Topic 9 - Islamic Accounting

8/13/2019 Topic 9 - Islamic Accounting

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MAC4013 ACCOUNTING FRAMEWORK

TOPIC 9TOPIC 9

ISLAMIC ACCOUNTINGISLAMIC ACCOUNTING


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2TOPIC9-ISLAMIC ACCOUNTING

Learning Objectives:

Need for Islamic Accounting Islamic Values and Implications for Islamic

Economics

Conventional Accounting and MainstreamEconomics

Islamic Economics and Implications for Islamic

Economics Compatibility of Accounting Concepts


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Need !r Is"a#ic Acc!$nting

Conventional Accounting is not suitable to Muslim society. Reasons: It embraces fundamental values and principles wic are in conflict wit

its values !Ali" #$$%& 'an #$$(). Adopting or modifying conventional accounting concepts is deemed

insufficient to develop an accounting system wic consistent witIslamic norms towards Islamic ob*ectives

+rowing of te Islamic ban,ing industry in te global economics !'arim"#$$- and Roy #$$#). ameed et al. !#$$/) 0 many organi1ations are see,ing funding from

Islamic ban,s operated in line wit te 2ari3a.

Establisment of Islamic organi1ations in many Muslim countries witIslamic ob*ectives reinforces te need for Islamic accounting.

In Malaysia" te establisment of 4an, Islam Malaysia 4erad !4IM4)led to rapid growt in Islamic ban,ing operations 5 introduction astructural framewor, 5 Islamic ban,ing financial reporting practices avebeen regulated by te 4NM" te 4an,ing and 6inancial Institutions Act!4A6IA). te Islamic 4an,ing Act #$7/" Companies Act #$89 andapplicable MA24 2tandards.


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Iss$e &: Is"a#ic 'an(ing Services

Islamic ban,s and oter financial institutions tatprovide Islamic ban,ing services ave beenrelying eavily on te prevailing guidelines issuedby 4NM" sari3a rulings issued by 2ari3a

advisors appointed by te respective ban,s. is practice as raised some concerns !MA24"

;--;:


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Iss$e 2: Lac( ! a C!*erent ra#e+!r(

Absence of a proper set of accounting standardsfor te recognition" measurement and disclosure

of Islamic based transactions.

e e=isting MA24 standards ave not been ableto address accounting issues witin Islamic

ban,ing operations ade>uately !MA24" ;--;).

2aul ameed" ;--# said Islamic accounting

needs to be broad based covering all Islamicbusiness" government and voluntary

organisations.


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Acc!$nting: C!nventi!na" vs Is"a#ic

'asis Is"a#ic Acc!$nting C!nventi!na" Acc!$nting

Objectives Islamic accountability

6ala and maslaa

2ocial welfare orientation

?ecision usefulness for investors"creditors& capital mar,et orientation

Users 2ociety" 2ta,eolders Mar,et players" 6inance providers

ec!gniti!n 2ocio0economic events"include e=ternalities" e=cludesaria proibition

Monetarily measurable Internaleconomic events

Meas$re#ent Monetary @

Non0monetary4alanced score card

Current valuation

Monetary

istoric cost

.isc"!s$re 2aria compliance

2ocio0economic

All material3 economic events


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Iss$e: Inc!r0!rating Is"a#ic va"$es int!

c!nventi!na" acc!$nting1

?ifficulties: E=tending te notion of accountability into

conventional accounting may meet significantresistance as te Bbusiness case as not been

successful.


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C*ristian t*!$g*t vs1 Is"a#ic ec!n!#ics

e reason for tis is due to te Cristian focus on teetics of interest is premised on te conse>uences of

individual actions on individuals wereas te Islamic

etics focuses on te social conse>uences of collective

actions. us" wile bot condemned te practice" te reason

for te dissatisfaction was dissimilar toug it could be

said tat bot regard economic *ustice as a social good.

owever" te Islamic viewpoint ta,es on a broader

institutionali1ed public accountability.

It is vital to appreciate te nature of Islamic economics

and ence accounting.



$nda#enta" Is"a#ic 4a"$es

4elieve in +od e Dur3an

Man as te Vicegrant

e roibition of Interest

e payment of a portion of one3s wealt" 1a,at"

to te poor

e fulfillment of contracts Complete disclosure of relevant information to

parties to any economic or social contract


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Maj!r Is"a#ic Instr$#ents

Coudury !;--;): epistemology of Fneness of+od and sari3a.

9 ma*or Islamic economic and financialinstruments:Abolition of interest

rofit0saring under economic cooperation betweenlabour and capital

Goint venture" principally toug not wolly trouge>uity participation

e institution of carity

e avoidance of wasteful use of resources


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Iss$e: I#0"icati!ns ! Is"a#ic

ec!n!#ics !r Is"a#ic acc!$nting

Accountability to te c!##$nit6 !r s!ciet6 at large isa critical aspect of te Islamic perspective.

ence a sift to te Islamic perspective is e=pected to

increase focus on accountability and e=panding te

currently narrow focus of responsibility of reportingentities to a wider sta,eolder group.

e implications of Islamic economics can be seen in

te following:

6ull disclosure" eriodicity" Records" Concept of materiality"

Concept of reliability" resentation and 6orms of accounting

reports" Hnderstanding of BAssets and



Is"a#ic Acc!$nting: '$siness 7t*ics

e paramount rule in business is onesty andfair dealing !ussain" #$$$)

A Muslim business person sould as ig

moral values and never e=ploit oters. roibit monopolies and price fi=ing.

6ree mar,et and not sub*ect to manipulation.

eople will not be e=ploited by te more powerful inbusiness transactions.

4eave e>uitably" no defect iding" no lier" no

stealing goods and oarding.

S



Is"a#ic Acc!$nting: S!cia"

Acc!$ntabi"it6

e word esab !account) is repeated moretan 7 times in different verses in te Dur3an.

Account is te root of accounting

Fne3s obligation to account3 to +od on allmatters pertaining to uman endeavour forwic every Muslims is accountable.

All resources made available to individuals are

made so in te form of trust. Individuals are trustees for wat tey ave been

given by Alla in te form of goods" property andless tangible assets.


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Is"a#ic Acc!$nting: Acc!$ntabi"it6


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Is"a#ic Acc!$nting: $"" disc"!s$re


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Is"a#ic Acc!$nting: ec!rds

'eep record of indebtedness 2;:;7;.. Jen you contract a debt for a fi=ed period" put in in

writing.


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Ot*er Is"a#ic Acc!$nting Attrib$tes

eriodicity Materiality

Reliability

resentation

6inancial Accounting Reports

Assets and


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C!#0atibi"it6 ! Acc!$nting C!nce0ts

Accrual basis for recogni1ing revenue ande=penses in terms of amounts e=pected to bereceived in te future would seem to pose somedifficulties for Islamic Institutions. Conservatism

using te lowest values of assets and te igestvalues of e=penses

Reporting e=penses sooner tan later

Recognising revenues later tan sooner Matcing

Recogni1ing e=penses in te same period asassociated revenues



I#0"icati!ns ! $sing Accr$a" 'asis

Ka,at payment Mali,i 2cool" loans !including unearned revenue)

are e=empt from 1a,at

Mudaraba principle 2afii legal doctrine" profit distribution as to be

treated as refund of capital



Ot*er Iss$es in Is"a#ic Acc!$nting

2ubstance Fver 6orm Islamic: AAFI6I does not endorse tis concept.

Accountability o Alla and Hmma

o conclude: Islamic Accounting: A Jay 6orward

e accountability based framewor, 5 relation between e

accountor" te supplier of te accounting information and te

accountee" te users of te accounting information. 6airness is viewed as te fundamental goal tat accoutning

strives to acieve.


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!"es ! MAS'

MA243s efforts in formulating Islamic accountingstandards.

MA2432 efforts currently may be significantly

diverted to maintaining congruency wit teIA24 framewor, for conventional accounting.

Maintaining dual accounting conceptual

framewor, may be a callenge for te national

standard setter.


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MAC4013 ACCOUNTING FRAMEWORK

7nd ! T!0ic 97nd ! T!0ic 9

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Topic 9 - Islamic Accounting