Implications of Applying a Private Sector Based Reporting Model to Not‐for‐Profit Entities: The Treatment of Charitable Distributions by Charities in New Zealand

Abstract

In this paper, we investigate the practical and conceptual difficulties caused by applying a private sector based reporting model to the not‐for‐profit sector. We deal specifically with reporting on charitable distributions by charities in New Zealand. We find a majority of the entities report charitable distributions in the Statement of Financial Performance (as expenses). This approach is conceptually justifiable, complies with international best practice, and is in line with the accountability argument made in this paper. While the number reduced between 2003 and 2007, a significant minority of the entities report charitable distributions in the Statement of Movements in Equity (and therefore report higher surpluses). These two approaches lead to very different results, yet both are apparently seen as acceptable by the entities and their auditors. While this raises questions as to the understandability and comparability of the financial reporting by these entities, it also raises questions about the suitability of the for‐profit sector reporting requirements for the not‐for‐profit sector.