Understandability and Transparency of the Financial Statements of ...

I want more transparency. I want it to be shown in the Profit & Loss or the
Income Statements, so that people can actually see that this is the income, this is
various categories of income, OK, and where this is tagged to, and then how it‟s
being used, and what‟s the left over, yes. (Interviewee 4 B/A)
So you‟ve got your general [fund] that‟s not tagged for any old thing, and then
all the other bits [restricted funds]… And there‟s a chance that your uninformed
reader might actually understand it [separating out restricted from unrestricted].
It‟s a bit more extra effort, [pause] and yet to my mind it‟s the most logical
presentation there is, so why do we not do it, Because it‟s too much effort. When
you go to all these funding bodies they say well how much money have you got
in the bank? Now, unless you can convince them that actually that money in the
bank can‟t be spent - You‟re stuffed. (Interviewee 14 M/A)
Other accountants had managed to separate out funds but were then beset with problems
relating to the lack of understanding of fund accounting reflected by the following
interviewee who was an auditor of numerous charities
We‟ve had good successes getting people to treat it [restricted funds]
appropriately in their balance sheet but the problem is that often times it will
just disappear from the balance sheet. Sometimes there‟ll be some restricted
amount and what we always try to do is to get our clients to clearly state that
[the restricted amount] via note. You try and convince them to do that [show in
notes] by virtue of the fact that it‟s a great way for them to thank the donors by
highlighting it that way. (Interviewee 18 A)
Contrary to the above auditor, other charities found auditors were not supportive of
restrictions being separately shown
Statement of uncommitted funds – some auditors accept some don‟t: why?
[They] can‟t see a problem with showing additional information. [The charity]
has a statement in notes. [Other] auditors, despite numerous discussions, were
not happy to include the statement. (Interviewee 45 B/A)
With regards to recording of funds, in particular, splitting them between restricted and
unrestricted, being able to see what was „freely available‟ aided several charities in their
assessment of financial viability. The issue of whether charities are financially viable
will be further considered in Chapter Eight. However, some charities, rather than
including funds in their own financial statements, recorded them into separate legal
entities, which will be examined next.
6.4.3 Separate entities
The final issue with fund accounting goes beyond how to record funds to the
consideration of the reporting entity and, where separate funds are recorded, which
funds should be consolidated into the charities‟ group financial statements.
The concept of control is the basis for determining which funds should be included in
group financial statements (International Accounting Standards Board, 2008d). A
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