Understandability and Transparency of the Financial Statements of ...

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CHAPTER 9: CONCLUSIONS & CONTRIBUTIONS 9.1 Introduction Globally the charities sector is becoming recognised as playing an important part in communities by furthering governments‟ social objectives through increasing support to disadvantaged members of society. This is also the case in New Zealand where the Government considers that the charities sector assists them in furthering their own social objectives through, for example, increasing support to disadvantaged members of our society. Accountability is seen as important for the charities sector in maintaining faith and ensuring the confidence and financial support of the public by giving an account of charities‟ activities. For accountability to be successful it needs to be appropriately discharged through accountability mechanisms. Financial statements are one form of an accountability discharge mechanism. Access to charities‟ financial statements has recently become possible in New Zealand due to the development of a Charities Register. However, the ability to discharge accountability through financial statements also depends on financial statements being transparent and understandable which, as discussed in Chapter Three, is not currently the case. This research aimed to clarify the reasons for the different accounting treatments that impact transparency and understandability in relation to four complexities; accounting basis, valuation of PPE, fund accounting and the expenditure overheads ratio. The focus of this study was on gaining an understanding of „what‟ accounting treatments charities have for each of the complexities mentioned and more importantly „why‟ charities chose these particular accounting treatments. For this research participants were: (1) people involved in the preparation or auditing the financial statements of charities; (2) managers of charities; (3) board members of charities; and (4) experts in charities. Rather than individual voices some interviewees were in groups which lead to a total of eighty-four participants who were involved in seventy-five interviews that sought to determine the complexities with transparency and understandability in charities‟ financial statements. Accountability theory was used to guide the data collection and analysis. A proposed framework incorporating financial and performance accountabilities was developed that highlighted that accountability discharge mechanisms included not only financial 206
statements, but also other mechanisms including performance reports and rating agencies. This chapter summarises the findings of this research and identifies its contributions before looking at opportunities for further study. Conclusions about the research questions will be reviewed next. 9.2 Conclusions about research questions This research identified a gap in the literature around not only what accounting methods were used but why those methods were used. This study determined that there were three key reasons behind the choices charities make: (1) poor professional standards shown by accountants who work in the charities sector; (2) low level of financial understandability by people working or volunteering within charitable organisations as well as prospective donors and funders; and (3) a perceived need for charities to look „poor‟ so as to attract funds. These will each be addressed in turn. In relation to poor professional standards, this study found several instances where accountants did not keep current with GAAP and relied on their experience rather than utilising current accounting principles. This lack of compliance with GAAP has gained national attention through the media, which have exposed charities who have not been valuing donated goods and services in their financial statements. This study also found a low level of financial literacy amongst preparers of charities‟ financial statements. This lack of understanding within charities must be addressed to ensure charities produce meaningful financial statements that can be utilised for decision making. Finally, the emphasis on „looking poor‟ was a result of funders and donors preferring to fund charities that „need‟ the funds rather than charities that are financially viable which lead to charities actively lowering their assets or income in their financial statements. Next, the specific research questions relating to each of the four complexities of charities‟ financial statements will be reviewed, starting with the accounting basis. 9.2.1 Accounting basis The media‟s emphasis on reporting the percentage of money received, from that pledged, severely impacts the public‟s understanding of donations, which become 207
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Understandability and Transparency
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CHAPTER 2: REGULATORY & CONCEPTUAL
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4.3.3 Axiom 3 - The possibility of
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6.6 Summary .......................
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Appendix One - Statement of Financi
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Abbreviations AASB Australian Accou
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Related Research Outputs The follow
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Acknowledgements My journey through
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Abstract Access to charities‟ fin
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CHAPTER 1: INTRODUCTION 1.1 Introdu
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More importantly the study will loo
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Unerman and O‟Dwyer (2008, p. 801
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adopted here is clarified, as the l
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March 1999. Further, a study by the
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those by: Vatter (1947); Anthony (1
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CHAPTER 2: REGULATORY & CONCEPTUAL
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(k) The erection, laying out, maint
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Before looking at the legal structu
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2.3.4 Problems As with charity nome
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yet to be determined. This ensures
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per annum (Charities Commission, 20
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certain cases there will be concept
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The focus of the Charities Commissi
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Unlike incorporated societies, the
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2.4.4.4 Future conceptual framework
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problems with New Zealand‟s regul
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This research seeks to identify if
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charities” (Charity Commission, 2
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statements in different documents t
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seek to identify whether a lack of
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In the international arena transpar
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elevance is compromised. The link b
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3.2 Complexities in Charities’ Fi
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3.2.1 Accounting basis The „Accou
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application of the appropriate GAAP
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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
Page 173 and 174: New Zealand‟s charitable purpose
Page 175 and 176: We have since February of last year
Page 177 and 178: analysis was done of the first comp
Page 179 and 180: Also the idea of members „taking
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Page 183 and 184: 7.3 Monitoring As discussed in Chap
Page 185 and 186: Zealand] Statistics Department poin
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Page 189 and 190: useful for smaller organisation and
Page 191 and 192: change and they‟re doing a good j
Page 193 and 194: problem that you‟ve [pause] we‟
Page 195 and 196: legislation and monitoring. Of part
Page 197 and 198: CHAPTER 8: PERFORMANCE ACCOUNTABILI
Page 199 and 200: In New Zealand both the Controller
Page 201 and 202: what proportion of their charitable
Page 203 and 204: None of the above reasons includes
Page 205 and 206: Charities Commission publication
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Page 213 and 214: As well as setting aside reserves,
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Page 217 and 218: Mostly they [the funders] are worki
Page 219 and 220: eyond financial health to include
Page 221 and 222: 8.4.4 Prescribed performance report
Page 223: impact they have on their beneficia
Page 227 and 228: compare different charitable organi
Page 229 and 230: shock when their accounts are eithe
Page 231 and 232: 9.4 Academic Contribution This rese
Page 233 and 234: Outcomes (Effectiveness) Figure 9-1
Page 235 and 236: Charities Register, of which thirty
Page 237 and 238: success in their activities. For as
Page 239 and 240: Ahrens, T., & Chapman, C. S. (2006)
Page 241 and 242: Australian Accounting Standards Boa
Page 243 and 244: Bradbury, M. E., & Baskerville, R.
Page 245 and 246: Charities Commission. (2009f). A sn
Page 247 and 248: commission.gov.uk/Our_regulatory_ac
Page 249 and 250: Cordery, C. J., & Baskerville, R. (
Page 251 and 252: Eisenberg, P. (Ed.). (2005). Challe
Page 253 and 254: Fremont-Smith, M. R. (2004). Pillag
Page 255 and 256: Hui, D. (2006). Financial Reporting
Page 257 and 258: http://www.ifac.org/Members/DownLoa
Page 259 and 260: Maxwell, J. A. (1992). Understandin
Page 261 and 262: http://www.nzica.com/AM/Template.cf
Page 263 and 264: O'Sullivan, N., & O'Dwyer, B. (2009
Page 265 and 266: Robson, C. (1993). Real World Resea
Page 267 and 268: Television New Zealand (Writer) (27
Page 269 and 270: Appendix One - Statement of Financi
Page 271 and 272: Appendix Three - Semi-structured in
Page 273 and 274: 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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