Understandability and Transparency of the Financial Statements of ...

output and input cost rather meaningless”. Contradicting this was Khumawala and
Gordon‟s (1997) study whose participants considered that donations were earned, i.e.
matched, when the money was used for the designated purpose and not upon receipt, as
required by GAAP.
The two concerns with the accounting basis complexity that this study will investigate
are in relation to, first, the certainty of receipt, with regards to when to record pledges,
and second, whether the matching concept is valid for charities. This research will also
determine whether these two concerns are still occurring in charities and ascertain
which accounting basis charities use. If the concerns occur in the charities, the study
will also determine why charities use, or do not use the matching concept and why they
use their particular method to record donations and pledges, thus determining reasons
for their actions. Next, the complexities around property, plant and equipment are
identified.
3.2.2 Property, Plant and Equipment
Property, plant and equipment (PPE) comprise the buildings and equipment used in a
charity‟s operation (Accounting Standards Committee, 1984) that the charity will keep
for longer than twelve months: it is also known as „fixed assets‟. The complexities arise,
with regards to when it is appropriate to record each PPE and if recorded whether PPEs
are depreciated. GAAP will determine when to record and depreciate PPE, which will
be looked at next.
3.2.2.1 GAAP
R120 (New Zealand Institute of Chartered Accountants, 1999) states that the initial cost
of a fixed asset must be recorded and depreciated (paragraph 5.8). For PPE that are
donated, their value should be fair value, but how fair value is ascertained is not
detailed. The NFPFRG (New Zealand Institute of Chartered Accountants, 2007a) has
similar requirements (paragraph 4.79) but stipulates that the value of PPE should be
reviewed regularly to ensure the value has not been impaired (paragraph 4.83), which
specifically relates to New Zealand International Accounting Standard (NZ IAS) 36
Impairment (New Zealand Institute of Chartered Accountants, 2006). With regards to
donated PPE, as with the R120, the NFPFRG determines valuation at fair value. This is
stipulated in NZ IAS 16 paragraph 15.1 (New Zealand Institute of Chartered
Accountants, 2004b). NZ IAS 16 paragraph 6 defines fair value as “the amount for
which an asset could be exchanged between knowledgeable, willing parties in an arm‟s
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