Compare the two types of accounting functions.
The two types of accounting functions in the health services sector are financial accounting and managerial accounting. While both types of accounting are used to manage financial information, they serve different purposes and have unique aspects.
Financial accounting:
Financial accounting focuses on reporting and analyzing financial information to external parties such as investors, creditors, and regulatory bodies.
It Generally follows Accepted Accounting Principles (GAAP) and is subject to audit by external auditors.
Financial statements such as balance sheets, income statements, and cash flow statements are prepared using financial accounting.
The objective of financial accounting is to provide accurate and timely information for external decision-makers to make informed decisions about the organization’s financial health.
Managerial accounting:
Managerial accounting focuses on providing financial information for internal decision-making and planning purposes. It does not follow GAAP and is not subject to external audit. It involves creating budgets, forecasts, and other financial reports to help managers make informed decisions about the organization’s operations. Managerial accounting considers qualitative factors such as customer satisfaction, employee morale, and organizational culture to make strategic decisions (Rikhardsson & Yigitbasioglu, 2018). Managerial accounting aims to provide relevant and timely information to managers to help them make informed decisions about the organization’s operations.
In summary, financial accounting is focused on external stakeholders and compliance with GAAP, while managerial accounting is focused on internal stakeholders and providing decision-making support to managers.
Describe how the accounting functions affect operational oversight.
The accounting functions of a company play a critical role in providing operational oversight, ensuring that a business’s operations are efficient, effective, and aligned with its strategic goals. Here are some ways in which accounting functions affect operational oversight:
Budgeting and forecasting:
Making projections and budgets is one of accounting’s primary duties. The financial objectives of the business are outlined in these documents, along with a plan for achieving them. Accounting can assist in identifying possible issue areas and allocating resources appropriately by analyzing financial data and projecting future revenue and expenses (Rikhardsson & Yigitbasioglu, 2018). This facilitates management’s ability to allocate resources intelligently, which is crucial to practical oversight.
Financial analysis:
Financial analysis, which is the process of reviewing financial data to evaluate performance and spot improvement possibilities, is a service provided by accounting. Accounting can pinpoint areas where expenses are high or revenues are low and offer suggestions for how to improve operations by analyzing financial statements (Offodile II et al., 2021). This supports management’s decision-making about operational adjustments that may result in expense savings, revenue growth, or increased effectiveness.
Internal controls:
Internal controls, which are rules and practices intended to stop theft, mistakes, and other financial irregularities, are another area where accounting is crucial for the creation and maintenance of internal controls. Accounting supports management by ensuring financial data’s accuracy and avoiding expensive errors. Additionally, internal controls encourage transparency and responsibility, which are necessary for efficient operational oversight.
Compliance:
Accounting ensures the business adheres to tax laws and financial reporting regulations. By doing this, management can better keep stakeholders’ trust while avoiding financial and legal repercussions. Operational supervision must include compliance because it reduces risks and guarantees the business keeps to the law and ethical standards.
In conclusion, a company’s financial operations are essential for ensuring operational oversight. Accounting assists management in making informed choices, streamlining operations, and reducing risks by offering budgeting and forecasting, financial analysis, internal controls, and compliance. This encourages effectiveness, efficiency, and alignment with the business’s strategic objectives.
How do these unique features affect the financial management of the sector?
Due to its complicated regulatory environment, high uncertainty level, and distinctive healthcare delivery characteristics, the health services industry is exceptional in many ways. As a result, this industry’s financial administration calls for specialized knowledge and experience. Here are some distinctive features of health services and how they affect money management:
Systems of reimbursement:
Intricate payment programs like Medicare and Medicaid, commercial insurance, and self-pay clients frequently pay for health services. Healthcare providers must adhere to specific rules and laws set forth by these payment systems, and noncompliance can result in severe financial penalties (Rikhardsson & Yigitbasioglu, 2018). Due to the complexity of these payment systems, financial management in the health services industry needs specialized knowledge of them.
The environment of regulation:
Many federal and state rules and regulations regulate every aspect of the health services industry, from patient care to billing procedures. Financial management faces particular difficulties in this regulatory environment because it must adhere to complex reporting regulations and guarantee proper billing procedures.
Clinical complexity:
Healthcare delivery is highly complex, requiring careful management of numerous clinical processes and protocols. The need to allocate costs correctly across various clinical departments and services is just one example of how this complexity can present difficulties for financial management. Providing high-quality patient treatment is highly valued in the health services industry. Therefore, financial management in this industry must strike a balance between the need to guarantee quality outcomes and the need to control costs.
The health services industry has particular needs for financial management in terms of accounting functions. Healthcare providers, for instance, are required to precisely track costs and receipts for each patient contact, which calls for specialized accounting procedures like activity-based costing (Langfield-Smith et al., 2018). Furthermore, healthcare workers are subject to detailed reporting requirements, like those set forth by Medicare and Medicaid, which call for specialized accounting procedures.
A healthcare provider’s financial operations significantly impact operational management. Accounting can identify areas where costs are high, or revenues are low and offer suggestions for how to improve operations by correctly monitoring costs and revenues. Additionally, accounting can assist in making sure that complicated reporting requirements are complied with, which is necessary for efficient business oversight.
The complex reimbursement systems, highly regulated environment, clinical complexity, and focus on quality of care are some of the distinctive characteristics of the health services sector, which necessitates specialized knowledge and expertise in financial management (Langfield-Smith, et al., 2018). In order to provide practical oversight and guarantee adherence to regulatory requirements, accounting functions are crucial. Therefore, financial managers in the health services industry must have a thorough grasp of the distinctive financial challenges faced by healthcare providers and the capacity to create strategies that strike a balance between cost control and the delivery of high-quality patient care.
References
Langfield-Smith, K., Thorne, H., & Hilton, R. W. (2018). Management accounting: Information for creating and managing value. Sydney: McGraw-Hill Education.
Offodile II, A. C., Cerullo, M., Bindal, M., Rauh-Hain, J. A., & Ho, V. (2021). Private equity investments in health care: an overview of hospital and health system leveraged buyouts, 2003–17. Health Affairs, 40(5), 719-726.
Rikhardsson, P., & Yigitbasioglu, O. (2018). Business intelligence & analytics in management accounting research: Status and future focus. International Journal of Accounting Information Systems, 29, 37-58.
write