Understandability and Transparency of the Financial Statements of ...

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Zealand Institute of Chartered Accountants, 2008). The concept of a reporting entity is not currently explicitly prescribed within the conceptual framework. However, the International Accounting Standards Board (IASB) has released a discussion paper (International Accounting Standards Board, 2008d) on what constitutes a reporting entity. Also, with relation to when to include funds in the charities‟ financial statements, the notion of „control‟ is paramount. The IASB (International Accounting Standards Board, 2008d) defines control as including the ability to access the benefits from that entity, e.g. the income from the fund, and maintain or protect the amount of those benefits, e.g. the assets of the fund. In New Zealand the NFPFRG paragraph 2.24 (New Zealand Institute of Chartered Accountants, 2007a) has a similar definition to the IASB. Also SORP paragraph 381 requires consolidated accounts (Charity Commission, 2005). The complexities in fund accounting arise firstly from the myriad of terminology used, and with no prescribed New Zealand GAAP as to which term to use, leads to a lack of understanding as to what the term „fund‟ really means. There is also a complexity behind how funds are recorded, as New Zealand GAAP is not clear how funds should be recorded, although New Zealand GAAP is clear on whether funds should be part of a separate entity or consolidated in relation to the notion of control. However, control is not easily determined in the charities sector and New Zealand GAAP offers no detail on how this assessment should be undertaken. Studies on these complexities will be looked at next to identify whether there is any commonality of terms, in the recording of funds received, and when to consolidate. 3.2.3.2 Studies The importance of transparency in relation to fund accounting was seen in the New Zealand Charities Commission‟s „Trust and Satisfaction Survey‟ (Charities Commission, 2008e), which found that transparency and information about the destination of funds was the most noted need in the New Zealand charitable sector, nominated by 31% of survey respondents. Walker (2004) considers that fund accounting is the perennial problem confronting charities as there is a need for a sophisticated understanding of what the different rules are, in relation to each individual fund, before the appropriate recording method can be determined. This is supported by substantial research (Accounting Standards Committee, 1984; Anthony, 1978; Ashford, 1986; Bird & Morgan-Jones, 1981; Blasch et al., 1994; Charity Commission, 2006; Connolly & Hyndman, 2000, 2001; Hooper et 58
al., 2008; Newberry, 1992; Rees & Dixon, 1983; Vatter, 1947; Williams & Palmer, 1998). Early English studies highlight the lack of a clear definition of „fund‟, with some funds referring to contributions from donors who have placed restrictions on the use of them and other funds referring to unrestricted funds which have been earmarked by management for a particular purpose i.e. reserves (Bird & Morgan-Jones, 1981). William and Palmer (1998) found that many English charities were providing inadequate information about funds. However, the introduction of the SORP, with specific definitions, ensured that for large charities, by 2000, (Connolly & Hyndman, 2000) all of the funds of the charity were clearly labelled, and for medium-sized charities 90% complied (Connolly & Hyndman, 2001). This has not been resolved in New Zealand, where Rees & Dixon (1983) found that little information was given to indicate what funds were used for and whether they were restricted in any way. This was supported by Hooper, et. al. (2008) who found that there is still a lack of consistency in the titles being used. One charity could use designated funds, which means that the funds are restricted by the donors. Whereas in another charity designated funds are funds that are not restricted by the donors, but are set aside by the charity for a particular purpose i.e. reserves. This is particularly concerning given that Charities‟ Annual Return (Charities Commission, 2008c) requires equity to be split between: endowment funds, restricted purpose funds and general accumulated funds, with no explanation given as to what this means. Whilst New Zealand and Australia are undertaking a joint project (Warren, 2007) to try and clarify these definitions to the researcher‟s knowledge this has not yet occurred. It is important for the transparency of charities‟ financial statements that an understanding is developed of why charities are using the different terms to determine the most appropriate definitions to use. In relation to the recording of funds, Bird and Morgan-Jones (1981) found that funds were recorded in three ways: first as capital (29%); second as income (48%); and third with a proportion to the Income Statement and the rest to a suspense account (23%). A later study found that 60% of large charities passed items directly through to reserves (Williams & Palmer, 1998). However, after the publication of the SORP with its stipulation that funds be credited to income, Connolly & Hyndman‟s (2000) study of 59
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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
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 and 40: yet to be determined. This ensures
Page 41 and 42: per annum (Charities Commission, 20
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: Financial Accounting Standards Boar
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
Page 91 and 92: come about through the mutually sim
Page 93 and 94: Research reports from other organis
Page 95 and 96: clearer picture of the interviewee
Page 97 and 98: In England, Palmer and Randall (200
Page 99 and 100: APPROACHING PARTICIPANTS Within the
Page 101 and 102: availability of charities‟ financ
Page 103 and 104: As credibility was usually achieved
Page 105 and 106: clarifications. This approach was u
Page 107 and 108: to understand the meaning behind an
Page 109 and 110: analysis is both complete and impar
Page 111 and 112: subjective realities (Chua, 1986).
Page 113 and 114: To assure the study was dependable
Page 115 and 116: CHAPTER 5: ACCOUNTABILITY 5.1 Intro
Page 117 and 118: emphasis on the definition of accou
Page 119 and 120: supposition was that a lack of resp
Page 121 and 122: general public (Charity Commission,
Page 123 and 124: assumes the other is monitoring the
Page 125 and 126: 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
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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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