Understandability and Transparency of the Financial Statements of ...

eneficiaries‟ needs are met is an important facet of a charity‟s future survival and must
be addressed. This is succinctly stated in the following quote from Ken Berger, the
Chief Executive Officer of Charity Navigator:
We must get past the notion of doing „good work‟ with no accountability. We
must get past the idea that nonprofits are too complex or unique to be measured.
The [charities] sector must get its act together and make sure it is really helping
provide meaningful change in communities and peoples‟ lives. It is life or death
for many of those we serve whether we are effective or not (Berger, 2009, 1
December, p. 3).
However, the final word is perhaps best left to an actual example of the focus some
charities put on their activities and measuring how they impact on their beneficiaries‟
lives. In New Zealand, Barnardos, a children‟s charity, consider that:
Our primary purpose is not about making a profit or just about the number of
children and families we work with. It is not even the quality of our services.
Rather, the primary purpose is about knowing that we are making the maximum
possible difference in the lives of New Zealand children. We are hoping that this
[outcomes reporting] will provide us with much more meaningful information
about the true difference achievable in the lives of children and families.
(Edridge & Lawless, 2007, p. 59)
8.3.2 Financial viability
As seen in Chapter Six section 6.5.3, charities are particularly concerned with how
donors and funders interpret their having a surplus (Clement, 2010). Some donors and
funders interpret a reported surplus as indicative of the charitable organisation not
needing further funds (Hayes Knight, 2010). However, this overlooks a charity‟s need
to be financially viable (Newberry, 1992, 1995b). Charitable organisations are
concerned that, in order to receive funding, they need to demonstrate financial distress,
which could be argued to be irresponsible to their beneficiaries by being too short-term
rather than providing long-term stability (Newberry, 1995b). This emphasis on „looking
poor‟ was recently highlighted by Hyndman (2008), who referred back to Bird and
Morgan Jones‟ (1981) statement that still holds true today:
Management is fearful that if it reports truly and fairly, its fund raising activities
will be adversely affected and therefore ways and means are found for tucking
away revenue and charging expenses which would not be tolerated in business
accounts. This results in an understatement of the surplus for the year or an
overstatement of the deficit. (Bird & Morgan-Jones, 1981, p. 196)
This New Zealand study found that several interviewees demonstrated a reluctance to
have money sitting around because this makes them look cash rich:
We sold the building and … I just invested it in the [bank]. Well that didn‟t look
good on our books. Every time we went for a grant application, „well why aren‟t
you spending your $300,000 on this?‟ (Interviewee 15 BM)
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