Understandability and Transparency of the Financial Statements of ...

which was set up in 2003. Charity accountability is discharged through disclosures on
the Charities‟ aims, objectives, activities, performance, and future plans (Dhanani,
2009). GuideStar UK looks only at the accountability practice of charities whose annual
income is greater than GBP25 million. GuideStar is considered credible because all
relevant information is sourced from the charities‟ annual reports. Additionally,
charities have the opportunity to update and amend the information. This needs to be
tightly controlled to ensure charities are not „improving‟ their information (Dhanani,
2009) .
As discussed in Chapter Two (section 2.6.4), in Australia and New Zealand there have
been recommendations to the respective governments that a rating agency be introduced
(Philanthropy New Zealand, 2006; Senate Standing Committee on Economics, 2008). It
is hoped that the establishment of a rating agency is actively supported by the
Government in these countries, as the accessibility of information in a consistent format
will go some way towards discharging accountability by ensuring transparent and
understandable information is available. This contrasts with the current situation in New
Zealand where the financial information available through the New Zealand Charities
Commission is in numerous formats, resulting in the Annual Return data being
inconsistent and incomparable and at times bearing no obvious relationship to the
financial statements attached to the Annual Return.
5.4.2.3 Assurance
One type of assurance - auditors are another form of accountability mechanism, as they
enhance the credibility of information disclosed in charities‟ financial statements by
providing an independent view of the financial statements. This was supported in the
study by Fletcher (2008) who found that all funders that were interviewed preferred
audited accounts and the key reason given for this preference centred on the reassurance
offered by an independent perspective.
New Zealand‟s Department of Internal Affairs‟ Community resource kit identifies four
types of independent monitoring of communities groups, such as charities, two of which
are audit related, in their publication „Community Resource Kit‟:
(1) Audit by a chartered accountant with a certificate of public practice;
(2) Audit by an accountant e.g. a retired accountant or an accounting technician;
(3) Review engagement; and
(4) Independent verification (Department of Internal Affairs, 2006 section 6, p. 8).
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