Determining Financial Viability

Published: 2023-04-23
Determining Financial Viability
Type of paper:  Essay
Categories:  Psychology Literature Human
Pages: 5
Wordcount: 1154 words
10 min read
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Finance, accounting, and financial reporting structures are three different terms and processes, which are independent in business. They hold different meanings and use various tools to achieve their objectives. Finance and accounting are the commonly confused terms in business, and below are their differences.

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Finance

Finance is the science of productive investment or spending of funds. It is generally a more broad term which studies and evaluates capital markets and money along with the management and arrangement of funds to business (Holthausen, 2019). The primary aspect of finance is that the value of funds is not fixed and can change over time. Finance assists in budget analysis in selecting an ideal investment plan, which decreases a firm's risk factor. Finance is a portion of economics that focuses on resource management and allocation (Holthausen, 2019). Unlike accounting, finance focuses on issues relating to markets, banking, money, credit, and investment. Finance uses financial tools such as capital budgeting, working capital management, and risk analysis to study and understand the funds and capital markets of business for plans and strategies.

Accounting

Accounting, on the other hand, is the complete process of analyzing, interpreting, summarizing, identifying, classifying, reporting, and recording of the financial information. Accounting is an art of systematic transactions recording for proper track keeping of all financial statements on the accounting standards basis. With the assistance of the entity's financial statement, both tax audits and internal audits are performed at the end of the fiscal year (Holthausen, 2019). The financial statement developed is available to the public for everyone to read and view the position and performance of the business entity for a specified period. The financial statement is used by stakeholders such as employees, investors, debtors, lenders, creditors, and shareholders. Accounting uses tools such as cash flow statements, income statements, and balance sheets to give information concerning the company's solvency status to individuals who read the financial statement.

Financial Reporting Structures

Financial reporting is the revelation of financial reports and related insights to external shareholders such as regulators, investors, and customers as well as the company management about the performance of the firm over some time. Financial reporting structures are the tools used in disclosing financial reports (Holthausen, 2019). Financial reports are usually reported quarterly by the use of tools like the income statement, balance sheet, cash flow statement, and the statement of equity change.

How Finance, Accounting, and Financial Reporting Structures Work Together to Meet Financial Viability

Accounting, finance, and financial reporting structures are designed to systematically work together to meet the set goals of a strategic blueprint to achieve financial viability (Gelashvili, Pastor & Segovia-Vargas, 2018). To begin, it is vital to understand the definitions of these functions of business operations. Finance refers to activities related to operations funding, while accounting refers to tasks associated with analysis, recording, and reporting of financial data. Financial reporting structures refer to the tolls employed in disclosing the commercial information of a firm. The relationship between accounting and finance starts with their roles in a firm. Since finance uses accounting figures for analysis purposes, the two functions are inseparable and work for hand in hand to meet the financial viability of any firm. For example, finance analysts review accounting reports to determine the effectiveness and efficiency of business operations.

Accounting also depends on finance since it uses financial information from financing operations for recording and disclosing for firms to reach prudent decisions (Gelashvili, Pastor & Segovia-Vargas, 2018). The two functions (finance and accounting), therefore, deals with funds as a common characteristic, and how they deal with finance makes them unique and distinct. While finance deals with prudent decision making by use of the available monetary information, accounting is concerned with timely and accurate recording of monetary operations. Apart from decision making, other issues connect both finance and accounting. Budgeting is mostly done by finance professionals and highly reliant on accounting reports, which also makes both finance and accounting related.

Although finance encompasses budgeting for sensible allocations, finance experts must follow the advice given by the firm's accountants. Accounting has a restrictive component to finance in that it restricts budgeting per financial statements, which highlight the available resources in an organization that may be used for funding operations (Gelashvili, Pastor & Segovia-Vargas, 2018). Because of the mutual dependence between accounting and finance, there arises the need for coordination of the two functions for successful organizational performance.

Both accounting and finance functions are aimed at ensuring performance improvement in any organization. For productivity and performance, finance relies on accounting for the provision of reliable and accurate monetary information for decision-making. Accounting, on the other hand, relies on the finance function to make prudent decisions so that business entities can have a competitive edge (Gelashvili, Pastor & Segovia-Vargas, 2018). A great relationship and dependence on both the accounting and finance functions allow companies to achieve objectives set in the strategic plan and meet financial viability. It is the ability of an organization to create adequate income to meet working expenses, debt commitments, and allow business growth while upholding service levels.

How Finance and Accounting Meet Auditing Requirements

The Center for Medicare and Medicaid Services (CMS), governmental regulatory bodies, and other accrediting bodies need to have an assurance that monetary statements and reports of a business entity or organization are free of misstatement, whether created by fraud or error (Vanstraelen, & Schelleman, 2017). Both accounting and finance work hand in hand to meet the audit requirements of any accrediting body. In the healthcare industry, competition has intensified, and only organizations with proper coordination between the accounting and finance functions remain vibrant and thriving. CMS is generally focused on the provision of high-quality health services to the public, and its success relies on the competency of finance and accounting to meet the set audit requirements. With their interdependence, both accounting and finance functions must be error-free if the set audit requirements are met. The accounting function must provide accurate and reliable balance sheets, income statements, and cash flow statements, which the finance function uses to analyze risks, manage working capital, analyze ratios, and capital budgeting. If both the finance and accounting functions provide error-free reports, the set audit requirements are easily met.

Conclusion

Finance, accounting, and financial reporting structures are business functions that must work closely for higher organizational performance. Both finance and accounting work hand in hand to ensure business productivity. Although these functions have distinct objectives and tools, accurate and reliable reports from the two functions safeguard the productivity of a business as well as meeting the set audit requirements.

References

Gelashvili, V., Pastor, E. M. A., & Segovia-Vargas, M. J. (2018). The economic and financial viability of sheltered employment centers. Management Decision. https://eprints.ucm.es/49826/1/T40507.pdf

Holthausen, R. W. (2019). Accounting standards, financial reporting outcomes, and enforcement. Journal of accounting research, 47(2), 447-458. https://repository.upenn.edu/cgi/viewcontent.cgi?article=1260&context=fnce_papers

Vanstraelen, A., & Schelleman, C. (2017). Auditing private companies: what do we know?. Accounting and Business Research, 47(5), 565-584. https://www.tandfonline.com/doi/full/10.1080/00014788.2017.1314104

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