Understandability and Transparency of the Financial Statements of ...

Charities Commission publication „Telling your story through non-financial reporting‟
(Charities Commission, 2010c).
A particular limitation with charities‟ financial statements is its focus on inputs, of both
funds and resources i.e. costs, rather than utilising the financial statements to tell the full
story. If charities decide that their financial statements are the main tool for
communicating with stakeholders, then it makes sense to ensure they are transparent
and understandable. If charities don‟t focus on the financial statements, then the
question arises; who really reads the financial statements? In New Zealand, the financial
statements of charities were previously not widely circulated. This is no longer the case
with the financial statements of registered charities being easily available on the
Charities Register.
The limitation of financial statements can be seen in how charities report to their donors
and funders. Often, charities do not send their regular donors their financial statements,
but rather they send them a newsletter outlining stories of how the donors‟ money has
made a difference, without supporting this with financial statements. This is highlighted
by the following interviewees:
We have a quarterly kind of a newsletter we send. Now that is our regular
communication with our donor base, and it will always carry information about
what happened in the last quarter, things we did, the results. (Interviewee 9
BM)
There‟s no formal reporting on any kind of regular basis about that [financial
information]. But five times a year a newsletter goes out that‟s very much more
in a personal style, just talking about what‟s happened. (Interviewee 11 BTA)
The importance of using stories, rather than financial statements, to demonstrate what
the charity is doing is supported by the following two interviewees, both in their charity
role and their role as a donor to other charities:
When they [the charity] had a look at where the people were going [on their
website], nobody was going to the financial accounts at all. They were all going
to the stories of how people‟s lives had been changed and the good news stories
and all those sorts of things. Nobody was interested in the financials. The
financial statements don‟t tell the story of the organisation. (Interviewee 5 BA)
I am a contributor to probably a dozen organisations. I know the people, I know
the organisations, I do receive their narrative and story based newsletters. I
know what they‟re doing, and at the level I‟m prepared to support. That‟s good
enough for me. (Interviewee 11 BTA)
The use of newsletters and stories, rather than financial statements, to report to donors
indicates that financial statements have become increasingly irrelevant when charities
are reporting to their donors. As Interviewee 29 (MB) says “you can‟t read much into a
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