Islam, accounting and finance: challenges and opportunities in the new decade
There has been increasing evidence that suggests the acceptance of shariah principles for business transactions. Islamic finance products such as Wadiah, Ijarah, Murabahah, Mudarabah, Diminishing Musharakah, Salam, Istisna, Shukuk, just to name a few, have been introduced into the financial market t...
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| Format: | Book |
| Language: | English |
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IIUM Press
2011
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| Online Access: | http://irep.iium.edu.my/13985/ http://irep.iium.edu.my/13985/ http://irep.iium.edu.my/13985/1/Book.pdf |
| Summary: | There has been increasing evidence that suggests the acceptance of shariah principles for business transactions. Islamic finance products such as Wadiah, Ijarah, Murabahah, Mudarabah, Diminishing Musharakah, Salam, Istisna, Shukuk, just to name a few, have been introduced into the financial market to meet the demand of the financial products that follow the shariah principles. This has important implications on the nature, process and practice of accounting, auditing and governance of financial institutions and organisations.
The compilation of issues and challenges concerning this interesting area is therefore timely. “Islam, Accounting and Finance: challenges and opportunities in the new decade” tries to update and inform the readers on important issues that warrant immediate attention. Most of the papers have been presented in the IIUM International Accounting Conference V. Benefiting from this exercise, it would definitely be a sad waste if the issues are not shared with others who perhaps share similar interests.
This edited book separates the issues and challenges into four sections. The first section is devoted to the discussion on Islamic Finance and Islamic Accounting. The second relates to the corporate governance issues and challenges. The third looks at financial reporting and auditing, and the final section looks at the issues relating to the management of zakat.
There are three papers under the Islamic Finance and Islamic Accounting section. Two papers discuss the application of Islamic Finance within the context of Islamic Banking while one attempts to provide different interpretations concerning the meaning of Islamic Finance. Abdulla Galadari attempts to looks at how the Islamic rules of commerce and finance exactly mirror how Allah deals with the souls of human beings. The souls of human beings are loaned for a fixed period of time, and then sold back to Allah.
Sharifah Faigah Syed Alwi, Uzaimah Ibrahim, and Mohd Fuad Sawari tackle the Islamic Letter of Credit, which highlights the issue of interest in the UCP 600 from the shariah perspective. They have suggested several ways to avoid the interest charges on the application of the Islamic Letter of Credit. The third paper provides an empirical analysis of the institution based factors affecting the credit risk of the Islamic banking industry in Pakistan. The study suggests that managerial efficiency, regulatory capital, funding cost and leverage have no statistically significant effect on credit risk. Only loan loss provision has a positive relationship with credit risk while factors such as assets base, loan to risky sectors and risk weighted assets have a significant inverse relationship.
Three papers grouped under the Corporate Governance portray the issues and challenges from different perspectives. The first two papers discuss the financial crises but only Mohyi Aldin Yaqob Abu Alhoul and Riaz Ansary specifically relate the financial crises to the governance practices. The paper attempts to clarify the concept of governance, its parameters and standards, and its role in confronting financial crises within the framework of Islamic economics. In the second paper, Dzuljastri Abdul Razak and Mustaffa Omar Mohammed, employ contents analysis to search for unethical behaviours that could have caused the financial crises. Acknowledging the technical reasons such as the use of financial engineering, and the absence of sophisticated, reliable, innovative hedging, which could have caused the financial crises, the paper then suggests that there is a need for an objective conceptual approach to derive the commonality of the two types of literature. In the last paper of this section, Rusdi Akbar explores the adoption and implementation of Performance Management Systems in the public sector. Specifically it examines the background and process of the development and use of performance indicators. He concludes that the institutional isomorphism seems to exist in the adoption and implementation process because of the pressure exerted by the central government through the enactment of new regulations relating to performance reporting. However, the adoption and the implementation of the PMSs are just simply to conform rather than to perform.
Financial reporting and audit portrays three interesting and different papers that are found to be relevant and important to the current literature in accounting. Nurazalia Zakaria and Zurina Shafii, highlight the current practices of Shariah reviews and audit by selected Islamic banks in Malaysia and in the Middle East. They compare the current practice of these selected Islamic Financial Institutions and documented that differences in practices can be attributed to the different legal and regulatory requirements.
The next paper also discusses the differences in the context of two different groups of companies. Sherliza Puat Nelson examines the differences between fraud firms and non-fraud firms, with respect to the board’s characteristics and firms’ characteristics. Even though the author fails to find any significant result, the study documents interesting findings. The study shows that appointing audit committees with some background of expertise, induces the companies’ financial resources to be effectively managed, such as lowering debt.
The third paper in this section of financial reporting and audit, discusses the accountability issues present in PPP’s implementation, from the angle of an Islamic perspective. The author, Farid Arif Wibowo, provides justification on how accountability should be translated into practices to make PPP work in Islamic countries. As he concluded, PPP’s successful implementation is also derived from the accountability of the whole process of implementation, other than through the normal technical and financial structure.
The following section falls under the area of zakat and charity related organisations. The first paper by Namelfi Amran and Sofiah Md Auzair, measures the efficiency and effectiveness of managerial performance in zakat institutions. They documented that the elements of management control systems play a significant role in the form of formal and informal control. Whereby, both control systems are found to be related to high managerial performance.
The second and last paper of this section also highlights the issue of appropriate management practices in making contributions to Islamic institutions or organisations. Rahmatina A. Kasri has carried out a relatively extensive and recent study in Indonesia using mixed methods. The findings reveal that donors or contributors donate through ‘informal’ Islamic charitable institutions, instead of formal zakat organisations. Hence, the findings highlight important understandings concerning donors’ behaviours, and, subsequently, design an appropriate management strategy for effective management of the relevant institutions.
Islamic finance is growing as there is a need to manage Islamic funds. However, other related issues pertaining to Islamic finance and accounting need to be highlighted as well such as shariah audit, zakat management and Islamic accounting. In light of this need, this book is hoped to shed some new ray of lights in financial accounting and reporting in general, and Islam especially.
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