Understandability and Transparency of the Financial Statements of ...

This section has highlighted the key implications for practice and policy that need to be
implemented to improve the transparency and understandability of charities‟ financial
statements. A key part of this is the development of a performance reporting framework
that is supported by appropriate standards. Compliance with these standards would offer
charities a degree of legitimacy in the eyes of their stakeholders, especially if there are
consequences for not following the standards, such as deregistration by the Charities
Commission. Next, the recommendations for future research are considered.
9.6 Recommendations for future research
This research took place over a number of years, which meant that various
recommendations were made for future research in particular:
The Statement of Financial Activities applicability in New Zealand;
The quality of the audit reports of charities, in two aspects. First, whether audit
reports comply with appropriate auditing standards. Second, whether the
financial statements complied with relevant GAAP and if not whether this was
included in the audit report;
What information is used by funding bodies in their decision-making, to
determine whether charities‟ financial statements were relevant in funding
bodies‟ decisions on whether to approve a grant.
There are also other opportunities for future research based on the implications for
practice and policy, including research needed into the appropriate format for „Simple
format reporting‟ and the appropriate contents of financial and non-financial reporting
standards.
9.7 Concluding remarks
This research has highlighted the poor state of the financial statements of New Zealand
charities. The lack of transparency and understandability of charities‟ financial
statements directly impacts on the credibility and financial viability of charities.
To enhance transparency it is important for charities to assess, and report on, their
performance, to ensure that they are making a positive difference in their beneficiaries‟
lives. Charities have to be proactive in communicating the success of their outcomes
and outputs to attract monies and to differentiate themselves from other charitable
organisations. Donors and funders also need to ensure that they are supporting
financially viable charities who are prudently managing their future and achieving great
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