Asp 8

Third Sector Accounting Standard Setting: Do Third Sector Stakeholders Have Voice?
Author(s): Rowena Sinclair and Rebecca Bolt

Source: Voluntas: International Journal of Voluntary and Nonprofit Organizations, Vol. 24,
No. 3 (September 2013), pp. 760-784
Published by: Springer
Stable URL: https://www.jstor.org/stable/42629837
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Voluntas (2013) 24:760-784
DHDia DOI 1 0. 1 007/s 1 1 266-0 1 3-9356-7
International Society for
Third-Sector Research ORIGINAL PAPER
Third Sector Accounting Standard Setting: Do Thir

Sector Stakeholders Have Voice?
Rowena Sinclair * Rebecca Bolt
Published online: 16 February 2013

© International Society for Third-Sector Research and The Johns Hopkins University 2013
Abstract The study examines the empirical evidence of the submissions received
from third sector organisations and their stakeholders in response to propos
changes to the New Zealand accounting standard setting framework. The study aim
to determine whether third sector stakeholders have voice in third sector accountin
standard setting. Critical comparison of submissions and proposals appear to show
that the standard setters were not listening to their third sector stakeholders.
However, the study found that the standard setters utilised legitimacy managemen
strategies to gather third sector stakeholders' voice. The standard setters proactivel
achieved this by conforming to the environment and achieving pragmatic legitimac
to ensure that their decisions were based on third sector stakeholders' voice. The
study is important for those countries where accounting standard setters are grap-
pling with the due process to undertake for third sector accounting standards in its
elevation of working groups to the role of salient stakeholders.
Résumé Cette étude examine les preuves empiriques des réponses envoyées par les
organisations du secteur tiers et leurs intervenants en réaction à la proposition de
changement du cadre réglementaire de comptabilité en Nouvelle-Zélande. L'étude
vise à déterminer si les intervenants du secteur tiers ont voix au chapitre dans l'éta-
blissement de règles comptables pour le secteur tiers. Une comparaison critique des
réponses et des propositions effectuées semble montrer que les responsables de
l'établissement des règles n'étaient pas à l'écoute des intervenants du secteur tiers.
Cependant, l'étude a révélé que ces décideurs de règles ont utilisé des stratégies de
gestion de la légitimité afin de recueillir les opinions des intervenants du secteur tiers.
Les responsables de l'établissement de règles se sont activement employés à atteindre
cet objectif en se conformant à leur environnement et en obtenant une légitimité
R. Sinclair (ISI) • R. Boit

Faculty of Business, Department of Accounting, AUT University, AUT City Campus, Private Bag
92006, Auckland 1 142, New Zealand
e-mail: rowena.sinclair@aut.ac.nz
Springer
Voluntas (2013) 24:760-784 761
pragmatique afin de s'assurer q

intervenants du secteur tiers
responsables dé l'établissement d
adopter vis-à-vis des règles com
groupes de travail au rôle d'inte
Zusammenfassung Die Studie

nahmen von Organisationen des
eschlagenen Änderungen des
Studie ist es zu bestimmen, ob S
Rechnungslegungsrichtlinien ei
der Antworten und Vorschläge
die Belange ihrer Stakeholder a
dem Ergebnis, dass die Richtlin
andten, um die Interessen der S
Dies wurde erreicht, indem sich
pragmatische Legitimität erzielt
Stakeholder des Dritten Sektors
ist für die Länder von Bedeu
Anhebung von Arbeitsgruppen
Verfahren für die Rechnungsle
Resumen El estudio examina l

organizaciones del tercer sector
propuestos al marco de establec
estudio tiene como objetivo det
tienen voz en el establecimiento
ación crítica de las alegaciones y
establecimiento de las normas n
tercer sector. Sin embargo, el e
imiento de las normas utilizaron
voz de las partes interesadas de
de normas lograron esto de ma
legitimidad pragmática con el fi
voz de las partes interesadas del
países en los que los responsab
tratando de resolver el proceso
sector elevando los grupos de t
Keywords Third sector • Standa

management strategies
Introduction
The purpose of this research study is to contribute to the body of knowledge on the
third sector (voluntary or not-for-profit sector of an economy), specifically regarding
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762 Voluntas (2013) 24:760-784
whether third sector entities, st

third sector accounting standar
The study examines the empir
third sector organisations and th
issued on the proposed change
framework (Ministry of Eco
Review Board 2009). These subm
the accounting standard setting
Commerce (201 la, b, c) and Ne
September 201 1 .
It is the investigation of the voi
interested public towards the s
setting that forms the basis of
third sector stakeholders have v
The study will be of interest to
accounting standard setters are
to accounting standard setters
sector (second sector). New Z
accounting standard setting by
third sector. Countries such as
standards in their 'sector neu
progress with interest as to th
may cause countries that have se
approach.
This paper is organised as follows: first, the conceptual framework, incorporating
third sector accounting standards, standard setters and their stakeholders is
articulated, before the research method, particularly the data analysis is explained;
next, the findings in relation to stakeholders' voice in response to the 2009
discussion documents are considered, before a discussion of the findings through the
theoretical lens of legitimacy management strategies and stakeholder saliency; and
finally, a conclusion to the paper is undertaken.
Literature Review
Conceptual frameworks establish the concepts, i.e. generally accepted accounting

practice (GAAP), that underpins general purpose financial reporting (GPFR) for a
particular sector or country. To ensure these concepts are articulated, accounting
standards are developed. Standard setters develop and ensure compliance with
accounting standards.
Third Sector Accounting Standards
International standard setters do not provide any conceptual framework for the third
sector. Currently there are two sets of accounting standards utilised for the third
sector: sector neutral standards; and third sector developed standards (Kilcullen
Springer
Voluntas (2013) 24:760-784 763
et al. 2007). New Zealand propos

the basis for third sector accou
Sector Neutral Standards: Australia
Australia operates under sector neutral standards, i.e. a single conceptual framework
using International Financial Reporting Standards (IFRSs) created by the Interna-
tional Accounting Standards Board (IASB 2010). These standards are primarily
developed for capital market decision making, which is not relevant for either the
public sector or third sector (IASB 2010). However, despite issues in third sector
reporting identified by Ellwood and Newbury (2006), Australia continues to operate
under these standards.
Third Sector Developed Standard : England and Wales
The England and Wales' Charity Commission has developed the Statement of
Recommended Practice (SORP) (Charity Commission 2005), for one part of the
third sector-charities. The SORP has been amended several times to take into
account the variety of financial reporting issues that several studies have uncovered
(Hyndman and Kirk 1988; Hyndman 1990, 1991; Hines and Jones 1992; Williams
and Palmer 1998; Connolly and Hyndman 2000, 2001; Palmer et al. 2001). The
SORP is also regulated by the Charity Commission 2008, which prescribes the form
and content of charities' financial statements, including notes. Meanwhile England
and Wales' accounting standard setter - the Accounting Standard Board (ASB) -
has developed a ' Statement of Principles for Financial reporting for public benefit
entities ' (ASB 2007) which sits 'alongside' the SORP. This ensures that the SORP
and the ASB's interpretations are compatible. The ASB is currently considering the
future of financial reporting in the United Kingdom (UK) and Ireland and has
released discussion documents which have attracted large numbers of submissions
from the third sector (ASB 2011, 2012).
Application of Public Sector Standards: New Zealand
New Zealand is on the cusp of a move from sector neutrality to a multi-standards

approach; this is where there are three sets of GAAP requirements for each sector,
i.e. business, public and third sectors (External Reporting Board 2011a). For the
third sector, New Zealand proposes to utilise the international public sector
accounting standards (IPSAS) developed by the International Public Sector
Accounting Board (IPSASB). The IPSASB's objective of financial reporting is to
4 provide information about the entity that is useful to users of GPFRs for
accountability purposes and for decision-tnaking purposes' (IPSASB 2010,
paragraph 2.1). New Zealand considers that this emphasis on decision making is
closer to the third sector than the IASB' s emphasis on capital markets.
New Zealand's change is a result of increasing calls for change due to many third
sector organisations non-compliance with GAAP. This assertion of non-compliance
is supported by several New Zealand studies which have identified numerous
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764 Voluntas (20 1 3) 24:760-784
problems (Rees and Dixon 1983;

Cordery and Patel 2011). For
organisations by Cordery and
GAAP. For sector neutrality to
given to determine how to ut
Baskerville (2007) highlighted th
this guidance to ensure the succ
Baskerville (2008) found this gui
amount of guidance has disappe
Accounting Standard Setters
Countries have standard setters

developed and
complied with. Th
regulate standards: stakeholder f
a SORP committee entirely co
McMahon 2010). This compar
standard setter of which has a r
members (XRB 2012).
As can be seen from Table 1 much of the literature on standard setters
emphasises the institutional legitimacy of the standard setters, which will b
covered further in the discussion section. Before identifying standard setter
stakeholders, it is important to set the New Zealand context of the paper.
New Zealand Accounting Standard Setters
In New Zealand, the Ministry of Economic Development (MED) (now th

Economic Development group within the Ministry of Business Innovation an
Employment), through the Minister of Commerce, determines 'who' should report
On the other hand, the Independent Crown Entity, the External Reporting Boar
(XRB) (previously the Accounting Standards Review Board (ASRB)), determin
Table 1 The standard-setting literature on institutional legitimacy
Author (chronological order) Aim of study
Johnson and Solomons Assessing the institutional legitimacy of the United States' (US)
(1984) Financial Accounting Standards Board (FASB)
Baylin MacDonald and Structural evolution of the legitimacy of the Canadian standard
Richardson (1996) process from 1864 to 1992
Shapiro (1997) Conceptual paper considering the institutional legitimacy of standard
setting bodies
Bernstein and Hannah (2008) Non-government standard setting legitimacy in regard to the World
Trade Organisation setting social and environmental standards
Durocher and Fortin (2010) Legitimacy management strategies of the Canadian Accounting
Standards Board
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Voluntas (2013) 24:760-784 765
'what' should be reported. The X

constitutionally must follow th
On 30 September 2009, the M
document on a proposed new sta
2009; MED 2009). New Zealand
Kingdom's SORP committee, whi
and McMahon 2010). To ensure t
ASRB had extensive consultation
Chairman who has extensive exper
of Chartered Accountants' No
NFPSAC). To ensure third sec
extensively consulted with the
functions transferred to the Depa
groups, including: Volunteering
Services; Philanthropy New Zeal
tions of Aotearoa; and the New Ze
Two years later, in September 2
setting framework were publis
the following three documents:
• Regulatory Impact Statem

Framework ;
• Review of the Financial Repo
• Review of the Financial Rep
These documents were followed

framework, which proposed ab
standards transaction neutral
discussion paper proposing the a
(XRB 2011b). These five paper
response to third sector stakeh
Thus, they are the documents th
sector stakeholders' voice from t
Terminology
To add confusion to this process, two different phrases for the third sector are used in these
reports. The MED and the Minister of Commerce refer to 'not-for-profit' (NFP). They
utilise the Johns Hopkins Institute for Policy Studies' (2003) definition which promulgates
that a NFP entity: (1) has an organisational structure; (2) is NFP; (3) is institutionally
separate from government; (4) is self-governing; and (5) is non-compulsory.
On the other hand, the ASRB and XRB utilise the term 'public benefit entities'
(PBE). PBEs are defined in the New Zealand International Accounting Standard 1
paragraph 1 1 .2 as:
Reporting entities , primary objective of which , are to provide goods or

services for community or social benefit and where any equity has been
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766 Voluntas (2013) 24:760-784
provided with a view to suppo

financial return to equity hold
This paper utilises the above de

does not articulate the distincti
setters and by charity law, a p
(ASB 2011; 2012). This issue w
Charitable Foundations (ACF 20
setters' stakeholders are identified.
Standard Setters' Third Sector Stakeholders
The International Public Sector Accounting Standard Board's (2010) conceptual

framework refers to users of GPFRs. However, in academic studies the phrase
'stakeholders' is more common. This study utilises Freeman's seminal definition of
stakeholders as 'any group or individual who can affect or is affected by the
achievement of the organisation's objective ' (Freeman 1984, p. 46). This definition
was further enhanced by Donaldson and Preston (1995) who considered stakehold-
ers also had legitimate interests in procedural activities, in this case standard setting.
The two international accounting standards setters identify different key stakehold-
ers. In the case of the IASB (2010), these are existing and potential investors, lenders and
other creditors. The IPS ASB (2010) considers that public sector entities are accountable
to their resource providers, i.e. taxpayers, donors and lenders. However, are these the
stakeholders that accounting standard setters should be considering?
McCarthy (2007) highlighted the importance of identifying stakeholders and, as
can be seen from Table 2, there has been the extensive literature on stakeholders'
involvement in the standard setting process. This importance is highlighted by
Christensen and Mohr (1999), who argued that if only certain types of stakeholders
e.g. third sector organisations participate; standards may be promulgated that are
inappropriate for the 'silent majority'. Baskerville and Newby's (2002) case study
found that due process had not alerted the standard setter to issues faced by the silent
majority, and this led to the withdrawal of requirements for one accounting standard.
This situation highlighted the importance of stakeholder participation as the key
component for organisations to obtain legitimacy and success (Larson 2007). As
well, Mitchell et al. (1997, p. 855) consider the need to determine ' which groups are
stakeholders deserving... attention, and which are not' i.e. the salient stakeholders.
Cooper and Robson (2006) identify accounting firms as stakeholders involved in
standard setting, through submissions and being on standard setters' boards. Lee
(2004) considered that the general public was a stakeholder. He explained that their
interest was due to the annual cost to the public of the third sector, in terms of
taxation deductions and exemptions.
Connolly et al. 's (2009) study identified a wide range of stakeholders, including
beneficiaries, employees, funders, government, the public, and volunteers. This was
similar to Palmer's (2011) study which identified key stakeholder groups as:
funders; standard setters; and clients and communities. His study then separates
submissions into three different groups: academics; legal and accounting
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Voluntas (2013) 24:760-784 767
Table 2 The standard setting literatur
Author (chronological Aim of stud

order)
Tandy and Wilburn Constituent participation in the US's FASB's first 100 statements
(1992)
Young (1994) Participants in regulatory space influence the process
Christensen and Mohr Lobbying of FASB by large US museums
(1999)
Baskerville and Newby Case study of New Zealand standard setter's due process
(2002)
Cooper and Robson Importance of accounting firms in the regulatory processes
(2006)
Durocher et al. (2007) For-profit stakeholders in the Canadian for-profit standard setting processing
Larson (2007) Constituent participation in the IASB's International Financial Reporting
Interpretations Committee
Connolly et al. (2009) Stakeholders' opinions on England and Wales' standard setter's development
of the SORP
Hyndman and The influence of key stakeholders in the evolution of the SORP of the England
McMahon (2010) and Wales' Charity Commission and the Office of the Scottish Charity
Regulator
Larson et al. (201 1) The important role of academic participation and research in the development
of the IASB's accounting standards
Hyndman and Assessing the influence of the United Kingdom government on the SORP
McMahon (201 1) committee
Palmer (201 1) Third sector views on Australian proposed accounting standards
professions and the public sector; and the third sector and individuals. The first tw
of these groups could be called 'lobbyists', highlighted by Hansen (2011) as
stakeholders that must be considered.
Larson et al. (201 1) consider academics as lobbyists as they play an important role
in the development of accounting standards. In fact, they go further in suggesting that
accounting standard setting could be enhanced with greater participation from the
academic community.
Palmer's (201 1) study considered what submissions said about the current level of
satisfaction of third sector accounting standards among different stakeholders. The
paper proposes to look at the next step, i.e. what the third sector and their
stakeholders consider about accounting standards and whether their voice is heard by
accounting standard setters. The study also seeks to address Parker's (2007) call for
research on standard setting. As well the discussion will consider whether there were
any salient stakeholders when determining third sector stakeholders' voice. Next, the
research method selected to address the research problem will be discussed.
Research Method
The purpose of this research study is to contribute to the body of knowledge on t

third sector, specifically regarding whether third sector entities, stakeholders an
ô Springer
768 Voluntas (2013) 24:760-784
other interested parties have v

research problem is: 'Do New Z
sector accounting standard set
1. What is the voice of the

towards the MED (2009) and
2. Did accounting standard sett
content of the Minister of Co
It is the investigation of the v

interested public, towards the
that forms the basis of the st
sampling bias exists, by select
perceptions that have been kn
sector entities, related stakeho
submissions have been offered
contribution to make to the
debating the issues covered by
than the typical third sector m
Therefore, it must be acknowl
may not be representative of t
Data Analysis
The research is qualitative and interpretive, and utilised two types of data analysis:
(1) content analysis of the submissions on the MED (2009) and ASRB (2009)
discussion papers; and, (2) qualitative document analysis of the Minister of
Commerce (2011a, b, c) and XRB (2011a, b) documents.
Content Analysis
Content analysis is the method through which the submissions received by the MED
and ASRB were analysed. Content analysis involves the systematic, in-depth review
and evaluation of documents and texts, achieved through the use of consistent
coding mechanisms (Krippendorff 2004; Bryman and Bell 2007; Steenkamp and
Northcott 2007). NVivo was utilised to search, organise and track submissions from
the MED (2009) and ASRB (2009) discussion papers.
The MED and ASRB discussion papers had questions for both the business and public
sectors, as well as the third sector (which is the focus of this research). Thus, the research
focuses only on the questions of relevance to the third sector. These questions were
grouped into three categories (refer Table 3). The first two categories related to the
proposal to use tiers to ensure a fairer cost split, i.e. organisations in the top tier would
have more detailed requirements than organisations in the lowest tier. Thus, how the tiers
would be split needed to be identified, i.e. 'basis of tier splits' and 'size of tier' . The third
category related to the type of accounting standards each tier should utilise.
The process followed in coding the MED and ASRB submissions will be as follows:
First, the population of interest, i.e. submitters who answered Table 3 questions, was
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Voluntas (2013) 24:760-784 769
Table 3 Content analysis categories
ASRB and MED Explanations of questions

questions
Basis of tier splits, i.e. what component to utilise for the tiers
1 MED Q15 Annual operating expenditure
2 ASRB Q8 Entity size based on expenditure used to allocate entities
Size of tiers, i.e. how large should each tier be
3 MED Q1 6 Annual operating expenditure of $20,000 and $20 million as the cut-off points
between small and medium, and medium and large, respectively
4 ASRB Q9 Tier 1 should comprise entities with expenditure >$10 million with different
levels for the public sector
5 ASRB Q10 Tier 3 should comprise entities with expenditure under $1 million with
different levels for the public sector
Accounting standards, i.e. standards used for GAAP
6 ASRB Q1 1 NFP application of IPSAS
7 ASRB Q12 Full PBE standards applies to Tier 1; and differential version of the PBE
standards applies to Tier 2
8 ASRB Q13 Simple format reporting applies to Tier 3 entities
identified. Submissions that either did not answer Table 3 questions or submissions
that were not publically available due to privacy concerns were excluded. This resulted
in 77 submissions (40 MED and 37 ASRB) being analysed (refer Table 4).
Then, the nature of the stakeholder was identified, utilising the categories identified
by Palmer (2011) and Salamon (2010) (refer Table 5). Finally, submissions were
coded in accordance with Table 3' s categories.
Qualitative Document Analysis
Altheide (2000) considered that qualitative document analysis permitted rich textual
thematic analysis. Hence, the benefit of conducting documentary analysis on public
documents is that it is possible to learn something about the organisation that writes,
publishes, and maintains them (Taylor and Bogdan 1998).
Documentary analysis of the Minister of Commerce (2011a, b, c) and XRB
(2011a, b) documents was considered an appropriate method through which the
disclosures made in the consultation papers may be analysed. Unlike the content
analysis of public submissions, disclosures made in the identified documents will
not be coded and categorised. Rather, the overarching nature of disclosures made in
the Minister of Commerce (201 la, b, c) and the XRB (201 la, b) documents will be
compared with third sector stakeholders' voice of the 2009 documents.
Findings
This section answers the two research questions:
1. What is the voice of the New Zealand third sector and their stakeholders
towards the MED (2009) and ASRB (2009) documents?
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Table 4 Content analysis population
Population MED ASRB

submissions submissions
Total submissions 151 75
Not publically available (7) (1)

Submissions on questions relating to the business and public (104) (37)
sectors
Submissions relating to Table 3 questions 40 37
Table 5 Categorisation of Stakeholders
Categories MED ASRB
Third sector organisations

Sport, recreational and cultural 1
Education and research 1 3
Civic and advocacy groups 5 6

Religious congregations and associations 7 5
Unions, business and professional associations 1 1
Professions and individuals
Tangata Whenua-based organisations I 1

Independent individuals including academics 5 5
Professional services firms: accounting and law 10 6
Business sector organisations 5 1
Public sector organisations 4 9
Total submitters 40 37
2. Did accounting sta

the content of the
documents?
The findings for the first research question is presented within Table 3's three
content analysis categories of the 2009 discussion papers' questions: basis of tier
splits; size of tier; and accounting standards. These findings are then compared with
the 2011 documents (Minister of Commerce 2011a, b, c and XRB 2011a, b) to
determine whether accounting standard setters listen to third sector stakeholders'
voice. Submissions are identified by the submission number allocated by either the
MED (2009) or ASRB (2009) discussion documents, and Table 5's nature of the
submitter.
Basis of Tier Splits (Table 3 Questions 1 and 2)
The MED (2009) and ASRB (2009) proposals were to utilise annual operating
expenditure as the basis of tier splits. Seventy-seven percent of submissions made in
ô Springer
Voluntas (20 1 3) 24:760-784 77 1
relation to this question agree w

operating expenditure as the mea
small, medium or large entity. Com
annual operating expenditure as an
being considered a ' key criteria (
entities' (accounting firm ME
expenditure provided a 4 better p
for-profit sector ' (accounting fir
For those opposing utilising annu
splits, there was some debate as t
allocation base in relation to tier
the proposal, supporting the use o
entities to third sector tiers. As ju
the basis of tier splits, one accoun
In our experience not-for-pro

categories: entities that spend all
asset rich entities that use the in
support their objectives. An expe
former category , but not the latte
be better.
Further opposing submitters c

appropriate as a third sector tie
credible alternative, as supported
20), who emphasised that the na
donations (i.e. revenue) which wer
tier allocation base was reinforced
4):
We have some concern about reliance solely on operating expenditure as a

threshold for reporting tier allocation. It was considered that revenue should
also be a key indicator for accountability to donors , although recognising that
this measure may be less consistent.
The 201 1 documents agreed with the majority i.e. 77 % and had annual operating
expenditure as the basis of tier splits, contrary to the views of the opposing
submitters.
One-third of submitters had concerns in regard to what would constitute
'operating expenditure'. Submissions debated whether the inclusion of non-cash
expense items, such as depreciation and donated volunteer time, should be included
for the purposes of providing a definition of 'operating expenditure'. The majority
of submissions that discussed these issues considered that non-cash items should not
be included in the definition. The 2011 documents defined expenses as those
recorded in the operating statement. In this case stakeholders' views were not
listened to, as these expenses would include depreciation and volunteer time.
Submissions also raised concerns about the use of 'operating expenditure' to
define tier size in the event that expenditure fluctuated from period to period. This
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Table 6 Size of tiers
Tiers Size of third sector tiers (2009 documents) Size of third sector tiers (201 1 documents)
Tier 1 Over $10 million Over $30 million

Tier 2 Top threshold $10 million Top threshold $30 million
Bottom threshold $1 million Bottom threshold $2 million
Tier 3 Top threshold $1 million Top threshold $2 million
Bottom threshold $20,000 Bottom threshold $40,000
Tier 4 Equal to or less than $20,000 Under $40,000
would mean that the tier classification of the entity might change from being a sm
entity to a medium entity and back to a small entity over a short period of time. O
legal firm (MED 7) suggested that more consistent third sector tiers would
achieved if expenditure was averaged over a three or 5-year period. Stakeholders
proposals to average expenditure were not included in the 2011 documents. T
next subsection focuses on the submissions relating to the size of tiers.
Size of Tiers (Table 3 Questions 3, 4 and 5)
In relation to the size of tiers the MED (2009) and ASRB (2009) documents w
focused on the cut-off points of Tier 1 and Tier 3. As shown in Table 4, Tier 3's cu
off points, using operating expenditure as their basis, were $1 million and $20,000
Submissions were split on Tier 3's top threshold of $1 million, with 47 % agreei
with the proposal and 53 % disagreeing. As seen in Table 6, the 2011 documents
doubled this level to $2 million, appearing to take consideration of the submitte
who questioned the $1 million threshold.
However, 78 % of submissions made in relation to Tier 3's bottom threshold o
$20,000 considered this was inappropriate. Forty-four percent of submitters gav
little justification as to why $20,000 would be considered an inappropriat
threshold, other than that the proposed $20,000 limit was 'too low'. Comm
reasons given by submitters who provided justifications for disagreeing with th
lower tier size limit included a perceived ' significant burden on voluntee
organisations' (Business organisation MED 18). The issue of whether there would
be any added benefit to third sector entities with relatively low annual operatin
expenditure in preparing GPFR was also raised. The availability of appropria
resources to prepare third sector general purpose financial statements was a
considered a concern, as stated by another business organisation (MED 49):
Non-profit entities are not going to have qualified accountants so will likely
have to pay Chartered Accountancy firms to prepare general purpose financial
statements where expenditure exceeds $20 k. The cost of this will outweigh
any benefits that are received.
Thirty-six percent of submitters who suggested other non-GAAP thresholds

considered the lower tier limit should be raised from $20,000 to $60,000 annual
operating expenditure, aligning the lower tier size with the current goods a
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Voluntas (2013) 24:760-784 773
services taxation (GST) regist

expressed this view, stating:
Twenty thousand dollars appear

We think it would be more log
registration level , i.e. $60,000
Further suggestions supported

operating expenditure. Rationale
sector tier assurance requireme
diture (accounting firm MED
some consideration to the stake
$40,000, but not increasing T
preferred amounts.
Submitters were divided in rega
different levels for public sector e
47 % disagreeing. Submitters agr
regarding the split upper tiers for
justification as to why they consid
to identifying medium and large
Those submitters who disagree
issue argued by these third sect
organisation (ASRB 16):
There is no justification for PB

off points ; unless it is argued
system differs between sectors.
The 2011 documents (refer

determined that the levels betw
should be the same. The next su
proposed accounting standards.
Accounting standards (Table 3
The ASRB (2009) document c

standards: different accounting
basis to use for developing third
approval for the concept of dif
Eighty-seven percent of submis
Tier 1 entities, and 88 % of subm
PBE standards should apply to T
who did provide a justification
increased obligation for larger e
We agree that the more signif

obligations than less significan
standards should apply to Tie
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774 Voluntas (2013) 24:760-784
Table 7 Accounting standards
Tiers Accounting standards (ASRB 2009) Accounting standards (XRB 201 la, b)
Tier Not-for-profit application of IPS AS Not-for-profit application of IPS AS

1
Tier Differential standards based on IPSAS, i.e. Reduced disclosure requirements (RDR) of
2 excluding some recognition and IPSAS, i.e. same recognition and
measurement in Tier 1 standards measurement as Tier 1 standards but less
disclosure
Tier Simple format reporting based on accrual Simple format reporting based on accrual
3 accounting accounting
Tier No reporting required Simple format reporting based on cash
4 accounting
In relation to Tier 3 r
to apply 'Simple Form
entities would have les
a more appropriate rep
A matter of importance
these financial statemen
on this issue that the
requirements would pla
resources. As identified
Most non-profit entit

expenses. Imposing cos
profits' already marg
The 2011 documents

standards for Tier 1 (re
was added, answerin
resources to prepare
standards' option was
requirement' (RDR), w
The mandate for deve
submitters were even
undetermined as 65 %
that provided justific
purpose'. In regard to
found the proposal t
following submissions
The cost of developing

the only alternative i
ASRB 16).
Current PBE account
well in regards to (sic
(Public sector organi
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Voluntas (2013) 24:760-784 775
Submitters were again divided

sector accounting standards, w
submitters' reasoning for agr
remaining 47 % of submissions
submissions are reflective of th
credibility:
I am aware of the considerable effort that IPSASB has been making to develop
a robust set of accounting standards based on IFRS but prepared for public
sector entities internationally. My initial scepticism has been somewhat
overcome by the recent rapid progress that the IPSASB has made and the
quality of its output (Accounting firm ASRB 69).
We do not currently consider that International Public Sector Accounting
Standards is currently a credible alternative to New Zealand equivalents to
International Financial Reporting Standards
(Public sector organisation ASRB 54).
Fifty-six percent of submitters agreed to developing New Zealand third sector

accounting standards. Of the 44 % of submitters who disagreed 80 % considered,
there was nothing wrong with the status quo, i.e. using IFRS. For example:
Our preference is to continue with IFRSs as the base standards and consider
modifications made to IFRSs by the IPSASB , and requirements in other
jurisdictions for not-for-profit entities. While we acknowledge that modifica-
tions are sometimes needed for PBEs, the FRSB and AASB have already
jointly developed a Process for Modifying IFRSs for PBE/NFP to assist in
developing modifications for PBEs that are the same in both Australia and
New Zealand output (Third sector accounting professional association ASRB
73).
As can be seen from Table 7, contrary to these views the XRB (2011a, b)
documents did not change their use of IPSAS as a basis for third sector accounting
standards.
The findings from the three categories detailed in Table 3 appear to show that
New Zealand accounting standard setters were not always listening to third sector
stakeholders' voice. The issues of legitimacy and stakeholders' saliency arising
from this will be discussed in the next section.
Discussion
The key issue identified in the findings was that New Zealand accounting standard
setters were not always listening to the submissions made by third sector
stakeholders. This section considers the legitimacy management strategies that
the accounting standard setters utilised to ensure that decisions were based on third
sector stakeholders' voice. As well, the discussion will identify who were the salient
stakeholders from the legitimacy management strategies within third sector
stakeholders' voice.
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776 Voluntas (2013) 24:760-784
Legitimacy Management Strate
The MED, through the Minis

listened to third sector stakehol
was especially the case with r
$40,000 (Minister of Commerce
the Tier 3 lower threshold to b
requirements.
Concerns raised by the ASRB
and implementation of IPS AS
Throughout the course of the X
perceived to have adopted a 'we
regard to the IPSAS issue. Howe
has legitimised their actions by
theoretical lens through which
explained.
Legitimacy is best defined by
Legitimacy is a generalised per

entity are... appropriate withi
values, beliefs and definitions.
The three types of organisatio

(Suchman 1995; Durocher et
organisational legitimacy in rela
(1) Pragmatic - the assessmen

(2) Moral - the evaluation of an
and
(3) Cognitive - the taken-for-granted activities.
Legitimacy theory requires a 'social contract' between the organisation and the
society in which it operates (Guthrie et al. 2004). Social contract is used to represent
the multitude of stakeholders' expectations, and ensures organisations such as
accounting standard setters operate within the norms of the society in which they
operate. Baylin et al. (1996) consider that social contract is particularly relevant for
accounting standard setters, who must generate support from their stakeholders for
their promulgations to be seen as legitimate. Thus, legitimacy has two approaches:
(1) substantive legitimacy which is concerned with the content of the accounting
standard (Richardson 1985); and (2) procedural legitimacy which looks at the
process by which an accounting standard is created (Johnson and Solomons 1984;
Richardson and Dowling 1986; Deegan and Blomquist 2006). This study focuses on
procedural legitimacy, as it considers the accounting standard setting process that
has been undertaken to derive third sector accounting standards, and how
accounting standard setters legitimise their action if their decisions are contrary
to the voice of third sector stakeholders.
The study utilises Suchman's (1995) legitimacy management strategies of
gaining, maintaining and repairing, in assessing the 'legitimacy' of accounting
Springer
Voluntas (2013) 24:760-784 111
standard setters. Samkin and Sc

what an organisation does when
process. This is the case with th
acceptance ' (Suchman 1995, p.
ment in July 201 1. They have
achieving pragmatic legitimacy
stakeholders, rather than foc
features. While some of the ex
2011b), these were supported b
through: (1) public meetings; an
The public meetings were di
preparers of financial statemen
their website identified that th
podcasts (www.xrb.govt.nz). In
the reasoning behind their dec
The ASRB (and later the XRB
sector during their Board meet
lishment in June 2011 (ASRB 2
dealt with by a series of stakeh
published the following reports
• Suitability of IPSAS Review

• Suitability of IPSAS for NFP
• Simple format reporting for
This is a different approach fr

b, c) and the Australian Trea
stakeholders' views were not
UK's ASB (2012) published rep
summary of submissions; issues
being proposed. The Minister o
providing a summary of consul
rationale for recommendatio
decisions were justified.
As accounting standard setting
maintain its legitimacy or else t
public interest (Baylin et al. 19
justifiable to their stakeholder
that the XRB has done this by
stakeholders, explaining the XR
voice is followed, and justifyin
Fortin 2010). Thus, the XR
acceptability are gained by 4
(Christensen and Mohr 1999, p.
to follow the due process adopt
4 doing the right thing ', i.e. a
2010, p. 496). In the words of F
Springer
778 Voluntas (2013) 24:760-784
belief among stakeholders ' tha

ultimate content of standards'.
In a society committed to 4 de
responsive institutions have
(Gerboth 1973, p. 481). Thus
promulgated in an impartial f
(Gerboth 1987). Johnson and S
for accounting standard setter
First, accounting standard s
accounting standards, and this
Reporting Act (1993); also Se
stakeholders before issuing ac
due process has been addressed
making. Third, procedural d
several forums for stakeholder
working groups. The discussion
salient stakeholders within the third sector stakeholders' voice.
Stakeholder Salience
Through undertaking an examination of the differing stakeholders submitting, it was

possible to evidence patterns occurring in the responses between separate entities.
Similarities were particularly evidenced between those entities who came under the
'Religious Congregations' classification (refer Table 5). This was especially the
case when considering the entirety of submissions made by the Presbyterian Church
of New Zealand (MED 53 and ASRB 26), the Catholic Diocese of Auckland (MED
50 and ASRB 30), the New Zealand Catholic Bishops' Conference (ASRB 29), and
the Roman Catholic Church of New Zealand (MED 55).These organisations appear
to have collaborated and presented seemingly 'independent' submissions that were
at times identical in wording.
Data released by the Charities Commission (201 1) highlights a possible motive
for the 'Religious Congregations' sector to cooperate towards the advancement of a
mutual agenda. Seven out of the ten largest registered group charities in terms of
total income and asset value, and six of the seven who recorded the top donations,
were classified under 'Religious Congregations'. The largest charity group was the
Roman Catholic Diocese of Auckland Group, which had total income and assets of
NZD793,1 10,000. Dainelli et al. (2012, p. 1) highlight that the amount of funds
received ' represents the power of a particularly salient category of stakeholders'.
A 'strength in numbers' approach when considering the purpose of the
submissions, i.e. to allow stakeholders to voice concerns over issues discussed in
each respective discussion document, may therefore act to reinforce and bring
greater attention to significant issues which certain members within a specific third
sector categorisation may have. This supports Durocher et al. (2007, p. 31) who
considered ' consensus is necessary to encourage collective action, and is possible in
smaller groups that cost less to organise '. This appears to be the case with
'Religious Congregations'.
Springer
Voluntas (2013) 24:760-784 779
The literature recognised sa

providers; accounting firms; a
public (Lee 2004; Woodwar
Durocher Fortin and Côté 2
Palmer 2011; Larson et al. 20
submissions. A study by Tand
will participate if they conside
that the Fundraising Institu
resource providers were key st
Palmer 201 1).
Larson et al. (201 1) consider that academics are key standard setter stakeholders,
so it was disappointing that only five submissions were received from academics,
either individually or under their tertiary institution, e.g. university. As can be seen
on their website, the XRB has attempted to find the academic voice by presenting to
academics at most large New Zealand tertiary institutions.
However, what was disappointing was the lack of detailed submissions from the
third sector umbrella bodies, which were labelled 'Civic and advocacy groups'
under the ICNPO categories (refer Table 5) or the New Zealand Charities
Commission. Only two of these key stakeholders made detailed submissions: the
Association of Non-Government Organisations of Aotearoa (MED 66 and ASRB
46); and the New Zealand Federation of Voluntary Welfare Organisations (MED 70
and ASRB 67). Several made generalised comments rather than directly answering
the specific questions. These included: the Charities Commission (MED 141 and
ASRB 75); Volunteering New Zealand (MED 100 and ASRB 53); and Philanthropy
New Zealand (MED 36 and ASRB 25).
So who were the salient stakeholders groups, i.e. where were particular
stakeholders prominent? These were not the submitters, but rather the members of
the third sector stakeholder focused working groups (ASRB 2010a, b; XRB 201 Id).
These groups were given the power, legitimacy and urgency to ensure their views
were listened to (Mitchell et al. 1997; Collier 2008; Hyndman and McMahon 2010;
Cordery and Baskerville 2011; Dainelli et al. 2012).
This section of the paper has provided a summary of legitimacy management
strategies and stakeholder saliency as the theoretical lens through which the actions
(or inactions) of accounting standard setters to third sector stakeholders' voice could
be viewed. Through these lenses accounting standard setters could be seen to
proactively gain legitimacy in the eyes of their third sector stakeholders.
Conclusion
This study set out to investigate whether third sector stakeholders have voice in third
sector accounting standard setting. NVivo was utilised to search, organise and track
submissions from the MED (2009) and ASRB (2009) discussion papers. In this way,
the voices of third sector entities and their stakeholders to proposed changes of third
sector accounting standards could be determined.
Ö Springer
780 Voluntas (2013) 24:760-784
The empirical evidence was c

setters' response to the 2009 dis
(2011a, b, c) and the XRB (2011
were listened to. Critical com
accounting standard setters wer
However, through the theoreti
stakeholder salience, what th
incorporating their third sector
found that accounting standard
explain their proposals. They
environment and achieving pra
salient stakeholders were the t
ASRB and, latterly, the XRB se
The study will be of interest to
accounting standard setters are
to accounting standard setters
study is important for those
grappling with the due process
its elevation of working groups
Acknowledgments The authors would li

two blind reviewers, and participants a
would like to declare that this paper is w
Reporting Board's sub-board the New
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Third Sector Accounting Standard Setting: Do Third Sector Stakeholders Have Voice?

Author(s): Rowena Sinclair and Rebecca Bolt

Third-Sector Research ORIGINAL PAPER

Third Sector Accounting Standard Setting: Do Thir

Rowena Sinclair * Rebecca Bolt

Published online: 16 February 2013

R. Sinclair (ISI) • R. Boit

pragmatique afin de s'assurer q

Zusammenfassung Die Studie

Resumen El estudio examina l

Keywords Third sector • Standa

whether third sector entities, st

Conceptual frameworks establish the concepts, i.e. generally accepted accounting

Third Sector Accounting Standards

et al. 2007). New Zealand propos

Sector Neutral Standards: Australia

Third Sector Developed Standard : England and Wales

Application of Public Sector Standards: New Zealand

New Zealand is on the cusp of a move from sector neutrality to a multi-standards

problems (Rees and Dixon 1983;

Accounting Standard Setters

Countries have standard setters

New Zealand Accounting Standard Setters

In New Zealand, the Ministry of Economic Development (MED) (now th

Table 1 The standard-setting literature on institutional legitimacy

Author (chronological order) Aim of study

'what' should be reported. The X

• Regulatory Impact Statem

These documents were followed

Reporting entities , primary objective of which , are to provide goods or

provided with a view to suppo

This paper utilises the above de

Standard Setters' Third Sector Stakeholders

The International Public Sector Accounting Standard Board's (2010) conceptual

Table 2 The standard setting literatur

Author (chronological Aim of stud

The purpose of this research study is to contribute to the body of knowledge on t

other interested parties have v

1. What is the voice of the

It is the investigation of the v

Table 3 Content analysis categories

ASRB and MED Explanations of questions

Qualitative Document Analysis

This section answers the two research questions:

Table 4 Content analysis population

Population MED ASRB

Total submissions 151 75

Not publically available (7) (1)

Submissions relating to Table 3 questions 40 37

Table 5 Categorisation of Stakeholders

Categories MED ASRB

Third sector organisations

Civic and advocacy groups 5 6

Tangata Whenua-based organisations I 1

2. Did accounting sta

Basis of Tier Splits (Table 3 Questions 1 and 2)

relation to this question agree w

In our experience not-for-pro

Further opposing submitters c

We have some concern about reliance solely on operating expenditure as a

Table 6 Size of tiers

Tier 1 Over $10 million Over $30 million

Size of Tiers (Table 3 Questions 3, 4 and 5)