Financial Analysis for Major Medical Center Case Study
Public Financial Management
Introduction
The paper examines the auditor’s opinion letter for Major Medical Center and Hospital Support, Inc. The report of the independent auditors seeks to instill confident on the various stakeholders. This paper also analyzes the financial statements and review notes and any concerns. Lastly, the paper will evaluate the financial statement of Major Medical Center and Hospital Support, Inc.
Auditor’s Opinion Letter
Auditing is an independent examination that is used to test the precision and completeness of information presented in a firm’s financial statement. The test enables the independent auditor or Certified Public Accountant (CPA) to give an opinion. According to Finkler, Steven A. et al. (2012), the opinion should check on whether the corporation financial statements denote its true pecuniary position and whether it has complied with the Generally Accepted Accounting Principles. The aim of auditing is to ensure that it offers an assurance to stakeholders on the true and fair view of the company as at a particular period.
To form an opinion, the auditor will request data from persons and institutions to confirm their bank balances, contractual obligations, amount contributed, and money owed to and by the firm. Also, the auditor needs sufficient disclosure in the financial statements through a review of the journal and ledgers, physical assets, and board minutes. In this case, the independent auditors have selected a model of the financial dealings to conclude whether there is appropriate documentation and whether there was correct posting of the transactions in the books. Further, they have interviewed key personnel to ascertain if there is adequate internal control system (ICS).
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The auditor has offered unqualified opinion. This means that the firm’s financial records are fairly and suitably presented in accordance with GAAP. The financial statement examined includes changes in net assets, cash flows, and balance sheet. The statement of the Major Medical Statement is free from any material misstatements. There is no disclosure of any material object that would make the auditor offer unqualified report.
Reviewing the Financial Statements
There are unusual items in the statement of financial position. First, the asset limited as to use is an unusual item. They are assets that their use is limited by agreements or contracts with outside parties other than grantors and donors. An example of such unusual items includes funds that are deposited by a trustee. Second, the pledge is unqualified aptitudes to offer cash and other assets as stated at their NPV at the date of receiving the promise. The gifts are classified as either permanent or temporary depending on the restrictions of the donors.
Thirdly, there is use of estimates in the preparation of financial statements in conformism with GAAP. It necessitates the management to make estimates and assumptions that affect the reported amount of liabilities and assets (Finkler, Steven A. et al. 2012). The estimate affects the reported figures of revenue and expenses during a specified reporting period. Further, the management believes that the figures are based on assumptions and estimates are reasonable and actual figure should not have material impact on the financial position of the hospital.
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Fourthly, there is the capitation fee in the preparation of healthcare accounting statements. The figure represents a fixed dollar amount of fees per person that is paid periodically by a third-party regardless of the type of services provided. Also there is a contractual adjustment, which is the variance between the gross patient service returns and the discussed payment by third party payers in arriving at net patient service proceeds.
Fifthly, there is an item termed as contingencies. It refers to a legal action that arises out of the usual course of its procedures. The final outcome of the process cannot be determined in exactness. The figure stated is material to the economic position of the Medical Center. The position of the healthcare is of the opinion that ultimate liability does not have a material effect on its financial position.
Review Notes and analyze any Concern
Note No. 9 (Professional Liability Insurance) – The Medical Center has collaborated with other facilities for insurance of professional liability. Captive insurance companies draw $2,000,000 from The Medical Center as deposits. In 2014, this deposit was replaced with an amount of $1,000,000 each. The deposit made by the healthcare is included in other current assets in the accompanying statement of financial statement in the year 2013. The management is accused of malpractices in excess of insurance coverage by numerous claimants. There are additional incidents that have occurred through December 31, 2014 that may lead to assertion of additional claims. The amount of $2,000,000 is material in the financial statement of the company. In case the graft claims are true, it may alter the opinion of the auditor due to its high level of materiality.
Evaluate Major Medical Center’s Financial Status.
The total operating revenue for 2014 is in excess of 2013 by $ 34,730 and there is increase in unrestricted net assets from $ 897 to $ 2,568. In the statement of financial position, the total current asset for the year 2014 has increased from $ 66,315 to $ 72,448. The property, plant, and equipment have also increased from $ 89,777 to $ 98,555. The result shows a significant improvement in the performance of the company. However, the total liabilities have increased from $ 129,509 in the year 2013 to $ 146,263 in the year 2014. In the cash flow system, the cash and cash equivalents at the beginning of the year 2013 is $ 8,201 but the health center closed the year at $ 9,005. Nevertheless, the cash and cash equivalents in the year 2014 has reduced from $ 9,005 to $ 8,065. This may imply that there is a financial misappropriation or simply the financial period was marred with difficulties.
Conclusion
The paper has examined the auditor’s opinion letter for Major Medical Center and Hospital Support, Inc. The report of the independent auditors seeks to instill confident on the various stakeholders. In the opinion of the auditor, the financial statements have been prepared in accordance with GAAP. There is no material fact that has been misappropriated to render the accounts as being false. Thus, the auditors have provided a clean bill on the reports by giving unqualified report. This paper has also analyzed the financial statements and review notes and any concerns. The notes have highlighted on a claimant about $2,000,000 that is said to have been misappropriated by the management. Lastly, the paper will evaluate the financial statement of Major Medical Center and Hospital Support, Inc.
Reference
Finkler Steven A., Thad Calabrese, Robert Purtell, Daniel Smith (2012). Financial Management for Public, Health, and Not-for-Profit Organizations, 4th Edition. Pearson Learning Solutions. VitalBook file.
