Understandability and Transparency of the Financial Statements of ...

ody, their Productivity Commission (2009, p. xxxiii) acknowledges the importance of
accountability: “There is a push for greater accountability by NFPs from governments
and the community”.
Of particular importance in the New Zealand charities sector is the notion of public
accountability, which arises when a charity receives money directly from the public
(Ministry of Economic Development, 2009d). It is based on the belief that the taxpayer
has a right “to receive openly declared facts that may lead to public debate by the
citizens and their elected representatives” (Governmental Accounting Standards Board,
1987, p. 2). New Zealand‟s Accounting Standards Review Board (2009) elaborates the
public accountability concept further by including the need for an assessment on how
that money is being used or managed. As proof of accountability‟s importance in the
charities sector, a recent bill „Fair Trading (Soliciting on Behalf of Charities)
Amendment Bill (2009, p. 1)‟ highlights that “Public accountability is an important
part of the credibility that enables people to donate with confidence”. Next, the
problems with accountability specific to the charities sector will be reviewed.
5.2.2 Accountability problems in the Charities Sector
The key problem with accountability in the charities sector stems from the notion of
public trust and the issue of identifying what is an appropriate notion of accountability
for charities. As Eisenberg highlights:
In a sense, nonprofits have nothing to sell but their integrity. If they undermine
that, they will be in real danger of losing their soul and the public trust that
sustains them. (Eisenberg, 2005, p. 159)
Accountability has thus become an increasingly important issue for charities given the
recurring scandals that have plagued the sector, as well as accusations that creative
accounting techniques are used to mislead funders (Khumawala & Gordon, 1997). Also,
there is growing concern, especially in Europe, that terrorists may use charities as a
vehicle to channel funds. This has led to the European Union developing policy steps on
counter terrorism and the prevention of financial crime in relation to not-for-profits
(European Foundation Centre, 2009b). Unfortunately, Connolly and Dhanani‟s
examination of English and Welsh charities‟ annual reports in 2000/2001 and
2005/2006 found that charity accountability appears to have weakened over time
(Connolly & Dhanani, 2009).
Connolly & Hyndman (2001) compared a country with a strong regulatory framework
(England) with a country with a less rigorous regulatory framework (Ireland). Their
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