Understandability and Transparency of the Financial Statements of ...

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CHAPTER 7: FIDUCIARY ACCOUNTABILITY 7.1 Introduction Following on from the previous chapter considering the professional accountability aspects of financial accountability, this chapter will look at fiduciary accountability (Figure 7-1). While performance accountability focuses on complying with GAAP, fiduciary accountability emphasises compliance with legislation and monitoring, which are of particular relevance to this study. Accounting basis Figure 7-1 Dimensions of Fiduciary Accountability In this chapter compliance with legislation, with an emphasis on the charitable purpose definition will be considered first. Then monitoring of charities will be analysed from different perspectives, including the role of journalists and charities‟ regulatory bodies. 7.2 Legislation This study identified three compliance issues that related to compliance with legislation: charitable purpose, charities‟ legal structure and justification of tax foregone. These will each be examined in turn. Professional Accountability PPE Fund accounting Financial Accountability Professional standards 7.2.1 Charitable purpose definition This study identified two issues relating to complying with the meaning of charitable purpose as shown in section 5(1) of the Charities Act 2005. The first issue relates to the narrow focus on poverty, education, religion and matters beneficial to the community, and the exclusion of purposes such as advocacy. The resulting need for monitoring to ensure the constitution of the charity is linked to its charitable purpose will be considered later in the chapter. However, the problem relating to the ease of starting charities, which has lead to the Charities Commission registering two charities with similar names, will be considered in this chapter. Fiduciary Accountability Legislation Monitoring 154
New Zealand‟s charitable purpose definition currently only has four „heads‟ (Chapter Two section 2.2). This narrow focus limits the public‟s understanding of the meaning behind charitable purpose, particularly in relation to advocacy, which is explicitly excluded as a charitable purpose under section 5(3) of the Charities Act 2006: To avoid doubt, if the purposes of a trust, society, or an institution include a non-charitable purpose (for example, advocacy) that is merely ancillary to a charitable purpose of the trust, society, or institution, the presence of that noncharitable purpose does not prevent the trustees of the trust, the society, or the institution from qualifying for registration as a charitable entity. The New Zealand Charities Commission conducted a survey (Charities Commission, 2008e) which determined respondents‟ knowledge about what constituted charitable purpose. Of those surveyed 64% thought that advocacy organisations such as Greenpeace were charities and 52% considered environmental advocacy organisations were also charities. This identifies a gap in the „charitable purpose‟ definition in New Zealand as any organisation that considers their prime purpose to be advocacy, i.e. the active support of their charity‟s mission or cause, does not meet the definition. Hence organisations such as Amnesty International (CC35331) have deemphasised the advocacy nature of the organisation. Their charity summary page on the Charities Register identifies their prime activity as undertaking research. Then follows six other activities, the last one being advocacy. Interviewees confirmed that perception with Interviewee 18 saying “It‟s an interesting public argument that one because the man in the street turns to Greenpeace as a charity, people go yes, it should be.” Also the Sensible Sentencing Trust was told that it was not beneficial to the community and that the trust's public role advocating for victims was not appropriate behaviour for a charity (Tapaleao, 2009). Several interviewees were scathing of this exclusion with Interviewee 12 representing their feelings that advocacy lies at the heart of the meaning of charity: Yes, well they‟re wrong there [advocacy not being a charitable purpose]. As long as it‟s not involving political, in other words supporting a particular political stance or anything else. That‟s what charities are for, that‟s why they exist. We don‟t just exist to get money to go spend it. You want it to actually bring about change. And you‟re the best ones at the coalface to know exactly what the root cause of the problems are. So of course you should go to government and say look, we know what the problems are and we suggest that maybe we look at … If you can‟t do that, then what‟s the purpose [of charities]? (Interviewee 12 MA) Australia has a similar problem with not including advocacy, and currently advocacy organisations there have banded together to support a charity group which was stripped of its favourable tax status because of its advocacy. This charity has won the right to 155
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Understandability and Transparency
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CHAPTER 2: REGULATORY & CONCEPTUAL
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4.3.3 Axiom 3 - The possibility of
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6.6 Summary .......................
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Appendix One - Statement of Financi
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Abbreviations AASB Australian Accou
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Related Research Outputs The follow
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Acknowledgements My journey through
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Abstract Access to charities‟ fin
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CHAPTER 1: INTRODUCTION 1.1 Introdu
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More importantly the study will loo
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Unerman and O‟Dwyer (2008, p. 801
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adopted here is clarified, as the l
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March 1999. Further, a study by the
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those by: Vatter (1947); Anthony (1
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CHAPTER 2: REGULATORY & CONCEPTUAL
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(k) The erection, laying out, maint
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Before looking at the legal structu
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2.3.4 Problems As with charity nome
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yet to be determined. This ensures
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per annum (Charities Commission, 20
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certain cases there will be concept
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The focus of the Charities Commissi
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Unlike incorporated societies, the
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2.4.4.4 Future conceptual framework
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problems with New Zealand‟s regul
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This research seeks to identify if
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charities” (Charity Commission, 2
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statements in different documents t
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seek to identify whether a lack of
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In the international arena transpar
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elevance is compromised. The link b
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3.2 Complexities in Charities’ Fi
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3.2.1 Accounting basis The „Accou
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application of the appropriate GAAP
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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
Page 121 and 122: general public (Charity Commission,
Page 123 and 124: assumes the other is monitoring the
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Page 129 and 130: examiners and the Charities‟ Boar
Page 131 and 132: which was set up in 2003. Charity a
Page 133 and 134: Western Australia, all financial st
Page 135 and 136: The fourth level of independent exa
Page 137 and 138: What are the major areas of concern
Page 139 and 140: subset of good accountability pract
Page 141 and 142: Programme refers to a meeting of ob
Page 143 and 144: ecording property, plant and equipm
Page 145 and 146: Figure 6-2 Dimensions of Financial
Page 147 and 148: Because the [charity‟s] finances
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Page 151 and 152: that you can use it [the stove] for
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Page 155 and 156: contributors twice - first to fund
Page 157 and 158: There is a need to record restricte
Page 159 and 160: charity will have control of a seco
Page 161 and 162: of accountants involved in Charitie
Page 163 and 164: their decision making. One auditor
Page 165 and 166: Whilst the sample in this thesis is
Page 167 and 168: Another problem my study found was
Page 169 and 170: framework funders would not be able
Page 171: The lack of professionalism must be
Page 175 and 176: We have since February of last year
Page 177 and 178: analysis was done of the first comp
Page 179 and 180: Also the idea of members „taking
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Page 183 and 184: 7.3 Monitoring As discussed in Chap
Page 185 and 186: Zealand] Statistics Department poin
Page 187 and 188: There was a sub-committee running [
Page 189 and 190: useful for smaller organisation and
Page 191 and 192: change and they‟re doing a good j
Page 193 and 194: problem that you‟ve [pause] we‟
Page 195 and 196: legislation and monitoring. Of part
Page 197 and 198: CHAPTER 8: PERFORMANCE ACCOUNTABILI
Page 199 and 200: In New Zealand both the Controller
Page 201 and 202: what proportion of their charitable
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Page 205 and 206: Charities Commission publication
Page 207 and 208: achieve an appropriate level of per
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Page 221 and 222: 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. (
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Eisenberg, P. (Ed.). (2005). Challe
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Fremont-Smith, M. R. (2004). Pillag
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Hui, D. (2006). Financial Reporting
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http://www.ifac.org/Members/DownLoa
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Maxwell, J. A. (1992). Understandin
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http://www.nzica.com/AM/Template.cf
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O'Sullivan, N., & O'Dwyer, B. (2009
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Robson, C. (1993). Real World Resea
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Television New Zealand (Writer) (27
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Appendix One - Statement of Financi
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Appendix Three - Semi-structured in
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Appendix Five - Participant informa
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Appendix Six - Transcriber’s Conf
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Heading 1 Heading 2 Heading 3 Prope
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