Understandability and Transparency of the Financial Statements of ...

what should be included in charities‟ annual reports (Charity Commission, 2009b).
However, a recent study found that a disappointing 36% of English charities contacted
did not fulfil their statutory obligation and provide a copy of their annual report upon
request (Connolly & Dhanani, 2009). Despite this, the annual report is recognised as a
key document in the discharge of accountability to upward stakeholders (Connolly &
Hyndman, 2004; Flack & Ryan, 2004; Steccolini, 2004).
The role of annual reports in the Australian charities sector was specifically investigated
by Flack (2007b). In Australia, information on charities and their accountability is not
available to the general public or to the Australian government, due to their current
regulatory environment (Flack, 2007a), although Flack (2007b) reinforced the
importance of the annual report in discharging accountability.
Annual reports are primarily aimed at upward, rather than downward stakeholders as
well as the public at large, even if, as with the financial statements previously
mentioned, they are not read by stakeholders (Connolly & Dhanani, 2009). This was
supported by Steccolini (2004) whose study on Italian Local Government found that
annual reports are used to discharge accountability to stakeholders, even when it is not
clear that they are actually read.
However, Connolly & Dhanani‟s (2009) recent study found that annual reports play a
limited role in discharging accountability unless the financial information is
substantiated with non-financial narrative information. Connolly & Dhanani (2009, p.
61) found that the content of the annual report “is driven by what makes a „good story‟
or an „interesting read‟ ” rather than by ensuring transparent accountability. This was
also supported by Connolly, Hyndman and McMahon‟s (2009) study which found that a
range of sector-related publications (Charity Commission, 2004; Connolly & Hyndman,
2003; Opinion Leader Research, 2005) encourage a „story‟ approach to reporting
focusing on the performance of the charity. In line with this, the use of performance
reports as an instrument of accountability will be analysed next.
5.4.1.3 Performance reports
Performance reports are reports that provide primarily non-financial information of the
achievement, or otherwise, of charities‟ objectives (Controller and Auditor-General,
2008). Lee & Fisher‟s (2007) study of the Australian Public Sector considered that they
added an extra dimension to the discharge of accountability by identifying the need for
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