Understandability and Transparency of the Financial Statements of ...

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).
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