Understandability and Transparency of the Financial Statements of ...

Because the [charity‟s] finances are cash based … we don‟t use accruals. They
[Board members] tend to measure wealth as what‟s left in the bank. (Interviewee
6 T/B/A)
However, as well as differing from appropriate GAAP, several interviewees considered
that accounts were meaningless under a cash basis as illustrated by the following
quotation:
We use the financial reporting guide. You just cannot produce a meaningful set
of accounts when you‟ve got NZD80,000 worth of loans that you‟re obligated to
pay to somebody else, and it‟s not recorded anywhere in the accounts.
(Interviewee 11 T/B/A)
The need for the accrual accounting basis is supported by Connolly, Hyndman &
McMahon‟s (2009, p. 18) study, which found that funders were of the opinion that
financial statements prepared under an accrual basis were just “better accounts”
regardless of the size of the charity. This emphasis on the accrual basis is also
recognised in the recent review of financial reporting in New Zealand where the
suggestion is for charities to prepare accrual accounts if their operating expenditure is
greater than NZD20,000 (Accounting Standards Review Board, 2009).
6.2.2 Certainty of receipts
For those interviewees that prepared financial statements under an accrual basis, the
consideration of „certainty of receipts‟ was a key concern, particularly the issue of
pledges and bequests, and when best to record them in the financial statements. This
focus on certainty was illustrated by the following quotations:
I mean there‟s someone who says they‟re going to put $5 in the plate [collection
box in the church] every week and, you know, there‟s no way that you would
accrue that, because there‟s no certainty. So it does come down to that certainty,
because you couldn‟t hold someone to a pledge to put money in the plate.
(Interviewee 3 T/A)
A pledge is a pledge, it‟s a promise, you know. Accounting has to be real. And
people can promise, but at the end of the day they might not deliver.
(Interviewee 4 B/A)
I guess there are two accounting dimensions to that [receiving donations on a
regular basis]. One is the commitment that they make, and that‟s a relatively
loose commitment. There clearly would be no basis for us to recognise any
revenue, and it‟s just basically filling in a form and saying I‟ll do it. But we have
no basis to go back to them, and we have never ever gone back to anyone and
said, “You said you would and you haven‟t”. There is a moral obligation but no,
nothing that would meet the definition of recognition in terms of a liability.
(Interviewee 11 T/B/A)
This issue of certainty is seen in the media where appeals for monies end up with only a
limited amount received from that pledged and can be seen in the following examples:
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