Understandability and Transparency of the Financial Statements of ...

(Interviewee 18 A)
Several interviewees attempted to justify the lack of recording of donated assets, as can
be seen in the following quotations:
I haven‟t recorded the donated ones because most of them were all quite minor
donations. (Interviewee 23 T)
But in fact we would always acknowledge those donations [pause] within the
end of year accounts with the list [many charities attach a „thank-you‟ list to
their financial statement which lists who and what, or how much, people have
donated]. (Interviewee 36 T/B/A)
In New Zealand the lack of recording donated PPE has been highlighted in the media:
Now donated goods aren‟t included as part of the accounts of the organisation,
and sometimes there‟s a false impression that might be given. (Radio New
Zealand, 27 August 2009)
Contrary to this view were other interviewees who consider it is important to ensure the
financial statements reflect the assets of the organisation:
I think there is a need for people to clearly communicate what‟s not costed and
in the accounts if they can. (Interviewee 18 A)
So we take it in as an asset, it goes into [the interviewee‟s charity‟s] books. It
scares me when they [other charities] don‟t [record the donated asset]. XXX used
to donate XXX a year. It meant that we didn‟t expend, but initially they weren‟t
taking it as an income, but it‟s an asset. I mean, it comes in. We expend on that
because XXX expects to get hospitality packages and things like that. So you‟ve
got to have an in and an out. (Interviewee 29 M/B)
Whilst most charities tended to comply with GAAP regarding PPE that they purchased,
this was not true with regards to PPE that were donated. There were two views
regarding this, the first complied with GAAP and considered that the financial
statements should reflect reality, i.e. all PPE recorded, whether bought or donated. The
second did not want to look „rich‟ by having too many assets. GAAP does not
distinguish between how PPE were acquired, i.e. either bought or donated, but focuses
on all material PPE needing to be recorded appropriately, which with donated PPE is by
fair value, which will be considered next.
6.3.2 Fair value
Fair value is defined as the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm's length transaction (Gillingham & Yeoh,
2007). PPE should be valued at fair value. With limited specific guidance as to what
constitutes fair value charities have come up with their own determination of what
constitutes fair value for donated PPE noted by:
We‟ve taken a fairly simplistic approach of donated fixed assets - of what would
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