Understandability and Transparency of the Financial Statements of ...

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c. Do charities distinguish between funds that are restricted, i.e. funds must be used for a specific purpose, or unrestricted? Why? d. Where do charities show funds and reserves on the financial statements? e. Why do charities show them like that? REPORTING TO STAKEHOLDERS a. Do charities record the expenditure overheads ratio separately in the financial statements? b. If yes: Why do charities choose to separately record the ratio? c. If not: Do charities separately record administration and fund raising expenses so that the expenditure overheads ratio can be calculated? d. If yes: Why do charities separate the expenditure? e. If no: Why do charities not separate out the expenditure? f. If charities are not reporting their expenditure overheads ratio how are charities reporting to their stakeholders? This section has outlined the research question and the questions relating to the four complexities addressed in this study. The next section focuses on the specific justification for this study. 1.4 Justification for the research The NFP sector, of which charities are a significant part, has a large global presence. Confirmation of this is the United Nation‟s project being undertaken by Johns Hopkins Institute for Policy Studies (2003). This project is designed to develop a body of information about the NFP sector and as at November 2008 is taking place in forty-six countries. The United Nation considers that NFPs have a major economic presence in countries throughout the world and are increasingly becoming a focus of concern from policy makers, who have been looking for ways to improve the quality of services and reduce the size of government (Johns Hopkins Institute for Policy Studies, 2003). More specifically, the Association of Chartered Certified Accountants (2006, p. 2) highlighted charities‟ economic and political significance. The importance, in relation to New Zealand, is seen in the study conducted by the Office for the Community and Voluntary Sector (2008) who found that 2.7 million people out of a population of four million, donated time, money or goods to the charities sector. 4
Unerman and O‟Dwyer (2008, p. 801) highlight that there has been very little academic research into examining issues of accountability within specific non-governmental organisations, of which charities are a subset. This was earlier noted by Flack and Ryan (2004) who considered that there had been limited research on accountability, in particular, appropriate accountability discharge mechanisms. The importance of the sector, together with the lack of research conducted by previous researchers on the research question (section 3.2), justify the importance of conducting this research. As well, the recent proposals by the New Zealand Ministry of Economic Development (MED) and the New Zealand Accounting Standards Review Board (ASRB) to amend the Financial Reporting Act 1993 highlights the importance of gaining an understanding of why private NFP organisations, in particular charities, act as they do in relation to accounting treatments. The intended contribution of this study is to promote the development of charities‟ financial and non-financial reporting standards, either through the New Zealand Institute of Chartered Accountants or the Accounting Standards Review Board, and to specifically address some of the complexities in the financial statements of charities. Such development will go a long way to meeting the New Zealand government‟s goal of funders and donors using the financial statements of charities in their decision making as to where to contribute. The importance of quality standards was highlighted by Connolly, Hyndman and McMahon (2009, p. 37) who considered that: The widespread adoption of appropriate accounting and reporting practices has the potential to provide a basis for greater confidence in the control processes within charities and result in a more accountable and more legitimate [charities] sector. The next section presents an overview of the research methodology and methods used for this study. 1.5 Methodology This study is a qualitative inquiry into the accounting methods charities in New Zealand use. It seeks to gain a deeper understanding of the research, beyond what accounting methods charities use to examine why charities use those methods (Hill & McGowan, 1999). Of particular relevance to this study is the naturalistic paradigm, which is in line with the aim of this study: to understand the reasons charities act as they do in their natural setting in order to present reality as it is (Grimwood & Tomkins, 1986). 5
Page 1 and 2: Understandability and Transparency
Page 3 and 4: CHAPTER 2: REGULATORY & CONCEPTUAL
Page 5 and 6: 4.3.3 Axiom 3 - The possibility of
Page 7 and 8: 6.6 Summary .......................
Page 9 and 10: Appendix One - Statement of Financi
Page 11 and 12: Abbreviations AASB Australian Accou
Page 13 and 14: Related Research Outputs The follow
Page 15 and 16: Acknowledgements My journey through
Page 17 and 18: Abstract Access to charities‟ fin
Page 19 and 20: CHAPTER 1: INTRODUCTION 1.1 Introdu
Page 21: More importantly the study will loo
Page 25 and 26: adopted here is clarified, as the l
Page 27 and 28: March 1999. Further, a study by the
Page 29 and 30: those by: Vatter (1947); Anthony (1
Page 31 and 32: CHAPTER 2: REGULATORY & CONCEPTUAL
Page 33 and 34: (k) The erection, laying out, maint
Page 35 and 36: Before looking at the legal structu
Page 37 and 38: 2.3.4 Problems As with charity nome
Page 39 and 40: yet to be determined. This ensures
Page 41 and 42: per annum (Charities Commission, 20
Page 43 and 44: certain cases there will be concept
Page 45 and 46: The focus of the Charities Commissi
Page 47 and 48: Unlike incorporated societies, the
Page 49 and 50: 2.4.4.4 Future conceptual framework
Page 51 and 52: problems with New Zealand‟s regul
Page 53 and 54: This research seeks to identify if
Page 55 and 56: charities” (Charity Commission, 2
Page 57 and 58: statements in different documents t
Page 59 and 60: seek to identify whether a lack of
Page 61 and 62: In the international arena transpar
Page 63 and 64: elevance is compromised. The link b
Page 65 and 66: 3.2 Complexities in Charities’ Fi
Page 67 and 68: 3.2.1 Accounting basis The „Accou
Page 69 and 70: application of the appropriate GAAP
Page 71 and 72: length transaction”. This definit
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There are four arguments against de
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Financial Accounting Standards Boar
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al., 2008; Newberry, 1992; Rees & D
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However, the notion of control is a
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Kilcullen et al., 2007b). Charities
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the amount of money spent on admini
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This research seeks to identify wha
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As a result of the literature revie
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the elements of the world, or rathe
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come about through the mutually sim
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Research reports from other organis
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clearer picture of the interviewee
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In England, Palmer and Randall (200
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APPROACHING PARTICIPANTS Within the
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availability of charities‟ financ
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As credibility was usually achieved
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clarifications. This approach was u
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to understand the meaning behind an
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analysis is both complete and impar
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subjective realities (Chua, 1986).
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To assure the study was dependable
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CHAPTER 5: ACCOUNTABILITY 5.1 Intro
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emphasis on the definition of accou
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supposition was that a lack of resp
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general public (Charity Commission,
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assumes the other is monitoring the
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performance reporting rather than f
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appropriate performance information
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examiners and the Charities‟ Boar
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which was set up in 2003. Charity a
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Western Australia, all financial st
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The fourth level of independent exa
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What are the major areas of concern
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subset of good accountability pract
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Programme refers to a meeting of ob
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ecording property, plant and equipm
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Figure 6-2 Dimensions of Financial
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Because the [charity‟s] finances
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„selling a story‟ makes them fo
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that you can use it [the stove] for
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the organisation pay to have those
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contributors twice - first to fund
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There is a need to record restricte
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charity will have control of a seco
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of accountants involved in Charitie
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their decision making. One auditor
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Whilst the sample in this thesis is
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Another problem my study found was
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framework funders would not be able
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The lack of professionalism must be
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New Zealand‟s charitable purpose
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We have since February of last year
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analysis was done of the first comp
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Also the idea of members „taking
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The transparency of their organisat
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7.3 Monitoring As discussed in Chap
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Zealand] Statistics Department poin
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There was a sub-committee running [
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useful for smaller organisation and
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change and they‟re doing a good j
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problem that you‟ve [pause] we‟
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legislation and monitoring. Of part
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CHAPTER 8: PERFORMANCE ACCOUNTABILI
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In New Zealand both the Controller
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what proportion of their charitable
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None of the above reasons includes
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Charities Commission publication
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achieve an appropriate level of per
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more effectively in order to increa
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eneficiaries‟ needs are met is an
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As well as setting aside reserves,
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The important aspect of the propose
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Mostly they [the funders] are worki
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eyond financial health to include
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8.4.4 Prescribed performance report
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impact they have on their beneficia
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statements, but also other mechanis
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compare different charitable organi
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shock when their accounts are eithe
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9.4 Academic Contribution This rese
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Outcomes (Effectiveness) Figure 9-1
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Charities Register, of which thirty
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success in their activities. For as
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Ahrens, T., & Chapman, C. S. (2006)
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Australian Accounting Standards Boa
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Bradbury, M. E., & Baskerville, R.
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Charities Commission. (2009f). A sn
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commission.gov.uk/Our_regulatory_ac
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Cordery, C. J., & Baskerville, R. (
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Eisenberg, P. (Ed.). (2005). Challe
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Fremont-Smith, M. R. (2004). Pillag
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Hui, D. (2006). Financial Reporting
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http://www.ifac.org/Members/DownLoa
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Maxwell, J. A. (1992). Understandin
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http://www.nzica.com/AM/Template.cf
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O'Sullivan, N., & O'Dwyer, B. (2009
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Robson, C. (1993). Real World Resea
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Television New Zealand (Writer) (27
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Appendix One - Statement of Financi
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Appendix Three - Semi-structured in
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Appendix Five - Participant informa
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Appendix Six - Transcriber’s Conf
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Heading 1 Heading 2 Heading 3 Prope
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