Understandability and Transparency of the Financial Statements of ...

set of accounts” so there is a need to, as Interviewee 45 (BA) puts it, “find ways through
financial reporting to „tell the story‟ of the charity”.
If financial statements don‟t tell or support the story of the charity, then charities are left
with financial statements that don‟t reflect the activities of the charity. This was seen in
New Zealand, with the case of Kidscan, whose Chairman, in relation to their financial
statements, stated on national television that “there‟s a huge amount of extra value that
we don‟t have to pay for that‟s not received in our accounts” (Television New Zealand,
12 August 2009). In fact Connolly and Dhanani (2009, p. 5) consider that charities‟
financial statements play a limited role in discharging accountability as “they provide
little information about success, performance and impact”.
It is encouraging to see some chartered accountants actively encouraging their charity
clients to improve the quality of their financial statements as a communication tool, as
seen in Hayes Knight‟s client publication „Not-for-Profit News‟:
It is important that your annual financial statements are telling your organisation's
story; what you stand for, the good work you are doing, how well governed you are,
how well you manage and use your scarce resources, what you want to achieve and
why you need ongoing support to do this. (Hayes Knight, 2009, p. 1)
The Charities Commission‟s recent publication (Charities Commission, 2010c) „Telling
your story through non-financial reporting‟ highlights the growing need for charities to
report on the results of their work in terms of what difference the charity is making.
This is a positive step by the Charities Commission, although, whilst the requirement
remains voluntary, many charities may choose not to heed the publication unless it
becomes a requirement or their donors start demanding it.
A study by Connolly, Hyndman & McMahon (2009, p. 12) found the value of reporting
on achievements, especially by utilising the „story‟ approach, where narrative
explanations are used to support the financial statements. They went on further to say
that there was a need to report on “performance outcomes rather than merely outputs”,
which will be discussed next.
8.3 Proposed Performance Accountability Framework
Some of the limitations of output reporting as a measure of performance accountability
were covered in the previous section, which highlighted the need to report on
achievement, i.e. outcomes, rather than outputs. This section proposes a new way of
reporting to stakeholders in a „three-pronged‟ approach (Figure 8-2) which should
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