Understandability and Transparency of the Financial Statements of ...

substance to the rumour. As Ken Berger, the Chief Executive Officer of Charity
Navigator, said in an interview:
People typically give from the heart and if they don‟t use their head, their heart
is going to get broken. (Social Solutions, 2009)
England and Wales‟ Charity Commission considers that a charity‟s reputation is a
“precious commodity and losing it can impact not only on an individual charity but on
the public‟s confidence in the charity sector as a whole” (Charity Commission, 2009a,
p. 11). Thus if a charity‟s reputation is tarnished by bad media reports there would be an
immediate impact on the level of donations. This was seen last year in New Zealand
where it was widely reported that Epilepsy New Zealand had received only 2% of
donations paid to one fundraising organisation - the Epilepsy Foundation (McCracken,
2009, 26 July). Epilepsy New Zealand had done nothing wrong, as they did not have
control over the Epilepsy Foundation. Even through the Charities Commission
investigated the Epilepsy Foundation and found no evidence of fraud, this did not
improve Epilepsy New Zealand‟s reputation in potential donor‟s eyes (McCracken,
2009, 6 December). This lead to Epilepsy New Zealand being forced to cut services due
to a donor backlash, after the publicity led to a dramatic lowering of donations
(McCracken, 2009, 6 December).
The need for balance when considering donation-making between using your head, by
utilising financial statements or other useful information, and relying on the heart is
highlighted by Ken Berger of Charity Navigator:
Sometimes a charity can provide you with a compelling story about what they
do, but there may be little more than that when you look deeper. In other words,
they have little or no evidence that they are truly helping others. (Berger, 2009,
19 October, p. 1)
This section examined the problems with donors just relying on emotive reasoning, i.e.
heart-strings, in their donation decision. There is a need to balance this donation-making
choice between the „emotive‟ and the other aspects including the „financial information‟
aspects of the donating decision. Part of this is achieved by ensuring that the financial
information, in the form of financial statements, is as good as it can be, which is
considered in the next section.
8.2.4 Financial statements ‘don’t tell the full story’
A phrase that has gained in popularity in the charities sector relates to the need for
charities to „tell their story‟. The importance of this is seem by the New Zealand
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