Understandability and Transparency of the Financial Statements of ...

useful for smaller organisation and for smaller grants (Interviewee 24 B).
Unfortunately, limiting the success of reviews is the confusion of reviews with the term
audit, as this interviewee found:
Oh, no, no, well we always use the term audit, but we mean review. And I said
well, you know, that‟s really dangerous. (Interviewee 3 AT)
This study revealed many examples of inadequate professional standards shown by
accountants acting in the role of auditor. Issues included: a lack of independence from
auditors; problems with financial statements not being picked up by auditors either
previous or current; and a lack of understanding of the charity by the auditor. Of
particular concern were auditors who were producing poor quality audits leading to a
lack of value seen by charities in having an audit, apart from the fact one was needed for
funding purposes.
The foundation of auditing is a requirement to be independent. Without independence,
the purpose of the auditor performing an external verification on the financial
statements is not achieved (New Zealand Institute of Chartered Accountants, 2003a).
One tenet to maintaining independence is that auditors must not prepare the financial
statements, which is contrary to the experiences of some charities:
That [balance sheet] was created by [the auditor] because I couldn‟t, I didn‟t
even know where to start to create a balance sheet, so the auditor actually did it
for me. (Interviewee 7 T)
The auditor has done it [value land and buildings], I have not had any input into
it … but these figures that he‟s just churned out. I would expect an auditor to
highlight that sort of thing to me. I wouldn‟t expect to be able to gain that for
myself. For me, I‟m thinking that seems strange but again, one would have to
trust in the value of the profession, and his professional standards that this is
acceptable practice. (Interviewee 21 MT)
In many small charities the auditor may be the only person capable of preparing the
financial statements, so as one interviewee put it this leads to “Auditors telling charities
how to do their accounts” (Interviewee 1 A). Hence their role becomes an accounting
role rather than an audit role and no independent, external verification is achieved.
Palmer, Isaacs and D‟Silva‟s (2001) United Kingdom study found problems with the
calibre of auditors. They found that over a third of their sample had non-compliant
accounts, which were signed off by auditors who claimed to have expertise in charity
auditing. An earlier study found similar results in New Zealand where 76% of charity
auditors did not identify audit failures (Newberry, 1992).
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