In my letter to you this month I thought I would share with you some of the work my team does at this time of year. Indeed, this is a very busy time for many of us – we have just completed preparing Bethany’s budgets for the year that commenced on April 1, and are now preparing for our external auditors to arrive to review and provide their opinion on the financial statements for the year that ended March 31, 2017.
I fear that some of you think that an accountant’s work is quite boring. I am pleased that the people on my team share my excitement and enthusiasm for working with numbers. Fortunately, we also enjoy working with and interacting with the other People of Bethany, so I thought I would explain some of the principles that we use in our work that can be applied to many of the things that we all do, both at our work and in our personal lives.
There are actually more than a dozen principles that are applied in preparing financial information. However, in the interests of space and time I only plan to mention three of the ones that I believe are most relevant in this analysis. They are:
Reliability principle. This is the concept that only those transactions that can be proven should be recorded. For example, a supplier invoice is solid evidence that an expense has been recorded. In our regular lives, I see this as the principle that we should only share information that we know to be true and accurate, and avoid spreading rumors or being too speculative.
Time period principle. This is the concept that a business should report the results of its operations over a standard period of time. This may qualify as the most glaringly obvious of all accounting principles, but is intended to create a standard set of comparable periods, which is useful for trend analysis. In our regular lives, I see this as the principle that we need to think of what we do, and how people should measure us, over a longer period of time than just one interaction. How long a period should be will vary for different circumstances. For example, it could be for a new employee’s probationary period, or for the duration of a resident’s stay at Bethany, or for the period a unit is in outbreak, or for the duration of an audit etc.
Materiality principle. This is the concept that you should record a transaction in the accounting records if not doing so might have altered the decision-making process of someone reading the organization’s financial statements. This is quite a vague concept that is difficult to quantify and sometimes difficult for people to understand. In our regular lives, I see this as the principle that we need to be flexible in how we determine how important things are to others. An example of this was told to me by a friend several years ago when their mother passed away at one of our care centres. When they went to pick up their mother’s belongings, the only item that was missing was one that held a high sentimental value to the family. If any other article was missing the family would have shrugged it off. However, the loss of this item was a significant and material loss for the family. This is what makes this principle so difficult – it requires that we understand what is important to others!
I hope that this information may help us all to recognize that, while the People of Bethany may come from very different backgrounds, we are really similar in our common desire for Creating Caring Communities.
As always, I welcome ideas, suggestions and any questions that you may have. Please feel free to send them to me at Alasdair.Smith@bethanyseniors.com.
Take care,
– Alasdair
P.S. For those of you who are interested (there may be a few of you) the other principles are: accrual principle, conservatism principle, consistency principle, cost principle, economic entity principle, full disclosure principle, going concern principle, matching principle, monetary unit principle, and revenue recognition principle.