Understandability and Transparency of the Financial Statements of ...

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Currently, there is no specific conceptual framework that applies to charities in Australia (Arthur Cox & Centre for Voluntary Action Studies, 2002) as Australia operates under sector neutrality i.e. a single conceptual framework using International Financial Reporting Standards (IFRSs) for all sectors. The Institute of Chartered Accountants in Australia (ICAA) has tried to aid NFPs in their preparation of financial statements by producing a report of best practice for NFPs entitled „Enhancing not-for- profit annual and financial reporting – Best practice reporting‟ (Institute of Chartered Accountants in Australia, 2009a). CPA Australia had earlier also tried to assist NFPs with their report „Financial Reporting by Not-for-Profit Entities‟ (CPA Australia, 2000). The AASB and New Zealand‟s Financial Reporting Standards Board (FRSB) have developed a process for modifying, or introducing additional requirements to IFRSs for NFPs (Australian Accounting Standards Board & Financial Reporting Standards Board, 2009). Neither this process nor the above reports address the core issue, which is their basis in IFRSs that are prepared for „for-profit‟ organisations rather than NFP organisations (Dellaportas, Langton, & West, 2008; Ellwood & Newbury, 2006; Gurd, Palmer, & Wilson, 2008). In fact, CPA Australia considers that Australia‟s move to IFRS fails to take into account “how radically NFPs differ from commercial entities” (CPA Australia, 2006b, p. 1). One country that has developed a conceptual framework for its charity sector is England and Wales which will be considered next. 2.4.2 England and Wales New Zealand has a similar regulatory environment for charities as England and Wales. However, whilst New Zealand‟s Charities Commission has operated only since the 21st century, in England and Wales there has been some form of Charity Commission, covering both England and Wales, since the mid 19th Century (Tomlinson & McGlinn, 2004). 2.4.2.1 Regulatory framework The duties of the Charity Commission were last reviewed in 2002 by the Cabinet Office Strategy Unit (Charity Commission, 2003) which lead to the enactment of the Charities Act 2006 that replaced the Charities Act 1960. As well as this primary legislation there is some secondary legislation, including The Charities (Accounts & Reports) Regulations 2008. As of 31 December 2009 New Zealand had 24,319 registered charities (Charities Commission, 2009d) who were receiving NZD5.2 billion in income 22
per annum (Charities Commission, 2009f). By contrast the England and Wales Charity Commission has 160,515 charities and was receiving £52 billion in income (Charity Commission, 2009c). The increasing significance of the charities sector in England and Wales was recognised by the creation of an „Office of the Third Sector‟ in May 2006. One of its roles is to ensure policy and regulatory environment for the sector, is at an appropriate level (Office of the Third Sector, 2010). The Third Sector overlaps with charities as it includes NGOs and contrasts with the First Sector (For-Profit) and Second Sector (Public Sector). It remains to be seen what impact, if any, this cabinet office will have on the charities sector in England and Wales. 2.4.2.2 Conceptual framework In England and Wales the pitiful state of charities‟ financial reporting was first highlighted nearly thirty years ago by Bird and Morgan-Jones (1981) who surveyed the published accounts of charities in order to identify their problems. This report lead to the development of a discussion paper on charities by the Accounting Standards Committee (1984) . From this discussion paper the Charity Commission developed standards which ultimately have lead to the publication of the existing Statement of Recommended Practice (SORP) by the Charity Commission (2005). This SORP was last updated in 2008 to allow for the Charities Act 2006. The present day SORP has been amended several times to take into account the variety of issues that several studies have uncovered (Ashford, 1986; Charity Finance Directors' Group, 2003; Connolly & Hyndman, 2000, 2001; Hines & Jones, 1992; Hyndman, 1990, 1991; Hyndman & Kirk, 1988; Palmer et al., 2001; Williams & Palmer, 1998). The SORP is also supported by the Charities (Accounts and Reports) Regulations 2008, which prescribes the form and content of charities‟ financial statements, including notes. Meanwhile the Accounting Standard Board (ASB) has developed a Statement of Principles for Financial reporting for public benefit entities (Accounting Standards Board, 2007a). This statement sets out the principles the ASB considers underlie the preparation and presentation of general purpose financial statements for public benefit entities, including charities. Whilst the Charity Commission appears to be the driver for better standards rather than the accounting profession, this is misleading as although the ASB no longer prepares the SORP their influence over its continuing development is 23
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 and 22: More importantly the study will loo
Page 23 and 24: Unerman and O‟Dwyer (2008, p. 801
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: yet to be determined. This ensures
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
Page 73 and 74: There are four arguments against de
Page 75 and 76: Financial Accounting Standards Boar
Page 77 and 78: al., 2008; Newberry, 1992; Rees & D
Page 79 and 80: However, the notion of control is a
Page 81 and 82: Kilcullen et al., 2007b). Charities
Page 83 and 84: the amount of money spent on admini
Page 85 and 86: This research seeks to identify wha
Page 87 and 88: As a result of the literature revie
Page 89 and 90: 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
Page 253 and 254:
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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