THE NEED FOR ISLAMIC ACCOUNTING; PERCEPTIONS OF ITS OBJECTIVES AND CHARACTERISTICS BY MALAYSIAN MUSLIM ACCOUNTANTS AND ACCOUNTING ACADEMICSShahul Hameed Bin Mohamed IbrahimTHESIS PRESENTED IN FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DOCTOR OF PHILOSOPHY DEGREE IN ACCOUNTINGDEPARTMENT OF ACCOUNTANCY AND BUSINESS FINANCEUNIVERSITY OF DUNDEEAPRIL 2000

DEDICATED TO ALLAH (EXALTED BE HIS MAJESTY) WHO GAVE US LIFE AND HIS GUIDANCE, HIS CHOSEN LAST MESSENGER MUHAMMAD (PEACE BE UPON HIM) WHO STRIVED FOR THE SALVATION OF MANKIND FROM THE DARKNESS OF IGNORANCE TO THE LIGHT OF ISLAM, MY BELOVED LATE FATHER, HJ. MOHAMMED IBRAHIM MOHD. ISMAIL (MAY ALLAH SWT HAVE MERCY ON HIM) WHO GAVE ME A GOOD EDUCATION BY HIS OWN GOOD EXAMPLE AND WHO INSPIRED THE LOVE OF ISLAM, MUSLIMS AND JUSTICE FOR HUMANITY IN ME, AND MY DEAR MOTHER WHOM I LOVE VERY MUCH (MAY ALLAH GIVE HER A LONG AND HEALTHY LIFE AND A SECURED PLACE IN PARADISE) AND WHOSE PRAYERS I CANNOT DO WITHOUT.

TABLE OF CONTENTSTable of FiguresviiList of TablesixAcknowledgementsxiDeclarationxiiiCertificatexiiiAbstractxivCHAPTER 1: INTRODUCTION AND OUTLINE OF THE STUDY11.0Introduction11.1The Context: Conventional Accounting and Its Relationship to Society11.2The Problem: the Globalisation of Anglo-American Accounting in Diverse Cultures and Environments21.3The Imperative for the Research: Resurgence of Islam and Islamisation of Knowledge31.4The Aim and Objectives of the Research71.5Research Methodology and Methods101.6Original Contributions to Knowledge and Limitations of the Study.121.7Outline of the Thesis15CHAPTER 2:WORLD-VIEWS, VALUES AND ACCOUNTING; DIFFERENT ACCOUNTINGS FOR DIFFERENT WORLDVIEWS.192.0 Outline of chapter192.1 Worldviews,Values and Their Impact on Economic Objectives,Norms and Accounting192.1.1The Western Worldview and Values212.1.2Western Worldview212.1.3Democracy and Popular Sovereignty222.1.4Individualism, Liberalism and Utilitarianism232.1.5Empiricism262.1.6Secularism272.2 Capitalism, Economic Norms and Accounting282.3 Marxism: A Reaction Against Capitalism.332.4 The Accounting Implications of Western Worldviews, Values and Economic Norms.342.5 Islamic Worldview and Values392.6 The Implication of Islamic Worldview and Values for Economic Norms and Codes: the Shariah and Economic Objectives452.6.1Circulation of Wealth482.6.2Security492.6.3Authenticity502.6.4Equity:502.6.5Dignity of Labour512.6.6Morally Filtered Consumption:512.6.7Prohibition of Immoral and Unsocial Contracts542.7 Accounting Implications of Islamic Economic Values and Norms542.8 A Comparative Analysis of Western and Islamic Values and Their Implications for Socioeconomic Norms and Accounting552.9 Worldview and Values: A Comparison572.10 Conclusion63

CHAPTER 3:THE PROBLEMS WITH CONVENTIONAL ACCOUNTING AND IMPLICATIONS FOR ISLAMIC ACCOUNTING663.0Introduction and Chapter Outline663.1An Outline of Various Accounting Critiques.683.2 The Objectives and Assumptions of Conventional Accounting: Some Problems With the Decision Usefulness Paradigm.733.2.1The Economic Environment of Decision Usefulness753.2.2The Ceteris Paribus of Decision Usefulness.763.2.3The Question of Social Welfare:793.2.4The Societal Assumptions of Decision-usefulness813.2.5The Dysfunctional Effects of Decision Usefulness:843.2.6Conclusions on the Decision-Usefulness Objectives of Conventional Accounting.853.3 The Characteristics of Conventional Accounting; the Problem With Accounting Principles863.4The Macro Consequences of Conventional Accounting903.4.1Multinational Exploitation923.4.2Privatisation , Loss of Work and Public Property933.4.3Environmental Problems963.5The Micro Consequences of Conventional Accounting - Behavioural Problems.1003.5.1Behavioural Research: Human Problems of Budgets1013.5.2Management Control and Performance Measurement1033.6Conventional Accounting Critique: An Islamic Perspective.1053.6.1The Inappropriateness of Conventional Accounting Objectives and Fundamental Assumptions From An Islamic Perspective1053.6.1.1 Environment and Fundamental Assumptions of Muslim Society and IslamicEconomic System.1083.6.2.Characteristics of Conventional Accounting1093.6.2.1 The Unsuitability of the Historical Cost and the Prudence Concept.1093.6.2.2 The Calculation of Income From An Islamic Perspective1103.6.3Unislamic Consequences of Conventional Accounting1123.6.3.1 Privatisation1123.6.3.2 Environmental Problems: Islamic Perspectives1133.6.3.3 Micro Behavioural Consequences1153.7Conclusion115CHAPTER 4: THE NEED FOR ISLAMIC ACCOUNTING: PULL FACTOR 1 THE ISLAMISATION OF KNOWLEDGE1184.0Chapter Outline: the Pull Factors1184.1The Islamisation of Knowledge1204.1.1Islamisation of Knowledge and Islamisation.1204.1.2The Need for Islamisation of Knowledge- the Malaise of the Muslim Ummah.1224.1.3Reactions to the Malaise1264.1.4The Movement towards Islamisation of Knowledge1284.2The Methodology of Islamisation of Knowledge1294.2.1The Three-Step Approach1304.2.2A Work Plan for the Islamisation of Knowledge1334.2.3Islamisation of Knowledge through discourses1354.2.3.1Articulating the Islamic paradigm of knowledge1364.2.3.2Developing Quranic (or Islamic) methodology1364.2.3.3Methodology for dealing with the Quran1364.2.3.4Methodology for dealing with the Sunnah1374.2.3.5Re-examining the Islamic intellectual Heritage1374.2.3.6Dealing with the Western Intellectual paradigm1374.2.4The Two Processes Approach1384.3Islamisation of Knowledge, A Paradigm Shift In Epistemology?1424.3.1Epistemology: the Development and Schools of Western Epistemology.1424.3.2Scientific revolutions and Sociological Paradigms1454.3.3The Implications and critique of the paradigms.1524.3.4Theoretical assumptions of this research1564.3.5Locating this research1574.4An Intial Attempt At Islamisation of Accounting.1634.5Conclusion164CHAPTER 5: THE NEED FOR ISLAMIC ACCOUNTING: PULL FACTORS 2- THE ESTABLISHMENT OF ISLAMIC ORGANISATIONS1665.0 Introduction1665.1 The Islamic economic and financial system and the problem of riba.1685.1.1 The objectives and characteristics of the Islamic Economic System1695.1.2Definition and classification of Riba1725.1.3 Reasons for the prohibition of Riba1735.1.4 Controversies on the prohibition of Riba1735.2 Islamic Organisations1785.2.1 Islamic businesses1815.2.1.1forms of Business Organisation1815.2.1.2Objectives and Operations of Islamic Organisations.1815.2.1.3Accounting implications1835.2.2 Zakat collection and distribution1845.2.3 Insurance companies1905.3 Islamic banks and Financial Institutions: history, nature and operations1925.3.1 Classification of Islamic banks1935.3.2 Development of Islamic banks and financial institutions1945.3.3 Modus operandi of Islamic Banks1985.4 The Asset side of islamic banks: Islamic Financial Instruments:2015.4.1 Murabaha and Bai al-Muajjal2015.4.2 Mudharaba2025.4.3 Musharaka2035.4.4 Ijara2045.4.5 Salaam2045.4.6 Istisna2045.5 Accounting problems of Islamic banks2055.5.1 Profit sharing2055.5.2 Capital Adequacy Ratio2115.5.3 Confounding International Accounting Standards2155.5.4 Non-Financial Disclosure2175.6 Conclusion219CHAPTER 6:THE OBJECTIVES & CHARACTERISTICS OF ISLAMIC ACCOUNTING2216.0 Introduction2216.1 The Construction of Accounting Theories: Methodologies, Approaches and Methods.2236.1.1 The Empirical Inductive Approach:2236.1.2 The Deductive Approach2256.1.3 The Methodology of this research.2306.2 Ethics, Business and Accounting2326.2.1 Ethics and Business Ethics:2346.2.2 The Islamic Economic Paradigm and its objectives2386.3 Accountability and Islamic Accountability : the objective and premise of Islamic accounting.2426.3.1 Stewardship2436.3.2 Accountability2456.3.3 Extensions of Accountability Framework & Islamic Accountability2496.3.4 Islamic Accountability; the Basis of Islamic Accounting2526.4 Subsidiary objectives of Islamic Accounting2606.4.1 Shariah Compliance.2606.4.2 Assessment and Distribution of Zakat2616.4.3 Equitable distribution of wealth among stakeholders2636.4.4 The creation of an co-operative environment and solidarity2646.5 Users of Islamic Accounting Information2656.6 Characteristics of Islamic Accounting2686.6.1 Conventional and Islamic Accounting Information: Similarities and Differences.2686.6.2 Information on the Shariah Compliance of the Entity.2716.6.3 Wealth distribution2736.6.4 Employee-Manager relationships2746.6.5 The Social and Environmental Impact of the Organisations Activities.2756.6.6 Some other considerations of Islamic Accounting2766.6.6.1Monetary Measurement Concept2766.6.6.2Islamic Auditing2776.6.7 Income Measurement and Valuation in the Islamic Accounting system.2786.7 Conclusion284CHAPTER 7: RESEARCH DESIGN AND DATA COLLECTION2877.0 Introduction2877.1 Data Gathering Techniques: Matching Methodology and Methods.2887.1.1 Questionnaires and the survey method2897.1.2 Postal Questionnaires2907.1.3 Personally Administered Questionnaires2927.1.4 Interviews2937.1.4.1Definition:2937.1.4.2 Classification of Interviews2937.1.4.3 Advantages and Disadvantages of interviews versus Postal Questionnaires2947.1.5 Telephone Surveys2957.2 Methods and the Rationale for the Methods2967.2.1 The Data Collection Methods: From The Ideal to Reality2967.2.2The Choice of Malaysia as the Research Environment2977.2.2.1 Some background information on Malaysia2977.2.2.2 Islamic revivalism in Malaysia2987.2.2.3 Islamisation of business life3007.2.2.4 Malaysia as the Country of Choice for this Project.3007.2.3 Questionnaires and Interviews from an Islamic perspective.3017.3 The Islamic Accounting Perception Questionnaire (IAQ)3037.3.1 The Objective of the Questionnaire3037.3.2 The Construction of the Questionnaire3057.3.3 The Structure of the Islamic Accounting Questionnaire.3067.3.3.1Section 1: The ethical/ moral context of Islamic and Muslim Business organisations.3067.3.3.2 Section 2: Suitability (or otherwise) of Conventional Anglo-American Accounting for Islamic organisations and Muslim users.3117.3.3.3 Section 3: The Objectives, Users, Nature and Characteristics of Islamic Accounting.3147.3.3.4 Section 4:Personal & Organisational Details.3197.3.4 The Population and Sample Statistics of Participants Surveyed.3207.3.4.1 The Accounting Academics3217.3.4.2 The Accounting Professionals3237.3.5 Method of Delivery and Difficulties Encountered3257.4 The Finance Questionnaire on the Behavioural Effects of Conventional Accounting.3277.4.1 The Objective of the Finance Questionnaire.3277.4.2The Structure and Construction of the Finance Questionnaire3287.4.3 Method of Delivery and Difficulties Encountered3297.4.4Sample Statistics and Response Rate for the Finance Questionnaire3307.5 Non-Finance Questionnaire on the Behavioural Effects of Conventional Accounting.3317.5.1 The Structure of the Non-Finance Questionnaire3327.5.2Sample Statistics for the Non-Finance Questionnaire, Delivery and Difficulties Encountered3327.6 Conclusion333CHAPTER 8: DATA ANALYSIS OF THE ISLAMIC ACCOUNTING QUESTIONNAIRE3358.0 Introduction3358.1 Research Design, Variables, Scales and Statistical Techniques3358.1.1Research Design3358.1.2Variables3378.1.3Scales or levels of measurement3398.1.4Measurement scales3428.1.5Statistical Techniques3438.2 Validity and Reliability3458.2.1Validity3468.2.2Tests for Reliability3508.2.3Sampling Error3518.3 Dependent Variables: Findings3538.3.1Analysis & Findings of Section 1 of Islamic Accounting Questionnaire (IAQ).3548.3.1.1Aggregate Scores for Section 1 of IAQ3598.3.1.2Interpretations of aggregate scores3628.3.1.3Aggregate scores for Section 1 of the IAQ.3628.3.2Analysis & Findings of Section 2 of the Questionnaire3648.3.2.1Aggregate scores for Section 2 of the IAQ.3688.3.3Analysis & Findings of Section 3 of the Questionnaire3708.3.3.1Objectives of Islamic Accounting3708.3.3.2Importance of other stakeholders3728.3.3.3The type of Information which Islamic accounting should provide3738.3.3.4The characteristics and nature of Islamic accounting3748.3.3.5Aggregate scores for Section 3 of the IAQ.3758.4 Interpretation of the Findings As A Whole3768.5 Independent Variables: Findings3768.5.1Working Sector3778.5.2Accountancy Related Experience:3778.5.3Education.3788.5.4Islamic Education3808.5.5Social and Environmental Accounting Education3828.6 Significance Tests of Association Between Independent and Dependent Variables3838.7 Conclusion386CHAPTER 9: HYPOTHESES TESTING OF THE ISLAMIC ACCOUNTING QUESTIONNAIRE3879.0 Introduction3879.1 Socio-Economic Principles of Islamic Business Organisations3889.2 The Adequacy of Islamic Sources (Quran, Sunnah) As A Base for Developing An Islamic Accounting and Economic System for Contemporary Organisations.3979.3 The Appropriateness of Conventional Accounting for Islamic Business Organisations and Muslim Users3999.3.1 Conventional accounting results in UnIslamic behaviour4009.3.2 Conventional accounting provides inappropriate information4039.3.3 Conventional accounting concepts (principles) are not suitable for Islamic organisations.4059.4 The Objectives and Characteristics of Islamic Accounting4079.4.1 The Objectives of Islamic Accounting.4089.4.2 The Subsidiary Objectives of Islamic Accounting4119.4.3 The Users of Islamic Accounting4139.4.4 The characteristics of Islamic accounting4169.5 Interpretation of Results4209.6 Conclusion426APPENDIX 9-1: RESULTS OF IAQ HYPOTHESIS TESTING BY SECTORS429CHAPTER 10: ANALYSIS OF BEHAVIOURAL ACCOUNTING QUESTIONNAIRES43110.0Introduction43110.1The Finance Questionnaire: Areas of Enquiry43210.2Finance Questionnaire: Analysis of Findings43510.2.1Short Term Investments43610.2.2Long-term Investments43710.2.3Social and Environmental Investment Policy43910.2.4Islamic Investment Policy44210.2.5Summary Results for Investment Activities44310.2.6Financing Activities44410.2.7Islamic Financing Instruments44410.2.8Non-Islamic Financing Instruments44610.2.9Summary Financing Behaviour44710.2.10Operational Activities44810.2.11Suitability of conventional accounting44910.2.12Islamic commitment45010.3Interpretation of Findings of Finance Questionnaire45410.4Non-Finance Questionnaire: Areas of Enquiry and Results46110.4.1Budget Pressures46210.4.2Performance Evaluation46610.4.3Profit Focus46810.5Interpretation of the Results of Non-Finance Questionnaire47110.6Conclusion473CHAPTER 11: SUMMARY, CONCLUSIONS AND SUGGESTIONS FOR FURTHER RESEARCH47511.0Introduction47511.1Aims and Objectives of the Study47511.2The Case for An Islamic Accounting47611.2.1Development of values underlying conventional accounting.47611.2.2The Push factors: Why conventional accounting is inappropriate for Islamic organisations and users47811.2.3Pull Factors 1: The theoretical imperative47911.2.4Pull Factors 2: The practical imperative48011.3Islamic Accountability, the Objectives and Characteristics of Islamic Accounting48111.4Research Design and Empirical Results48311.5Limitations and Suggestions for Further Research49011.6Original Contributions of the Research491BIBLIOGRAPHY494TABLE OF FIGURESFigure 1-1:Structure of Thesis16Figure 2-1:The Society / Accounting Interface36Figure 2-2: Comparative World-View and Values of Islam and Western Civilisation59Figure 2-3: Comparison of Western (Capitalist) Economic Norms vs. Islamic Economic Norms60Figure 2-4: Accounting Implications of Different Economic/Value Systems61Figure 2-5: Result of Incongruency between Economic System and Accounting System64Figure 3-1: Accounting Route to Social Welfare77Figure 3-2:The Need for Islamic Accounting: Push Factors117Figure 4-1:The Need for Islamic Accounting: Push and Pull Factors119Figure 4-2:The Four Paradigms of Burrell & Morgan (1979)146Figure 4-3: The Subjective- Objective Dimension of Meta-theoretical Assumptions147Figure 4-4:Locating This Research: Islamic Paradigm as a Third Dimension158Figure 6-1:The Accountability Model & Framework246Figure 6-2: An Alternate Definition of Accountability247Figure 6-3:The Islamic Accountability Model259Figure 7-1: Research Questions Underlying the Islamic Accounting Questionnaire.304Figure 7-2: Section 1 of the Islamic Accounting Questionnaire309Figure 7-3: Section 2 of the IAQ313Figure 7-4: IAQ: Section 3 (Part 1)315Figure 7-5: IAQ: Section 3 (Part 2)315Figure 7-6: IAQ Section 3, Part 3316Figure 7-7: IAQ, Section 3, Part 4.317Figure 7-8: IAQ, Section 3, Part 5318Figure 7-9: IAQ, Part 4: Personal and Organisational Details320Figure 8-1:Moderating and Intervening Variables339Figure 8-2 :Dendrogram Using Ward Method for Section 1 of the IAQ348Figure 8-3: Dendrogram Using Ward Method for Section 2 of the IAQ348Figure 8-4: Dendrogram Using Ward Method for Section 3 of the IAQ349Figure 9-1: Hypothesis 1: IBOs Concentrate on Social Welfare389Figure 9-2: Questions on Ethical Nature of Islamic Business390Figure 9-3: Hypothesis 2: IBOs Do Not Participate In unIslamic Activities393Figure 9-4:Questions on Investment Activities of IBOs.395Figure 9-5:Hypothesis on the Inherent Development Capacity of the Islamic Sources of Law398Figure 9-6: Hypothesis on Consequences of Conventional Accounting Information400Figure 9-7:Questions on the Behavioural Implications of Conventional Accounting401Figure 9-8:Hypothesis on Appropriateness of Conventional Accounting Information403Figure 9-9: Questions on Appropriateness of Conventional Accounting Information404Figure 9-10: Hypothesis on Suitability of Conventional Accounting Concepts405Figure 9-11:Qustions on Appropriateness of Conventional Accounting Concepts406Figure 9-12:Hypothesis on the Main Objective of Islamic Accounting409Figure 9-13: Hypothesis on the Subsidiary Objectives of Islamic Accounting411Figure 9-14:Questions on the Subsidiary Objectives of Islamic Accounting412Figure 9-15:Questions on the Relative Importance of Various Stakeholders Compared to Shareholders414Figure 9-16:Hypothesis on the Relative Importance of Islamic Accounting Users414Figure 9-17: Hypothesis on the Information Characteristics of Islamic Accounting417Figure 9-18:Questions on the Characteristics on Islamic Accounting Information418Figure 10-1: Islamic Commitment of Various Groups: Finance Questionnaire453Figure 10-2: Mean Response for Summary Variables455Figure 10-3: Scatterplot of Islamic Behaviour Vs Company Type459

LIST OF TABLESTable 4-1:Classfication and Evolution of Islamisation of Knowledge Methodologies141Table 5-1:Profit Distribution Method in the Faisal Islamic Bank of Sudan208Table 7-1: Population and Sample Statistics of Accounting Academics In Malaysian Universities Surveyed.323Table 7-2: Malaysian Professional Accountants Sample Surveyed.325Table 7-3: Finance Questionnaires Sample331Table 7-4:Non Finance Questionnaire Sample and Responses333Table 8-1: Reliability Analysis for Islamic Accounting Questionnaire351Table 8-2:Distribution and Receipt of Islamic Accounting Questionnaires352Table 8-3: 2-Test for Sample Representation of Population Sectoral Characteristics353Table 8-4: Response Frequencies for Dependent Variables (Likert Scale) - IAQ356Table 8-5: Response Frequencies for Independent Variables (1-5 Ranking Scale) - IAQ357Table 8-6:Response Frequencies of Dependent Variables (Categorical Scale)-IAQ358Table 8-7: IAQ Aggregate Scores Descriptives365Table 8-8: IAQ Aggregate Scores Response Frequencies366Table 8-9:IAQ Aggregate Scores Frequencies (Continued)367Table 8-10: Participants by Working Sector377Table 8-11:Grouped Experience Frequency Table378Table 8-12: Qualifications/Place of Education of Participants380Table 8-13: Highest Islamic Qualifications381Table 8-14: Formally Studied Social & Environmental Accounting382Table 8-15: Firm Receives Technical Assistance382Table 8-16: Significance Levels: Kruskal-Wallis Tests of Differences of Ranked Means betweenPopulations Grouped By Independent Variables IAQ384Table 9-1: Statistical Results for Hypothesis Testing of ETH1393Table 9-2: Statistical Results for Hypothesis Testing of ETH2396Table 9-3: Statistical Results of Hypothesis Testing for QSREL399Table 9-4: Statistical Results for Hypothesis Testing of UNISL402Table 9-5: Statistical Results for Hypothesis Testing of Appropriateness of Conventional Accounting Information for Muslim Users (CAINF).404Table 9-6: Statistical Results for Hypothesis Testing of CAPRIN406Table 9-7: Results of Testing the Decision-Usefulness Hypothesis410Table 9-8: Results of Hypothesis Testing of Social vs. Economic Objectives of Islamic Accounting413Table 9-9: Results of Hypothesis Testing of STIMP415Table 9-10:Results of Hypothesis Testing of SEI419Table 9-11results of Tests of IAQ Hypothesis At Mean/Median=4.0422Table 9-12: Proportion Test of Variables for Academic and Professional Accountants425Table A91: Means Test of Hypotheses by Sector429Table A92: Median Tests of Hypotheses by Sector430Table 10-1:Finance Questionnaire: Respondents by Company Type435Table 10-2: Finance Questionnaire: Responses to Questions on Short-term Investment Activities437Table 10-3: Finance Questionnaire: Responses to Questions on Investment Strategy439Table 10-4: Responses to Questions on Social and Environmental Consequences of Investment441Table 10-5:Responses to Questions on Islamic Investment Policy443Table 10-6: Descriptives for Summary Investment Activity444Table 10-7: Responses to Questions on Islamically Allowable Financing Methods445Table 10-8: Response to Questions on Non-Islamic Financing Instruments446Table 10-9: Summary of Financing Behaviour447Table 10-10 Responses to Question on Operational Activities448Table 10-11:Summary Behaviour in Operational Activities449Table 10-12: Responses to Suitability of Conventional Accounting450Table 10-13: Islamic Commitment452Table 10-14: Descriptive Statistics for Islamic Commitment454Table 10-15: Correlation Test for Co Type and Islamic Behaviour460Table 10-16: Respondents Type: Non-Finance Questionnaire462Table 10-17: Summarised Response Frequency Non-Finance Questionnaire: Effect of Budget Pressures463Table 10-18:Non-Finance Questionnaire Descriptive Statistics (Summarised Responses): Budget Pressures465Table 10-19:Summarised Response Frequency Non-Finance Questionnaire: Performance Evaluation466Table 10-20: Non-Finance Questionnaire Descriptive Statistics (Summarised Responses)467Table 10-21:Summarised Response Frequency468Table 10-22:Non-Finance Questionnaire Descriptive Statistics (Summarised Responses)470Table 10-23: Correlation Tests By Respondent Type472

AcknowledgmentsI wish to express my sincere thanks to the following persons who made this thesis possible:I would first thank Dr. Kouhy and Professor John Innes who together supervised the thesis. Dr. Kouhy took a deep interest in the project from the beginning and was very insightful and thorough in the review of the chapters of this thesis. He continued to be interested in the project and the researcher despite his illness towards the end of the project. Prof. J. Innes always reviewed my work speedily and was very constructive and friendly in his criticism of my work. Thank you for toning down my thesis and getting rid of my silly grammatical mistakes! I am sorry that I could not keep up with him, as I should have! I also thank Prof. Grinyer who was involved in the early stages of the project.Special thanks goes to Prof. Rob Gray whose lectures on social and environmental accounting inspired me to change my topic from Islamic banking problems to a theoretical enquiry into Islamic accounting. Prof. Grays criticisms of conventional accounting was the basis of my own critique and although we dont agree on what is meant by social and the basis of ethics and morality, the issues in his studies of social accounting have relevance to many of the Islamic concerns of my project. Mr. Donald Sinclair also deserves special mention in this thesis as well as all theses undertaken in this department for helping all accounting students including myself with the statistical techniques used in the research. He is a patient and helpful guide who has made the dread of statistics a bit more bearable.Prof. David Power is also thanked for his trenchant criticisms and rubbishing my earlier drafts of the thesis. He is responsible for saving the readers of this thesis from the burden of reading what Plato had for breakfast! I am especially thankful to him (along with Prof. Innes) for correcting my grammar and editorial mistakes and making my writing more readable and academic.I also like to thank Prof. Jan Bebbington, Dr. Christos Tzovas, Dr. Khalid al-khater, Dr. Jassim al-Rumaihi, Dr. Mustapha Mahmud, Br. Jalaal al-Attar, Dr. Collin Dey, Dr. Bruce Burton, Allan Murray, Niklas Kreander, Dr. Rishma Vedd, Emily, Dr. Claire, Margarita Basabikova and Br. Khalid Abdul Qader who all contributed their thoughts, help and food (especailly Khalid al-khater, Jalaal al-Attar and Margarita who supplied caviar) at various times.Special thanks also goes to Br. Kamaruddin Taha, CEO of Abrar Discounts Bhd., the managers and employees of the Abrar Group, Tabung Haji and Bank Islam Malaysia Bhd., the executive MBA students of UIA and Dr. Obiyathulla, Dr. Omar Azmi, Br. Yusuf Ismail, my niece Firdaus binti Mohd. Farouk and the secretaries at both UIA and Dept. of Accounting and Business Finance at the University of Dundee.I am totally in debt to the Malaysian accountants and accounting academics and the employees and managers of Islamic organisations in Malaysia who took their time and trouble to answer my questionnaires and pray that Allah swt. reward them generously for their contribution to Islamic accounting.Lastly I must thank my own family members especially my aged mother who has forgone four years of service from me. I pray Allah swt. rewards her with good health, long life and an assured place in paradise with my late father (Allah yarham). My brother Dr. Rafiq who took care of her in my absence is especially thanked. I also thank my wife who put up with my hours and emotions during the past 19 years and especially the past 3.5 years in Dundee. Also my children who were deprived of a higher level of care during my research period.I would also like to thank Mr. Farouk bin Abdul Majeed and Mrs. Hajoor Farouk, my co-brother and sister in law, who managed my finances and property voluntarily in Malaysia while I was studying and for their hospitality during my empiricial investigation. May Allah reward them for their kindness.I also would like to express my sincere gratitude to the Hill Town Islamic centre and the Muslim community of Dundee especially the Imams of the Hilltown mosque and Dr. Hafiz Ayub Patel who is the 1st emergency service to all the Muslims of Dundee and a true friend in need. May Allah swt. bless them and reward them amply. Also a special thanks to Dr. Ridah al-Gazzar for being a good friend and Muslim counsel for the whole period of my stay in Dundee.Last but not least, I would like to thank the Malaysian Government and my fellow Malaysians for funding my research and the International Islamic University Malaysia for granting me study leave to enable me undertake this study.

DeclarationI hereby declare that I am the author of this thesis; that the work of which this thesis is a record has been done by myself, and that it has not previously been accepted for a higher degree.Signed: ............................................Shahul Hameed Mohamed IbrahimDate: ......................................CertificateI certify that Shahul Hameed Mohamed Ibrahim has worked the equivalent of nine terms on this research and that the conditions of Ordinance 39 and related regulations have been fulfilled.Signed: ............................................Dr. R. KouhyDate: ......................................AbstractThis study investigates the need for an alternative Islamic accounting which is consistent with the worldview, values and socioeconomic norms of Islamic society. It proposes an outline of an Islamic accounting theory together with empirical investigations of (i) the perception of Malaysian Muslim accountants and accounting academics on Islamic accounting and (ii) the unIslamic behavioural consequences of conventional accounting on users.The researcher starts from a premise that the worldviews and values of a society affect its economic objectives and norms, which in turn affect the accounting system, and vice versa. An examination of the worldviews, values and economic objectives of Western society and the capitalist economic system which underlie conventional (Anglo-American) accounting shows them to be different from those of an Islamic society. This presents a prima facie case for Islamic accounting.The need for an Islamic accounting is classified into push and pull factors and then examined in detail. It is argued that conventional accounting with its: Decision-usefulness framework of providing information to increase the wealth of shareholders and creditors in an advanced capital market framework, Measurement and valuation characteristics, and Socioeconomic and behavioural consequences,may be inappropriate for an Islamic society trying to implement an Islamic economic system. Further, recent attempts at the Islamisation of knowledge are examined and shown to provide the theoretical imperative for the development of an Islamic accounting system. The study also examines the objectives, nature and operations of Islamic economic institutions such as Islamic banks together with their accounting implications. It is shown that the accounting requirements of these institutions vary from conventional capitalistic economic institutions. Thus, a practical imperative for the development of an Islamic accounting system is thereby demonstrated.From the worldview, socioeconomic objectives and values of Islam, an outline of an Islamic accounting theory is developed based on a proposed Islamic Accountability model. The model envisages dual accountability for Islamic organisations to take cognisance of the Islamic concept of Khilafa (vicegerancy) which embodies trusteeship of economic resources and accountability not only to finance providers but to God as well by ensuring the compliance of the organisations operations to Islamic Law and morality (Shariah). Hence, Islamic accounting focuses on various stakeholders in addition to shareholders and creditors, measures and reports on Shariah compliance in addition to economic activities, and may use non-financial quantitative and qualitative measures in its reporting.The theoretical concerns are then investigated using three sets of questionnaires. The first set of questionnaires was posted to Malaysian Muslim Accountants and Accounting Academics. Although the respondents supported retaining the conventional accounting principles of historical cost, prudence and monetary measurement, they generally agreed to the unsuitability of conventional accounting information. They also showed strong support for an Islamic accountability framework and a more holistic, integrated reporting regime to varied stakeholders, instead of focusing on shareholders. The behavioural questionnaires were addressed to executives and employees in the finance and non-finance functions of various companies in Malaysia to elicit evidence on the unIslamic behavioural consequences of conventional accounting. Although, there is no strong evidence from this research to indicate that conventional accounting lead to unIslamic behaviour or otherwise, the findings indicate that Islamic organisations are better able to withstand the negative consequences of conventional accounting. Organisations owned or run by Muslims (not specifically Islamic) and Non-Muslim organisations, however, tend to use accounting to focus on profits irrespective of unIslamic consequences. This study has made some initial contributions to the Islamisation of accounting and can be the basis of future research, which seeks to make Islamic accounting a reality in practice.