Financial Reporting for Hong Kong Charities an Update: Have Changes Been Made?
Miller, Gary, Donnelly, William, Journal of International Business Research
The purpose of this research was to gather information about the financial reporting practices for charitable organizations in Hong Kong. Sixty-five annual reports were examined in this study. Reports were for fiscal years ending in 1997, 1996 and 1995. Data was collected to compare to a 1997 study. The 1997 study established that Hong Kong charity accounting practices varied during the sample years, 1992-1994. After 1994, many complaints were still being heard about charity practices (Nadel, 1995). More overseas agencies were set up in Hong Kong after 1994 so competition also increased during this period. Has the increased competition and awareness improved the charity accounting practices since 1994? This study examined if the accounting practices have changed since 1994.
Accounting practices still vary greatly for charities. New regulations including permit requirements were not effective until 1999 (Johnstone, 1998). Charities should encourage the adoption of some uniform guidelines. When different financial statement presentations (i.e., cash and accrual) are used, comparisons can be very difficult. It also seems the perceived professionalism of charities is diminished when there is a great diversity in reporting practices.
There have been improvements. The firms that present a statement of cash flows have increased significantly. Depreciation is now recognized by 49% of companies as compared to 26% in 1997 study. Now many groups (38% compared to just 4%) include a statement of functional expenses as part of their financial statements. The use of alternate procedures or approaches will probably continue unless an authorized representative group mandates one method. Conflicts continue to exist between the accounting practices for charities in Hong Kong. Charities may need to increase the comparability of their respective financial statements. These issues will continue to be important to those interested in charities and their respective accounting practices. Additional research is needed to clarify some of these issues.
The purpose of this research was to gather information about the financial reporting practices for charitable organizations in Hong Kong. A previous study was conducted in 1997 (Miller,1997). The objective of the 1997 project was primarily descriptive. This 2001 study will update the charity situation but the purpose is still primarily descriptive. It may be useful for accountants in other countries to become aware of the accounting practices for Hong Kong charities. Many complaints are still being heard about charities. For example, the Hong Kong Council of Social Services said it received 374 calls from March 1994 to December from people worried about fund-raisers (Nadel,1995). Investigations showed 40 percent of the collectors were bogus. The true figure may be much higher. The council's hotline coordinator said she believed the problem was underestimated because many people paid without bothering to ask even the name of the fund-raising agency (Nadel, 1995).
Further improvements in the financial reporting for charities may help these types of organizations provide potential donors with a clearer view of the objectives of the respective charity. My preliminary review of actual annual reports has shown the accounting practices for charities still vary greatly. For example, many charities do not use the accrual method of accounting but some others do. This variability may make comparisons of charities' financial statements difficult and may also diminish the financial credibility of charities. Some additional background may be helpful.
In the past, the Hong Kong government had proposed requiring charities carrying out fund-raising drives for more than $50,000 to submit audit reports (Nadel, 1995). No action was taken for many years. As of 1998, new rules were at the proposal stage pending the official passing by the Hong Kong Legislative Council. …