Regular finance account reporting of how the money is being used should be required. If you can't handle it, don't ask for money.
Such production of reporting and auditing of reports has costs and could consume significant amount of project funds.
Nonsense. If it's a serious project, they should already have an accountant or at least some form of accounting software - once you have that, it's pretty simple to produce a basic cash flow report. Regardless of what your business is, tracking the financials is basic to it. If not just to know whether or not you can afford that widget or software package, because come the end of the year you have to let the IRS know. If the project doesn't have financial tracking, it's a sign to run - far and fast.
It should be up to the backers and an agreement with the backers made in advance, regarding what will be required, not up to some random third party to decide what reporting will be imposed on them both.
Kickstarter isn't a random third party. As the great-grandparent said, they're essentially assuming the role of the stock exchange - as the middleman and facilitator of the process. Thus they have an interest in seeing that the process is transparent and to some degree regulated. Even for private investment, sans the market, the SEC has rules separating investors into two classes based on their ability to determine and withstand risk. As the arbiter of the market, Kickstarter has similar motivations to protect investors.
Now this being Slashdot, there will be a chorus of people insisting we don't need a middleman or and arbiter... to which I say, go try and raise significant funds on your own sans such a middleman. Then you'll understand why a central marketplace with at least some level of consumer (investor) protection is an idea that has recurred throughout human history. It's a win-win situation for all parties. (And before you rant and froth about Wall Street - I'll point out the problems there are implementation and QA errors, not specification errors.)