Last Updated 10 Aug 2020

Accounting Principles and Ethics

Category Accounting
Essay type Research
Words 875 (3 pages)
Views 437

Management of healthcare organization faces many challenges nowadays and in order to retain descent and credible reputation healthcare managers should pay more attention to generally accepted accounting principles and ethical issues, especially in the filed of financial management. Generally accepted accounting principles or GAAP is defined as the standard framework of key guidelines for financial management including standards, rules and conventions which accountants are to follow.

Ethics is defined as a standard of human behavior that offers how to act in many situations with friends, family members, employees, business people, professionals, etc. Ethics nowadays is moral standards which are enforced by social pressure, law and police. It is necessary to state that GAAP and ethics are interrelated as GAAP promotes sincerity and honesty in financial statements as well as ethical norms and values.

GAAP is claimed to be very important for financial management of healthcare organization. Robert Beuerlein in the article “General Accepted Accounting Principles: Implementation Issues” stresses that accounting principles should be implemented in every organization as that insure that financial statements of this or that organization are reliable. Moreover, it means that Income Statement and Balance Sheet are prepared in accurate and logical way and provide real picture of organizational financial position. It is necessary to underline that GAAP was developed depending on a number of factors. (Beuerlein, 1996)

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Stephen Zeff in his research “Evolution of US Generally Accepted Accounting Principles” argues that GAAP is the result of the following trends: emergence of international organizations and conglomerate enterprises, volatility of markets, arrival of post-industrial economy, etc. (Zeff, 2006) Therefore, GAAP ensures that all accountants refer to the same method making the audit processes easier and organizational financial position more transparent. In healthcare organizations GAAP simplifies regulation, control, and governance. Principle of sincerity is very important in financial management as it aims at reflecting the faith reality of organizational financial position.

Principle of permanence ensures that financial information is coherent and compared with previous fiscal period. Healthcare financial management has to show full details of financial information instead of compensating revenue with expense or debt with asset. GAAP makes financial managers not to show the reality prettier that it is. It means that managers should record revenues or expenditures only when they are certain. Both Beuerlein and Zeff in their papers agree that GAAP provides apparent benefits for financial managers and I think that financial managers in healthcare organization should place GAAP as top priority as it gives them an opportunity to function more effective, to save time and to ensure that financial reports are credible and reliable. (Beuerlein, 1996)

Ethics is applied to all aspects of healthcare delivery including nursery and even financial management. Ethics represents individual conscience, individual judgments and principles called ethical values. Ethics incorporates norms of conventional morality to distinguish ‘wrong’ behavior from ‘right’ behavior. Generally, ethical norms suggest honesty, truthfulness, fairness, integrity, justice and respect for others. Bill MacKinnon in his address “Ethics and Financial Reporting: Delivering on the Commitment” argues that ethics in finance plays important role as it aims at ensuring fair deals and transactions.

MacKinnon stresses that ethics in financial management addresses corporate governance, and agency relationships which should be purely contractual. In financial sphere, ethical behaviour should be based on carrot-and-stick approach. Healthcare organizations should promote ethical financial management to avoid the most common occurrences: fraudulent financial dealings, corruption within organization, influence peddling, cheating customers about their insurances and benefits, unauthorized transactions, misuse of customer funds in order to obtain personal gain, etc. (MacKinnon, 2003)

Ethical codes are very important in financial filed as they set standards of acceptable behaviour, fair dealing and honest relations with customers. Ethical codes in finance tends to replace egoistic paradigm and to create such system which would promote honesty, altruism and virtuous traits. The article “Code of Ethics for Financial Professionals” by Merrill Lynch stresses the importance of ethics in financial management and says that financial accountants must conduct their professional affairs in consistent manner following ethical standards and guidelines.

In healthcare organizations all financial managers are expected to promote ethical and honest standards, ethical handling of conflicts, etc. Moreover, financial information should be protected and financial managers are to protect confidentiality of financial reports preventing unauthorized disclosure of such information. (Lynch, 2003)

Further, ethical financial management promotes fair and accurate disclosure in reports and documents following GAAP. Managers are expected to act with due care and in good faith, as well as their work should reflect prudence, competence and diligence. It is not ethical to misinterpret material facts and to allow independent judgments or decisions. Healthcare financial management should, of course, comply with governmental regulations and laws.

Merrill Lynch argues that “financial professionals should facilitate the work of the Company's independent public auditors and shall not, directly or indirectly, take any action to fraudulently influence, coerce, manipulate or mislead independent public auditors”. (Lynch, 2003) Ethics plays crucial role in healthcare financial management as it sets favourable working atmosphere and professional behavioural patterns.

References

Beuerlein, Robert. (1996).General Accepted Accounting Principles: Implementation Issues. Record, 22, 3, 2-24.

Lynch, Merrill. (2003, October). Code of Ethics for Financial Professionals. Retrieved March 23, 2008, from http://www.ml.com/?id=7695_8134_8305_6090

MacKinnon, Bill. (2003). Ethics and Financial Reporting: Delivering on the Commitment. Retrieved March 23, 2008, from www.kpmg.ca/en/news/documents/Speech20030227.pdf

Zeff, Stephen. (2006). Evolution of US Generally Accepted Accounting Principles. Retrieved March 23, 2008, from www.iasplus.com/resource/0407zeffusgaap.pdf

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Accounting Principles and Ethics. (2018, Nov 11). Retrieved from https://phdessay.com/accounting-principles-and-ethics/

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