Understandability and Transparency of the Financial Statements of ...

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The New Zealand Institute of Chartered Accountants: The Institute supported me through the provision of a grant which allowed me to have my formal interviews transcribed and enabled me to travel to Christchurch and Wellington for additional interviews as well as assisting in the printing costs for all the chapter drafts. NZICA’s Not-For-Profit Sector Advisory Committee: I would like to thank all members of the committee for their support on my PhD journey. In particular I would like to thank Ross Rattray for putting my name forward to the committee, and Carolyn Cordery and Frank Claridge for their continual encouragement and support. The interview participants: This research would not have taken place without the goodwill and generosity of the anonymous participants in this study. I especially appreciated several interviewees‟ open candour which added such depth to my research and helped to illuminate the charities sector in all its glory – both positive and negative. Finally, my two main supporters – my husband Tim and my son Hamish. Hamish was three years old and one hundred centimetres tall when I started this journey. Now, he is fourteen years old and, much to his delight, taller than his mother. I am more grateful than words can express for how they have managed to put up with my idiosyncrasies, including working through the nights and weekends and at times being very preoccupied. Thank you both. xvi
Abstract Access to charities‟ financial statements has recently become possible in New Zealand due to the development of a Charities Register. However, the ability to discharge accountability through financial statements depends on the financial statements being transparent and understandable, which is not currently the case. This research focused on four complexities that impact on the transparency and understandability of charities‟ financial statements: the accounting basis; valuation of property, plant and equipment; fund accounting; and how charities report to stakeholders, in particular, the expenditure overheads ratio. The focus of this study was firstly, on gaining an understanding of what accounting treatments charities have adopted to deal with each of these complexities, but more importantly why charities chose these particular accounting treatments. This was achieved by conducting seventy-five interviews with eighty-four participants in the charities‟ sector, in order to understand why charities act as they do. This study determined there were three key reasons behind the choices that charities make in accounting treatment. The first relates to the poor knowledge of appropriate professional standards by accountants working in the charities sector. This lack of professionalism must be addressed by accounting professional bodies to ensure the integrity of the accounting profession is maintained. The second is the low level of financial literacy among preparers and users of charities‟ financial statements. There is a need for charities and their stakeholders, to understand charities‟ financial statements to ensure charities produce meaningful financial statements that can be utilised for decision making. Third, it is the aim of many charities to „look poor‟ as they seek to gain more funding. This impacts the accounting method charities use and so goes against the requirement for neutrality and freedom from bias when preparing financial statements. Accountability is seen as important for the charities sector in maintaining the confidence and financial support of the public by giving an account of charities‟ activities. For accountability to be successful it needs to be discharged. This study developed a charitable accountability model for charities to utilise in ensuring that accountability is appropriately discharged. This included the need for performance accountability where charities assess, and report on, their performance to ensure that they are making a positive difference in their beneficiaries‟ lives. xvii
Page 1 and 2: Understandability and Transparency
Page 3 and 4: CHAPTER 2: REGULATORY & CONCEPTUAL
Page 5 and 6: 4.3.3 Axiom 3 - The possibility of
Page 7 and 8: 6.6 Summary .......................
Page 9 and 10: Appendix One - Statement of Financi
Page 11 and 12: Abbreviations AASB Australian Accou
Page 13 and 14: Related Research Outputs The follow
Page 15: Acknowledgements My journey through
Page 19 and 20: CHAPTER 1: INTRODUCTION 1.1 Introdu
Page 21 and 22: More importantly the study will loo
Page 23 and 24: Unerman and O‟Dwyer (2008, p. 801
Page 25 and 26: adopted here is clarified, as the l
Page 27 and 28: March 1999. Further, a study by the
Page 29 and 30: those by: Vatter (1947); Anthony (1
Page 31 and 32: CHAPTER 2: REGULATORY & CONCEPTUAL
Page 33 and 34: (k) The erection, laying out, maint
Page 35 and 36: Before looking at the legal structu
Page 37 and 38: 2.3.4 Problems As with charity nome
Page 39 and 40: yet to be determined. This ensures
Page 41 and 42: per annum (Charities Commission, 20
Page 43 and 44: certain cases there will be concept
Page 45 and 46: The focus of the Charities Commissi
Page 47 and 48: Unlike incorporated societies, the
Page 49 and 50: 2.4.4.4 Future conceptual framework
Page 51 and 52: problems with New Zealand‟s regul
Page 53 and 54: This research seeks to identify if
Page 55 and 56: charities” (Charity Commission, 2
Page 57 and 58: statements in different documents t
Page 59 and 60: seek to identify whether a lack of
Page 61 and 62: In the international arena transpar
Page 63 and 64: elevance is compromised. The link b
Page 65 and 66: 3.2 Complexities in Charities’ Fi
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3.2.1 Accounting basis The „Accou
Page 69 and 70:
application of the appropriate GAAP
Page 71 and 72:
length transaction”. This definit
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There are four arguments against de
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Financial Accounting Standards Boar
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al., 2008; Newberry, 1992; Rees & D
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However, the notion of control is a
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Kilcullen et al., 2007b). Charities
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the amount of money spent on admini
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This research seeks to identify wha
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As a result of the literature revie
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the elements of the world, or rathe
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come about through the mutually sim
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Research reports from other organis
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clearer picture of the interviewee
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In England, Palmer and Randall (200
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APPROACHING PARTICIPANTS Within the
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availability of charities‟ financ
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As credibility was usually achieved
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clarifications. This approach was u
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to understand the meaning behind an
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analysis is both complete and impar
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subjective realities (Chua, 1986).
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To assure the study was dependable
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CHAPTER 5: ACCOUNTABILITY 5.1 Intro
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emphasis on the definition of accou
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supposition was that a lack of resp
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general public (Charity Commission,
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assumes the other is monitoring the
Page 125 and 126:
performance reporting rather than f
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appropriate performance information
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examiners and the Charities‟ Boar
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which was set up in 2003. Charity a
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Western Australia, all financial st
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The fourth level of independent exa
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What are the major areas of concern
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subset of good accountability pract
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Programme refers to a meeting of ob
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ecording property, plant and equipm
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Figure 6-2 Dimensions of Financial
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Because the [charity‟s] finances
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„selling a story‟ makes them fo
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that you can use it [the stove] for
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the organisation pay to have those
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contributors twice - first to fund
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There is a need to record restricte
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charity will have control of a seco
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of accountants involved in Charitie
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their decision making. One auditor
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Whilst the sample in this thesis is
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Another problem my study found was
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framework funders would not be able
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The lack of professionalism must be
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New Zealand‟s charitable purpose
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We have since February of last year
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analysis was done of the first comp
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Also the idea of members „taking
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The transparency of their organisat
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7.3 Monitoring As discussed in Chap
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Zealand] Statistics Department poin
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There was a sub-committee running [
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useful for smaller organisation and
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change and they‟re doing a good j
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problem that you‟ve [pause] we‟
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legislation and monitoring. Of part
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CHAPTER 8: PERFORMANCE ACCOUNTABILI
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In New Zealand both the Controller
Page 201 and 202:
what proportion of their charitable
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None of the above reasons includes
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Charities Commission publication
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achieve an appropriate level of per
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more effectively in order to increa
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eneficiaries‟ needs are met is an
Page 213 and 214:
As well as setting aside reserves,
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The important aspect of the propose
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Mostly they [the funders] are worki
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eyond financial health to include
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8.4.4 Prescribed performance report
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impact they have on their beneficia
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statements, but also other mechanis
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compare different charitable organi
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shock when their accounts are eithe
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9.4 Academic Contribution This rese
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Outcomes (Effectiveness) Figure 9-1
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Charities Register, of which thirty
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success in their activities. For as
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Ahrens, T., & Chapman, C. S. (2006)
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Australian Accounting Standards Boa
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Bradbury, M. E., & Baskerville, R.
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Charities Commission. (2009f). A sn
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commission.gov.uk/Our_regulatory_ac
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Cordery, C. J., & Baskerville, R. (
Page 251 and 252:
Eisenberg, P. (Ed.). (2005). Challe
Page 253 and 254:
Fremont-Smith, M. R. (2004). Pillag
Page 255 and 256:
Hui, D. (2006). Financial Reporting
Page 257 and 258:
http://www.ifac.org/Members/DownLoa
Page 259 and 260:
Maxwell, J. A. (1992). Understandin
Page 261 and 262:
http://www.nzica.com/AM/Template.cf
Page 263 and 264:
O'Sullivan, N., & O'Dwyer, B. (2009
Page 265 and 266:
Robson, C. (1993). Real World Resea
Page 267 and 268:
Television New Zealand (Writer) (27
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Appendix One - Statement of Financi
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Appendix Three - Semi-structured in
Page 273 and 274:
Appendix Five - Participant informa
Page 275 and 276:
Appendix Six - Transcriber’s Conf
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Heading 1 Heading 2 Heading 3 Prope
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