., White, R. J., & France, T. J. (2020). Principal principles: Critical accounting and financial concepts for healthcare leaders.
Financial reporting is basically a process in which a company or organization discloses its financial information or performance over a period of time, typically on a quarterly or an annual basis. Accountability is one word that comes to my mind as I research on this discussion topic. When an organization is able to give account of all its financial activities, it shows a high level of responsibility because it helps the company measure its viability and sustainability. Financial reporting should be adopted by health organizations of all kinds – public, private, for profit, not-for profit, etc., so that they can keep up with their financial condition or status.
Furthermore, they can make reasonable comparisons between the years, and that could guide them to determine the progress made so far, and the areas that they need to improve on. “If a company is experiencing a downward trend line in financial performance, a greater potential for continued adversity exists for that company than for a company with lower immediate earnings, but with a positive financial trend line” (Galasso, 2001). A prudent way to avoid this is to maintain consistent and meticulous financial reporting. It may also behoove healthcare organizations to generate a balance sheet. “Although balance sheets may seem cumbersome to maintain, they’re critical to have when you’re evaluating the financial strength and solvency of your business” (Nicholson & Venkateswaran, n.d.). A balance sheet gives a summary of an organization’s expenditure, assets, liabilities and net assets.
Another benefit financial reporting affords an organization is ensuring that the organization is in compliance with the law. The Sarbanes-Oxley Act, a Federal act that was passed in 2002 following a number of accounting misconducts, also addresses financial reporting in that it emphasizes the need for accountability and transparency. As much as this act alleviated fraudulent activities thereby favoring investors, there were complaints that it didn’t favor smaller companies. A report completed by the US Securities and Exchange Commission (SEC) in 2006 revealed that small-scale companies with a market value below $100 million paid a sizeable amount in compliance fee than their large-scale counterparts. The steep fee resulted higher retention of profits for large-scale companies at the expense of small-scale companies. Consequently, start-up companies were met with the strain of bridging the fee margin (What is the Sarbanes-Oxley Act?, n.d.).
CFI. (n.d.). What is the Sarbanes-Oxley Act? Retrieved January 28, 2022, from https://corporatefinanceinstitute.com/resources/kn…
Galasso, J. (2001). Health section news. Society of Actuaries. Retrieved January 28, 2022, from https://www.soa.org/globalassets/assets/library/newsletters/health-section-news/2001/arch-3/hsn-2001-iss41-galasso.pdf
Nicholson, E. & Venkateswaran, A. (n.d.). For a Picture of Your Organization’s Financial
Health, Check Your Balance Sheet. Retrieved January 28, 2022, from https://www.healthcarenewssite.com/newsletters/wa-…
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