Understandability and Transparency of the Financial Statements of ...

Zealand] Statistics Department point of view. And that comes from the Charities
Act 2005 which one of the ten or eleven things that they actually have to do is to
gather information about the population of charities in New Zealand.
(Interviewee 18 A)
Also, Annual Returns do not tell the full story about the charity, as shown in the
following quote:
Annual return forms for registered charities requires much financial
information, but little about whether the charity is achieving its mission -
outcomes. (Interviewee 25 M)
Further analysis of the Annual Return shows some serious weaknesses including the
absence of any reporting on the outcomes of the charities‟ activities (further investigated
in Chapter Eight). One has to question how the Charities Commission can use the
Annual Return to see if a charity‟s spending on activities is related to its charitable
purpose, given the limited transparency and understandability that this research has
identified in Chapter Six. Also, the Income Statement usually gives no indication of
what actual activities might have taken place, as expenses are reported alphabetically by
category, e.g. telephone, rent, etc rather than by activity.
Compounding this issue is the lack of quality in the actual completion of the Annual
Return by charities which was highlighted by numerous interviewees, but rather
eloquently by the following two interviewees:
The groups I work with, what they‟ll do is just give the whole form [Annual
Return] to someone they trust to fill it all in. And then they‟ll wave it in front of
the nose of the Chair of the Board and say “So and so says this is OK”, and
they‟ll scribble anything on it. (Interviewee 15 BM)
What will happen is … you kind of get to the stage where your job gets too hard.
You guess - that looks about right there, does it all add up? It looks good, yes.
Who‟s going to check it? The thing is, unless you can make something simple
and easy, you really are wasting your time because it‟s not the business of
charities to do all this stuff [filling in Annual Returns]. The business is out there
[Gestures to the outside world]. (Interviewee 28 MB)
This lack of care was seen by the researcher when reviewing the Annual Returns of
charities, to find that the accounting equation did not always hold true, i.e. assets did not
equal liabilities plus equity. This was compounded by the fact that the Charities
Commission has not yet incorporated any checks to highlight input errors.
Of particular concern is the large number of charitable organisations who have chosen
not to register and hence are not „caught up‟ in the Charities Commission‟s monitoring
„net‟. Nearly 33% of charitable trusts have chosen not to register, whether for a lack of
interest (as the next interviewee alludes to), or deliberately not registering due to the
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