You work for the leading healthcare group in your community named HealthCo Inc. In Module One Discussion Board Assessment, you appraised, evaluated, and discussed with your team members the relationship between health care costs and health care outcomes, placing those within the context of the political environment in the US. During this Module, there is a change to the composition of your team, and you are tasked with the responsibility to work on the company's financial statements and engage your new team members in the process.  

You overheard your CEO telling your CFO to provide her with the company's Financial Information. Your CFO approaches you to help him prepare for the Financial Reporting process. Given your competencies in the Health Care Accounting Class, you informed your CFO of the need to take a closer look at the financial statement so as to provide a complete scenario of the company's financial health. He appears to agree with you more so that the company's external auditors would examine the company's financial statements. Knowing that the external audit process is central to the financial reporting process, you cautioned him that audit failure could occur.  He sighed and wondered if you could help him to answer the following questions in detail.

Why do organizations prepare cash flow statements and operating statements?

Describe the difference between the Excess of Revenues over Expenses and the Increase in Net Assets without Donor Restrictions.

1. Evaluate and discuss reasons for audit failure.
2. The CFO will reward you graciously with 100 points towards your promotion, and that those points will be allocated to each of the three areas of expectations above as follows:
3. 25 points

25 points

50 points.

1. To appropriately guide you so that you can take full advantage of the point incentives/reward system, the CFO advised you to follow the company's document titled "Discussion Board Postings Rubric," as the HR Director would use that document to score your responses to the above questions. In addition to that Rubric, you are aware that the Organization always encourages you to feel free to contact other relevant materials that you may deem fit. You must cite and provide references for all materials used as appropriate.

 

Introduction

Financial statements have the utmost importance in a company’s progress and financial health, bearing in mind that they help in decision making, share dividends, pursuance of investors, performance measure, and employee output value (Fraser, Ormiston & Fraser, 2016). Financial statements include cash flows, invoices, balance sheets, ledgers, and many others. This paper will be focusing on the importance of cash flow statements and operating information, the difference between excess of revenues over expenses and increase in net assets, and finally, an evaluation of the reasons for audit failure. Having these three aspects in mind helps a financial accountant to be able to address all audit questions during the auditing process.

Why Organizations Prepare Cash Flow and Operation Statements

Businesses run out of capital even when they are still profitable because, without cash, companies can’t run. Drawing cash flow and operation statements are different from drawing profit and loss accounts; cash flow statements carry more significant weight on the analysis of cash within the company. There are four reasons why cash flow statements are most important to any company, regardless of the industry. They include;

Cash flow statements indicate where company cash goes and why. For instance, cash flow statements will tell of the principal money paid to the bank; the amount of money a company pays to the bank every month can deprive a company of a lot of cash, although the company's profit and loss accounts show significant profits. Cash spent on all fields in a company is laid down on cash flow statements, after which diagrams showing the money flow are drawn for comprehensive analysis. Extending more credit to customers and capital equipment is spending cash. These do not feature in the profit and loss accounts (Andreas, 2017).

Cash flow statements are essential in the pursuit of creating extra capital. Profits help generate more cash for any company, but money flows to aid in knowing what has consumed more cash than the rest and what things the company will reduce expenditure. For instance, paying less for equipment may help save money for other things. Cash flow statements and operations statements help develop better Key Performance Indicators than other financial statements (Liman & Mohammed, 2018). For example, aiding in developing more cash for an organization is a great KPI. Finally, economic decisions are one of the crucial and paramount aspects of running a business. Cash flows and operations statements help the executives of an organization in decision-making.

The Differences Between Excess Revenues over Expenses and Increase in NET Assets

Excess of revenues over expenses can be described as Net income. Net income is a significant key indicator of a company's profitability. Net income is calculated by subtracting (Cost of goods sold + Administrative expenses + income tax expenses). On the other lane, an increase in Net Assets can be defined as the equivalence of net profit on an income account/statement. An increase in Net Assets is used for financial reports of non-profit entities. However, the difference between the two is that excess revenues over expenses focus on operating activities, while the increase in Net income encompasses non-operating activities to owner's parity (Burkhanov, 2020).

Reasons for Audit Failure

Most businesses undergo auditing once a year despite having a significant effect on a company. Business' audit can fail due to reasons such as human error (regardless of the protocols installed, human error is standard and may influence the failure of a business audit), supplier compliance impairments (guesswork due to the inability of suppliers to comply with company rules and regulations), unpreparedness (the failure to have all documents required for auditing when auditing time clicks around) and failure to address risk factors (the most important thing is to avoid anything that could risk auditing) (Boyle & Keep, 2018). All these factors keep auditing failing until they are all addressed.

In conclusion, auditing is essential for company development as it addresses all the flaws in cash flow and operations statements to test the validity of all financial accounts.