Understandability and Transparency of the Financial Statements of ...

Actively moving assets into another organisation, such as a charitable trust, previously
„hid‟ them from public eye. However, with the advent of the Charities Register it is now
more transparent, if charities keep similar names, whether charities have both
incorporated societies and charitable trusts. It will be interesting to see whether the
common practice of separating the money into a trust become less utilised.
The question remains as to whether New Zealand needs to follow Australia‟s route in
prescribing a specialist legal structure for all NFPs, including charities (Productivity
Commission, 2009). Yes, there may be more transparency than that afforded by a
company and incorporated society, assuming the new legal form did not allow
distribution of assets or profits to individuals. However, unlike Australia with its
inconsistencies of legal structures across its many jurisdictions, New Zealand is,
fortunate, to have only one jurisdiction. The Charities Commission is trying to resolve
the weaknesses in company and incorporated societies‟ structures by ensuring that all
organisations applying for registration as a charity have three clauses in their
constitution, concerning: (1) that the organisation‟s purpose is charitable; (2) that all
monies must be used to advance its charitable purpose rather than receive private profit
for their shareholders or members; and (3) that a winding-up clause ensures any assets
the organisation has will be directed towards organisations with similar charitable
purposes (Charities Commission, 2006e).
So whilst the Charities Commission may be strengthening the legal structure of
companies and incorporated societies to make them more appropriate for a charitable
vehicle, this does not resolve the public perception that shareholders and members are
not appropriate for a charitable organisation. This was highlighted by Cullen et al.
(2001, p. 34) who considered that in relation to companies:
It is not always clear whether profits of commercial operations carried on by, or
owned by charities are distributed to the charitable purpose for which the entity
was established.
One interviewee compared the three very succinctly:
Your options for organisational structure were a limited liability company,
incorporated society, Charitable Trust or individual. Now, with the purpose of
trying to obtain public support for a cultural endeavour, a limited liability
company is a profit making company you know, benefiting the directors, so that
wouldn‟t work. Incorporated society is completely top heavy, needs too many
members and a complete pain in the arse. So a Charitable Trust is what we
opted for. (Interviewee 16 BTM)
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