Understandability and Transparency of the Financial Statements of ...

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With regards to justifying taxation forgone there currently is a regulatory gap between registered charities that are exception monitored, to ensure compliance with their charitable purpose, and other charitable organisations, where no monitoring exists apart from those detailed in Chapter Two (Section 2.6.2 Taxation Agencies), which are currently not being utilised. For example, only approximately 10,000 charitable trusts registered out of a total 15,000 charitable trusts on the register meaning that 5,000 charitable trusts currently do not have to justify the activities of their charitable organisation or even justify their financial spending. A media report fifteen years ago highlighted the problem of lack of monitoring and this is still a potential problem: A 42% leap in charitable trusts in five years, and the lack of official vetting of their accounts, has charities worried that trusts are being used as vehicles for tax dodges. There is no hard evidence that this is the case. But neither the Inland Revenue Department, nor the Justice Department administering these Charitable Trusts Act, can be sure there is no widespread abuse of the tax-free status that comes with registration as a charitable trust. Charitable trusts appear to have escaped the close scrutiny that accompanies company accounts because government officials have faith in their charitable purpose. (Booker, 1995, p. 3) To take the lack of active monitoring wider, whilst the Charities Register contains 24,319 charities (Charities Commission, 2009d) Statistics New Zealand estimates that there are approximately 97,000 NFPs (Statistics New Zealand, 2007) most of whom would have either been granted donee status or given income taxation exemption. So why is it important for there to be a culture in New Zealand of justifying taxation forgone? Statistics New Zealand considers that NFPs contribute 4.9% of New Zealand‟s gross domestic product (GDP) and that NZD1.9 billion of NFP‟s income relates to donations which constitutes a potential taxation liability of 33% of the total (Statistics New Zealand, 2007). Currently, there is limited accountability on whether these organisations are utilising funds to their NFP or charitable purposes and consequently are deserving of the taxation benefits. There is a need for the public to feel confident that money that could otherwise be spent on the „public purse‟, for example health and education, is being utilised for charitable purposes. This chapter has highlighted the need for legislation to be backed up by appropriate monitoring of charitable organisations, which will be discussed next. 164
7.3 Monitoring As discussed in Chapter Two there is an assumption that the people involved in charities are trustworthy and hence charities are free from traditional oversight, as the commitment of their shareholders were thought sufficient to produce positive results (Mueller et al., 2005). A survey commissioned by the England and Wales Charity Commission found that a large part (88%) of trust in charities is based on an „inherent belief‟ in charities being altruistic and thus trustworthy in nature, rather than any rational knowledge on how they operate (Opinion Leader Research, 2005). Opinion Leader Research (2005) identified that there was a lack of oversight and limited knowledge over how charities are managed. They considered that this “suggests that trust in charities could be based on shaky foundations and that it is potentially vulnerable to the same kind of decline seen in trust in the public and private sectors” (Opinion Leader Research, 2005, p. 23) . To have support in case the inherent belief in trustworthiness is unfounded, there is a need for both external and internal monitoring of charities. Externally, the most common form of monitoring is conducted by the Charities Regulatory Body, in New Zealand‟s case the Charities Commission. Internally, the Charity‟s Board can pay a part in oversight either personally or by ensuring assurance is performed on the charity‟s financial statements. Finally, the charity themselves may choose to implement some internal controls to ensure operational activities are strengthened. Before going further, an explanation is needed of the monitoring bodies identified in Chapter Two and where, if at all, these will be analysed. Rather than focusing solely on the monitoring aspects of charities‟ funding bodies and rating agencies these will be considered in Chapter Eight in relation to the wider view of reporting to stakeholders and how this can be transparent and understandable for all stakeholders. Monitoring by taxation agencies is covered in this chapter in relation to justification of taxation forgone. Next, monitoring that takes place by the Charities Commission is investigated. 7.3.1 Charities regulatory bodies Cullen et al. (2001, p. 33) in their report entitled „Tax and charities: A government discussion document on taxation issues relating to charities and non-profit bodies‟ bemoaned the lack of monitoring in the charities sector: Apart from random Inland Revenue audits and the provisions of the Charitable Trusts Act, there is no process for monitoring whether [charitable] entities are pursuing the charitable purposes for which they were set up. 165
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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
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general public (Charity Commission,
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assumes the other is monitoring the
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performance reporting rather than f
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appropriate performance information
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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
Page 149 and 150: „selling a story‟ makes them fo
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 and 172: The lack of professionalism must be
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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 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
Page 203 and 204: None of the above reasons includes
Page 205 and 206: Charities Commission publication
Page 207 and 208: achieve an appropriate level of per
Page 209 and 210: more effectively in order to increa
Page 211 and 212: eneficiaries‟ needs are met is an
Page 213 and 214: As well as setting aside reserves,
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Page 219 and 220: eyond financial health to include
Page 221 and 222: 8.4.4 Prescribed performance report
Page 223 and 224: impact they have on their beneficia
Page 225 and 226: statements, but also other mechanis
Page 227 and 228: compare different charitable organi
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Page 231 and 232: 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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