Understandability and Transparency of the Financial Statements of ...

emphasis on the definition of accountability for charities must be on the need to be
responsible for one‟s action and the account is available to anyone who seeks to review
it. This leads to Fishman‟s (2007, p. 13) definition of accountability, which will be
adopted for this study, as it emphasises the link between charitable purpose and the need
to account for it:
The process by which assets devoted to charitable purpose are put to their
proper purpose and information about their use is made available.
This definition is supported by Unerman & O‟ Dwyer (2006b, p. 351) who consider that
the main purpose of accountability is
To provide mechanisms through which all those affected by an organisation‟s
actions can demand an account from the managers of that organisation
regarding how and why the organisation has acted in the manner it has.
Various accounting bodies from around the world have highlighted the importance of
accountability in financial reporting. In England, the Accounting Standards Board
(2007a, p. 12) considers that “Accountability to a public benefit entity's stakeholders for
the use of funds and the safekeeping of its resources is often of paramount importance".
In relation to the public sector, another not-for-profit sector, the United States goes even
further by considering that accountability is the paramount objective of financial
reporting (Governmental Accounting Standards Board, 1987).
As the charities sector plays such a rich and varied role in modern society, the sector‟s
continued success is dependent upon the public‟s trust and confidence in their work.
However, Palmer and Randall‟s (2002) study found that trust in the charities sector was
at an all time low. Their study found that 74% of the general public surveyed agreed
that there needs to be tighter control over the laws governing charity affairs and 41%
expected that money given to charities would not all go to the charities‟ beneficiaries.
This finding suggests that accountability is still of paramount importance in the charities
sector.
In England and Wales one of the Charity Commission‟s objectives is to “enhance the
accountability of charities to donors, beneficiaries and the general public” (Charity
Commission, 2009a, p. 3). New Zealand does not have a specific accountability
objective for their Charities Commission, but the Charities Commission publication on
what constitutes an effective charity included accountability as one of the seven
qualities of a charity: “An effective charity understands that the public has a valid
interest in it, and manages its accountabilities to its stakeholders” (Charities
Commission, 2009e, p. 3). Whilst Australia does not have a specific charities regulatory
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