Understandability and Transparency of the Financial Statements of ...

6.5.1 Professional standards
NZICA members must comply with their Code of Ethics (New Zealand Institute of
Chartered Accountants, 2003a) in particular Rule 11 paragraph 102 which states:
Members who are involved in, or have responsibility for, the preparation or
presentation of general purpose financial statements should take all reasonable
steps within their power to ensure that generally accepted accounting practice is
complied with.
Hence, it is a requirement that NZICA members involved in the preparation of the
financial statements of charities must take all reasonable steps to ensure GAAP is
followed. However, the reality is that the majority of charities‟ financial statements do
not comply with GAAP (Simpkins, 2004). Even though charities may sometimes have
limited resources to prepare accounts this does not provide sufficient justification for
NZICA members to observe lesser standards of professional performance (Moores &
Kelly, 2006).
This study found several instances where accountants did not keep current with GAAP
and relied on their numerous years experience rather than utilising current accounting
principles which were illustrated by the following interviewees:
We had a Finance Manager for 27 years who was a CA. Very competent and
very methodical, but keeping up to date with the profession wasn‟t top of his
priorities. And I suspect if you went back and looked at probably any
organisation 20-27 years ago, they would have assets and liabilities that weren‟t
recorded, and revenues and expenses that were not recorded. So it‟s probably
only in the „90s, early „90s when sort of the mood changed that everything
should be in [the financial statements]. (Interviewee 11 T/B/A)
I said because you haven‟t revalued your land and buildings. And they said we
don‟t intend to. And it‟s the policy of the national Treasurer not to revalue land
and buildings in their national accounts because they‟ll look too rich. And I was
[pause] this guy is a chartered accountant. I was absolutely staggered.
(Interviewee 12 M/A)
And I thought it [donated asset] should be in our books. And, the accountant just
said no, there‟s no cash transaction here. (Interviewee 15 M/B)
This lack of compliance with GAAP has gained national attention through the media
which have exposed charities who have not been valuing donated goods and services in
their financial statements as seen by the following:
There‟s a huge amount of extra value that we don‟t have to pay for that‟s not
receipted in our accounts, because that is all donated and we don‟t show that.
(Television New Zealand, 12 August 2009)
There were other instances where accountants „hid‟ behind terminology so as to obscure
charities‟ financial statements, thereby limiting stakeholders‟ effective use of them in
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