Understandability and Transparency of the Financial Statements of ...

television fund-raising telethons 35% received (Henderson, 2002); Boxing Day tsunami
10% received (Radio New Zealand, 12 January 2005); and Afghanistan appeal 40%
received (Anonymous, 2008d).
Another problem is the issue of when to record bequests when the charity has been
named in a will. Should monies be recognised when the will is settled or in probate, or
even when the person has died and the charity knows the sum that has been set aside for
them? Most interviewees who practised accrual accounting tended to look at bequests
on a case-by-case basis as each bequest tended to have its own particular circumstances.
People‟s wills, … there is a fund that gets a certain amount every year and they
could probably work out what it was going to be, but there was not ever an
attempt to accrue that, so that was an ongoing thing. And when people die, the
[charity head] might know that Joe Bloggs has died and left X amount of money.
But no-one tells the Treasurer so how can he accrue it? (Interviewee 3 T/A)
You‟re recognising when you receive the cash, well obviously because until we
open the envelope we don‟t know anything. Quite often the amounts aren‟t
known, we‟re just told that we‟re named [in the will], we don‟t know the
amounts so… you know the reliability of measurement is clearly not met.
There‟s no commitment and they don‟t know necessarily what‟s going to come
out of the woodwork in the estates. (Interviewee 11 T/B/A)
We have noted an increase in the bequests which are mainly from aged people
with property and leaving some of their property to a charity. [Our clients] are
extremely conservative when it comes to pledges. They don‟t want to count their
chickens before they hatch which I think is actually appropriate. We‟ve found
with a number of these ones where they have been left property, or part of a
property in a will the family has contested. (Interviewee 18 A)
The need to address the different circumstances of each bequest is recognised in the
NFPFRG which has eight examples of different bequests (New Zealand Institute of
Chartered Accountants, 2007a). The financial importance of bequests is highlighted by
one interviewee who comments:
These incomplete estates [bequests] were valued at somewhere in excess of
NZD20 million. So that is a resource of the [charity] that is entirely off the
balance sheet. (Interviewee 5 T/B/A)
With potentially such a material sum it is important that bequests are recognised in the
financial statements. The accounting treatment for the NFPFRG‟s eight bequests are to
either recognise the bequest as an asset if receipt is certain and recognise the bequest as
a contingent asset if receipt is uncertain (New Zealand Institute of Chartered
Accountants, 2007a).
In relation to pledges, it was pleasing to see a cautious approach taken when considering
the certainty of receipts by charities. This is at odds with the media, whose goal of
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