islamic accounting 28 may 2008

8/13/2019 Islamic Accounting 28 May 2008

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Islamic Accounting:The Emergence of aResearch ProgrammeBassam Maali & Christopher Napier


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What could Islamicaccounting be 1 Specific form of accounting dictated by

religious precepts of Islam

Sources: Quran

Sunnah

Likely to be normative-deductive: Shariah

Can we contrast Islamic accountingwith e.g. Christian accounting?


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What could Islamicaccounting be 2 Accounting practices in predominantly

Islamic/Muslim countries

Problem of wide diversity across time andspace

Pre-colonial, colonial and post-colonial

accountings


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What could Islamicaccounting be 3Accounting practices of self-described

Islamic organisations?

Islamic financial institutions Banks

Investment companies

Insurance companies

Islamic not-for-profit organisations

Waqf

Zakah intermediaries


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Key factors cultural Religion (din) permeates lifeno

sacred-secular divide

Shariahprinciples and law

Prohibition of riba(usury/any interest?)

Obligation to pay zakah(religious wealth

tax)

Importance of the ummah(Islamic

community)


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Possible links toaccounting culturalUmmah:

Disclosure

Social and environmental reportingZakah:

Measurement and reporting

Riba: Shariah-compliant transactions (financial

engineering?)

Form and substance


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Key factors economic Oil wealth in Middle East from 1970s:

Desire to mobilise wealth in Shariah-compliant

ways

Attempts to develop Islamic economies

Provision of acceptable savings, investment

and finance vehicles for Muslims

Financial innovation: Creation of synthetic products based on shariah-

compliant forms that mimic conventional financial

instruments


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Possible links toaccounting economic Islamic Financial Institutions:

General accounting requirements

Audit, supervison and regulation

Shariah-compliant transactions:

Specific accounting treatments

Relevance of International FinancialReporting Standards

Substance and form


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English language researchin Islamic accounting First generation:

UKkey figures were Trevor Gambling,

Cyril Tomkins, Rifaat Abdel KarimAustraliaPhD students from Middle East

and South East Asia supervised by limitedrange of accounting professors

Second generation: Scholars in/from Middle East and South EastAsia writing in English

Hardly any contribution from US scholars


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Early normativearguments Role of financial reporting:

Information relevant for calculating zakah

Social reportingto the ummah Valuation basis:

Current value

No use of discounting

Performance reporting:

Value added statement, not incomestatement


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Some empirical evidence Sulaiman:

1998 - Questionnaire survey

2001Experimental study

No significant differences between Muslim and non-Muslim respondents

Idris (1996):

Conventional reports most important

Islamic reports slightly important

Maali (2005):

Islamic influence of diminishing importance on

accounting practices after Islamic Bank established


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Accounting concepts Accounting unit:

Are separate business entities acceptable?

Going concern:

Is assumption of indefinite life inconsistent withIslamic belief that only God is eternal?

Periodicity

Money measurement: Should a stable measuring unit be used?

Conservatism: Valuations for zakahcurrent measures?

No distribution of profit until realised?


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Accounting concepts Matching:

Unnecessary if assets/liabilities measured at currentvalue?

Required to assign responsibility for cost to recipientof benefit?

Timing of recognition/accruals: Accrual basis necessary to measure true wealth?

Accrual basis may lead to distributions before cashreceived?

Full disclosure: Wide agreementdisclose everything important to

Islamic users for the purpose of serving God.


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Islamic banking Special contracts and transactions:

Mudaraba managed investment

partnershipMurabahapurchase financing with mark-

up

Ijaraform of operating lease

Salamforward sale contractMusharakaform of partnership

Shariah consultant or supervisory board


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AAOIFI Established in 1990 to produce standards

for Islamic financial institutions

Builds on existing accounting practiceswhere these are consistent with Islam

Applies Islamic principles of Shariah, butmust deal with wide variation ininterpretation of Shariah

Tensions with national regulators andIASB


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Are Islamic transactionsdifferent in substance? Are Mudarabadeposits actually

liabilities?

Are Murabahasales really loans?

Are Musharakapartnerships really jointventures?

Are Ijarareally leases? If accounts are socially constructed, is

there an Islamicsubstance that differsfrom Westernsubstance?


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Conclusions is Islamicaccounting worthcelebrating?

Growing body of literature:

Beginning to spread into other fields of accounting

research, e.g.

Environmental reporting

Accounting history

Initial focus on normative studies shifting to

more empirical research Some policy relevancerole of AAOIFI

Key outstanding issue: do Islamic transactions

have a distinct substance, or are they Western

transactions in disguise?

islamic accounting 28 may 2008

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