Introduction
Generally accepted accounting principles refer to the accounting standards that lay the procedure and method of operations in the larger accounting discipline. In the preparation of accounting information and data, the process ought to be guided by an inclusive framework that essentially encapsulates accounting principles. It should be appreciated that the generally accepted accounting principles do not necessarily give the substantive rules rule procedure; rather, they give the guidelines of operations. The paper briefly discusses some of the essential generally accepted standards and their relation to healthcare finance and reports.
Consistency
Consistency refers to the application of a definite procedure and methodology for a period of time. In accounting circles, operations and reporting can assume different methods. It is required that that one method be consistently applied. This helps in the synthesis and analysis of accounting information for purposes of consumption. In healthcare finance, consistency would help in the gathering information of trend and patterns for purposes of decision making and planning. The general practice in the accounting field is that when accounting methodologies are changed, it ought to be precisely stated so in an absolute sense.
Materiality
The principle of materiality relates to the accounting and reporting for items in the statements of accounts such as the income statement and the financial position statement. Materiality concept demands that all that is substantial or substantive enough to reasonably affect the position or state of accounts ought to be recognized. The mischief that this principle intends to avoid is the oversight of a crucial item that would threaten to reverse the financial or otherwise position of the firm. In healthcare finance, materiality would entail the reporting and accounting for every item of consideration such as expenses incurred, incomes earned and related transactions. The fact that the system did not envision the incurrence or earning of the items does not justify non accountability or non-reporting.
Prudence concept
Prudence implies professional skepticism and economic reality. In that token, prudence requires of the accountants to recognize any likely expense or liability. It is for prudence that contingencies arise in the statement of accounts. In addition, prudence demands for any likely losses to be recognized and any likely incomes to go unreported. In a sense, prudence requires that the accounting process assumes a skeptical approach in regards to reporting. In healthcare finance, prudence would find application in the blanket approach to reporting and accounting for items on a transactional basis. It would be required of reporting to capture all likely expenses and contingencies and not report any likely gains and incomes unless and until they are received.
Going concern concept
The going concern concept as a principle is also known as the continuity principle. This principle assumes continuity of the existence of the firm and its operations. As such, the going concern concept requires of the accounting process to be captured in reporting with the background understanding that the transactions would be in continuity. It is required that preparers of accounting statements in the first instance ascertain the going concern before assuming that approach in the reports. Otherwise, the accounting rules and procedure for a firm that has failed the going concern test is different from the normal accounting reporting procedures. The spirit of the going concern is to inform the third parties of the developments in the firm. A glimpse into the financial statements should inform third parties of the position and affairs of the firms.
Going concern is a serious issue in accounting. In fact, external auditors are often required to perform two main functions. One is to ascertain the going concern of the firm. Secondly, they are required to confirm the true and fair position of the firm’s statements of accounts. Going concern concept also informs consumers of the financial information of the liquidity position of the firm, the state of operations and the intended duration of service. In healthcare, the going concern principle would be applicable in the preparation of financial information for consumption by related parties. In an ideal healthcare environment, the going concern would essentially affect patients, doctors, suppliers and workers in the institution.
Full disclosure
This principle dictates for the complete and entire disclosure of transactions in their fullness. Accordingly, transactions should be captured fully and entirely. The step by step processes in the transactions ought to be reported. This principle mirrors some aspects of the materiality principle. In that vein, all material and relevant information on an itemized transaction ought to be reported. The spirit in this principle lies in the need to entirely report on transactions. In healthcare, full disclosure could be applied in the transactional recording of events and items. The guiding factor ought to be the full and accurate reporting and recording of transactions entertained during a financial period in the healthcare set up.
Matching concept
The matching concept principle is referred to as the periodicity principle in some circles. According to the principle, each and every transaction should be related singularly and entirely to its relevant period. Accordingly, the expenses incurred, and the incomes earned in a given financial year should be recognized during that year and not transferred into other years. In healthcare finance, matching concept could be applied in the relation of items to their relevant years of incurrence or earning.
References
Racine, S. F. (2010). Accounting Principles. New York: Read Books Design.
Weygandt, J. J., & Kimmel, P. D. (2010). Accounting Principles. New York: John Wiley and Sons.
