scholarly journals Internal control, risk and Sharīʿah non-compliant income in Islamic financial institutions

2020 ◽  
Vol 12 (3) ◽  
pp. 401-417
Author(s):  
Mustafa Mohd Hanefah ◽  
Muhammad Iqmal Hisham Kamaruddin ◽  
Supiah Salleh ◽  
Zurina Shafii ◽  
Nurazalia Zakaria
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Internal Audit ◽  
Operational Risk ◽  
The Body ◽  
Financial Reports ◽  
Content Type ◽  
Study Approach ◽  
Islamic Financial Institutions

Purpose The existence of internal control for Sharīʿah-compliance promotes reasonable assurance that the Islamic financial institution’s (IFI’s) objectives are achieved in the following categories, namely, the effectiveness and efficiency of operations, the reliability of financial reporting and the level of compliance with applicable laws and regulations, as well as accounting and auditing standards. Sharīʿah non-compliant income (SNCI) is an important issue in IFIs’ operations. Thus, the purpose of this paper is to identify issues related to governance and internal control of SNCI in selected IFIs in Malaysia. Design/methodology/approach This research uses a case study approach to gather data on the measures of governance and risk management in relation to the internal control for SNCI in IFIs. Interviews were conducted with officers of the Sharīʿah and internal audit departments on internal control practices regarding SNCI. Findings Regulator’s guidelines on SNCI are simple and brief, lacking rigour in terms of governance, risk management and audit procedures. The section on SNCI is only a brief statement within the Bank Negara Malaysia’s Guidelines on Financial Reporting for Islamic Banking Institutions and also in the Operational Risk Integrated Online Network system operated by IFIs. Most of the respondents in the interviews suggested that there should be a proper guideline in determining the classification of SNCI. Second, although IFIs have established the purification account to manage SNCI, the real practice varies from one IFI to another. Third, although there are supposedly documented procedures established in relation to management and administration of SNCI, the following events still occur in practice, namely, no authorisation from the Sharīʿah Committee (SC) on various types of income channelled to the SNCI account; unauthorised use of SNCI for other purposes; SNCI not being reported in the annual financial reports; and distribution of SNCI prior to obtaining the SC’s consent. Fourth, there is an absence of Sharīʿah risk assessment conducted on operational risk by IFIs to identify any potential Sharīʿah non-compliant event. Research limitations/implications This research contributes to the importance of Islamic corporate governance theory and Sharīʿah risk management, as well as strengthening the case for reporting SNCI to shareholders. It also contributes to the body of knowledge on the capability of the management in managing the internal control system of IFIs’ SNCI. Originality/value A new internal control assessment matrix is proposed for Sharīʿah-compliance in IFIs.

Factors influencing the implementation of risk-based auditing

2017 ◽  
Vol 25 (3) ◽  
pp. 361-375 ◽  
Author(s):  
Nor Hafizah Zainal Abidin
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Reporting Quality ◽  
Listed Companies ◽  
Risk Environment ◽  
Content Type ◽  
Internal Audit Function

Purpose The purpose of this paper is to examine, from the agency perspective, the influence of internal audit and audit committee attributes, as well as risk management and internal control systems, on the implementation of risk-based auditing among public-listed companies in Malaysia. Design/methodology/approach A questionnaire survey was distributed to the in-house internal audit function in approximately 620 public-listed companies. Consequently, data from 117 heads of the internal audit function was collected and analyzed. Findings The findings indicate that “audit committee review and concern” and “risk management system” are significantly and positively related to the implementation of risk-based auditing. Most importantly, the results indicate the importance of audit committee inputs and concerns in reviewing internal audit activities. Empirically, the findings also suggest that a more formalized risk environment would foster the existence of a strong risk-aware culture and hence provides a strong foundation for internal audit to implement risk-based auditing. However, internal audit experience, size of internal audit function, audit committee qualifications, and internal control system are not found to be significant predictors of the presence of risk-based auditing. Research limitations/implications This study examined only risk-based auditing practices in the in-house internal audit function of public-listed companies; hence, the findings cannot be generalized to all Malaysian-listed companies that outsource or co-source their internal audit activities. Social implications An effective internal monitoring mechanism and better quality of internal audit work will minimize potential risks that prevent the achievement of company objectives, reduce propensity to falsify financial information, and improve financial reporting quality. Originality/value This study contributes evidence concerning the relationship between internal monitoring mechanisms and the implementation of risk-based auditing among in-house internal audit activity.

Penerapan Pengendalian Intern pada 13 UMKM di Bandung

2021 ◽  
Vol 10 (1) ◽  
pp. 33-44
Author(s):  
Samuel Wirawan ◽  
Hamfri Djajadikerta ◽  
Amelia Setiawan
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Small And Medium Enterprises ◽  
Internal Controls ◽  
Financial Reports ◽  
Study Approach ◽  
Main Activity ◽  
Medium Enterprises ◽  
The Cost

Micro, small and medium enterprises (MSMEs) as a business sector that supports the country's economy are required to have adequate internal controls to support the achievement of company goals. This research was conducted with a case study approach on culinary business. In general, the companies in this study have implemented adequate internal control components. In terms of achieving company goals, namely financial reporting, the MSMEs studied have made financial reports independently because they consider the cost factor when using expensive consultants and also most of the MSME actors already have accounting skills. However, for tax reports in general, make and reported with the help of consultants due to lack of tax regulations that often change. Regarding the achievement of operating objectives regarding the effectiveness and efficiency of operations, the MSMEs studied are still focused on production activities because production activities are the main activity to provide satisfaction to consumers by utilizing Standard Operating Procedures. Compliance with the applicable rules and laws of the 13 companies studied is varied because it depends on the presence of regulators and whether or not there are strict sanctions and involvement of related parties and bargaining power of stakeholders.Usaha mikro, kecil dan menengah (UMKM) sebagai suatu sektor usaha yang menunjang perekonomian negara dituntut untuk memiliki pengendalian intern yang memadai untuk menunjang pencapaian tujuan perusahaan. Penelitian ini dilakukan dengan melakukan pendekatan studi kasus pada UMKM yang bergerak di bidang usaha kuliner. Secara umum, perusahaan yang diteliti telah menerapkan komponen pengendalian intern yang secara memadai karena adanya keterlibatan pemilik secara langsung pada usaha tersebut. Dalam hal pencapaian tujuan perusahaan yaitu pelaporan keuangan, UMKM yang diteliti sudah membuat laporan keuangan secara mandiri karena mempertimbangkan faktor biaya jika menggunakan pihak konsultan yang mahal dan juga sebagian besar pelaku UMKM sudah memiliki kemampuan akuntansi. Namun untuk laporan pajak pada umumnya, UMKM yang diteliti membuat dan melaporkannya dengan bantuan konsultan karena mereka kurang memahami peraturan perpajakan yang seringkali berubah.  Terkait pencapaian tujuan operasi tentang efektivitas dan efisiensi operasi, UMKM yang diteliti masih berfokus pada aktivitas produksi karena aktivitas produksi merupakan aktivitas utama untuk memberikan kepuasan pada konsumen dengan memanfaatkan Prosedur Operasi Baku. Kepatuhan pada aturan dan hukum yang berlaku dari 13 perusahaan yang diteliti bersifat variatif karena tergantung dari adanya pihak regulator dan juga ada atau tidaknya sanksi yang tegas serta keterlibatan pihak – pihak terkait serta daya tawar dari para pemangku kepentingan.  

An accounting perspective on the use of combined contracts and donations in Islamic financial transactions

2017 ◽  
Vol 8 (1) ◽  
pp. 54-69 ◽  
Author(s):  
Muhannad Ahmed Atmeh ◽  
Bassam Maali
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
International Accounting Standards ◽  
Legal Form ◽  
Financial Reports ◽  
Content Type ◽  
Reporting Framework ◽  
Islamic Financial Institutions ◽  
Economic Transaction ◽  
Financial Transactions

Purpose The purpose of this paper is to investigate the techniques used by Islamic financial institutions (IFIs) to shift conventional instruments to Shariah-compliant instruments. The paper additionally aims to explore the effect of these techniques on financial reporting. Design/methodology/approach The study recognized two techniques used by the IFI: the combination of contracts which compartmentalizes the economic transaction into a series of linked sub-transactions, and the inclusion of donation (Tabarru) in commercial contracts. The paper also reviews the accounting treatment according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and compares it to the concepts adopted by the traditional financial reporting framework concepts (especially substance over form concept). Findings With regard to the combination of contracts technique, the major accounting challenge is whether the substance over form concept is considered. Mixed results are found: in some products, the economic substance is presented in the financial reports, while in other cases, the legal form of the contract is reported. This ambiguity may hinder the faithful representation of financial statements. The Tabarru contract is used to justify the risk-shifting practices by Islamic banks. The accounting effects of such contracts may result in failure to recognize assets or liabilities in the financial reports, earnings management and incomplete financial information for the users of the financial reports. Originality/value This study is a response to the call raised by the consultative group established by the International Accounting Standards Board. It provides an additional insight into the accounting treatments for a combination of contracts and Tabarru contracts. It also contrasts the accounting treatments, as stipulated by the AAOIFI, with the conventional accounting frameworks.

scholarly journals The effect of applying COSO-ERM model on reducing fraudulent financial reporting of commercial banks in Jordan

2018 ◽  
Vol 13 (2) ◽  
pp. 107-115
Author(s):  
Abdul Aziz A. Abdul Rahman ◽  
Othman Hel Ajmi Al-Dhaimesh
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Commercial Banks ◽  
Audit Committee ◽  
Internal Audit ◽  
Enterprise Risk Management ◽  
Fraudulent Financial Reporting ◽  
Corporate Governance Mechanisms ◽  
Enterprise Risk

This study aims to test the effect of applying the model of the Committee Sponsoring Organizations for enterprise risk management (COSO-ERM) on reducing fraudulent financial reporting in commercial banks operating in Jordan. Furthermore, the study identifies the role of each board of directors, audit committee, executive management, human resource management, and internal audit as one of the corporate governance mechanisms in enhancing the effectiveness of internal control systems. The study revealed an impact of applying the Committee of Sponsoring Organizations model for enterprise risk management (COSO-ERM) on preventing fraudulent financial reporting, where it reached influence around 77.8% on the dependent variable (fraudulent financial reporting). The study also found that each of internal control, event identification, risk assessment and response, and control activities variables affects dependent variable (fraudulent financial reporting) in commercial banks operating in Jordan.

scholarly journals Using triangulation to view internal audit’s governance functioning

2016 ◽  
Vol 13 (4) ◽  
pp. 287-296
Author(s):  
Christo Ackermann
Keyword(s):  
South Africa ◽  
Risk Management ◽  
Financial Reporting ◽  
Internal Control ◽  
Audit Committee ◽  
Internal Audit ◽  
Audit Committees ◽  
Wide Audience ◽  
External Auditors ◽  
Reporting Practices

Internal audit departments of organisations are regarded as an integral component of the combined assurance model alongside the audit committee, management and the external auditors. The primary users of the work of internal audit are the audit committee, senior management, other levels of management and to some extent, the external auditors. This wide audience served by internal audit reinforces the importance of IAFs’ work, which deals with important aspects facing the entity. Internal audit is therefore able to reduce the lack of information availability for the audit committee on matters concerning risk management, internal control and governance. However, a study conducted on audit committee effectiveness, it was found that 40% of audit committees in national government departments in South Africa are not fully effective and are failing to contribute towards improving internal control, risk management, governance and financial reporting practices. Audit committees’ effectiveness in contributing to risk management, internal control and governance was measured at 63%, 76% and 62% respectively, in a comprehensive study on audit committees in the South African public sector. This indicates that their oversight in these areas, especially risk management and governance, is not yet effective. These findings are concerning given that audit committees have a legal mandate to assist government departments in these areas. Internal audit functions are key in assisting audit committees in their governance oversight responsibility. The present study reports on the extent to which internal audit in the eight metropolitan municipalities in South Africa assists audit committees in their governance oversight responsibility, focusing on the scope of work of internal audit with reference to its governance mandate. A data transformation triangulation design was followed to describe internal audit’s functioning

The impact of internal audit function characteristics on internal control quality

2018 ◽  
Vol 33 (5) ◽  
pp. 450-469 ◽  
Author(s):  
Ahmed Atef Oussii ◽  
Neila Boulila Taktak
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Audit Quality ◽  
Internal Audit ◽  
Audit Committees ◽  
Content Type ◽  
Internal Auditors ◽  
Control Quality ◽  
Internal Audit Function ◽  
The Impact

Purpose This paper aims to investigate the association between internal audit function (IAF) characteristics and internal control quality. Design/methodology/approach Using data gathered from 59 chief audit executives from Tunisian listed companies, this paper uses a regression model to examine research hypothesis related to the association between IAF characteristics and internal control quality. Findings The findings of the current study reveal that internal control quality is significantly and positively associated with IAF competence, internal audit quality control assurance level, follow-up process and audit committee’s involvement in reviewing the internal audit program and results. Practical implications The findings have significant implications for IAF wishing to enhance their effectiveness, by recognizing the impact of the IAF’s characteristics on internal control quality. The findings of this study also have significant implications for regulatory bodies who are concerned with the internal control quality, managers and audit committees who determine IAF investment, oversight IAF activities and assess internal auditors’ performance. Originality/value This study helps fill a gap in the extant literature where existing empirical evidence of how the IAF characteristics influences the quality of the financial reporting process in emerging markets is scant.

Internal audit functions, financial reporting quality and moderating effect of senior management support

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulkadir Madawaki ◽  
Aidi Ahmi ◽  
Halimah @ Nasibah Ahmad
Keyword(s):  
Financial Reporting ◽  
Internal Control ◽  
Internal Audit ◽  
Reporting Quality ◽  
Listed Companies ◽  
Senior Management ◽  
Financial Reporting Quality ◽  
Management Support ◽  
Content Type ◽  
Management Actions

Purpose The purpose of this paper is to demonstrate the relationship between internal audit functions (IAF) and financial reporting quality (FRQ) and whether such a relationship is moderated by senior management support (SMS) in listed companies in Nigerian Stock Exchange (NSE). Design/methodology/approach This research is a cross-sectional study, using primary data in the form of a survey sent to 175 listed companies in NSE. A total of 149 questionnaires have been collected and analysed out of which 97 were found to be useful and used in the final analysis. Findings The findings indicate a positive and significant relationship between internal audit qualities of work performed, internal control activities, coordination between internal and external auditors and FRQ and this finding was also supported by SMS as a moderator. However, the results show a negative and insignificant relationship between internal audit competency, organisational status and FRQ. Research limitations/implications The findings support the assumption with regard to agency theory. The board should support the IAF to serve as an effective monitoring mechanism in minimising opportunistic management actions. Regulators should also ensure adequate structures that will strengthen the organisational status of the internal auditors to perform towards improving FRQ. Originality/value The study contributes to the existing literature by assessing the effect of IAF on FRQ as moderated by SMS.

scholarly journals OPERATIONAL RISK MANAGEMENT STRATEGIES AND THE GROWTH OF MICROFINANCE SECTOR IN KENYA

2017 ◽  
Vol 2 (2) ◽  
pp. 42
Author(s):  
Dr. James Rurigi Njuguna ◽  
Prof. Roselyn Gakure ◽  
Dr. Anthony Gichuhi Waititu ◽  
Dr. Paul Katuse
Keyword(s):  
Risk Management ◽  
Internal Control ◽  
Management Strategies ◽  
Internal Audit ◽  
Operational Risk ◽  
Operational Risk Management ◽  
Operational Risks ◽  
Use Of Resources ◽  
Policies And Procedures ◽  
Risk Management Strategies

Purpose: The purpose of this study was to establish how operational risk management strategies lead to growth of MFI sector in Kenya.Methodology: The study adopted a correlation survey research design. The population of this study was fifty seven (57) MFIs. The sampling frame was the list of MFIs provided in the AMFI website www.amfikenya.com. A sample of thirteen (17) MFIs was selected using the random sampling approach. A questionnaire and an interview schedule were the main data collection tools. Qualitative data was analyzed using content analysis whereas the quantitative data was analysed using Statistical Package for Social Sciences (SPSS) where descriptive and regression analysis were conducted to determine the relationship between enterprise risk management strategies and growth of MFIs.Findings: Findings revealed that the MFI had adequate policies and procedures to manage its operational risks and the MFI had an operations manual. The findings also indicated that the MFIs have adhered to written policies and procedures to manage operational risks in the financial operations area, procurement area, treasury area, and financial management area. Results further indicated that the MFI had effective internal control systems for detecting fraud or other significant operational risks. Finally the study findings indicated that MFI’s internal audit functions ensured effective use of resources, accurate financial reporting, and ample random spot checks of MFI branches, clients, and staff. The regression results indicated that there was a positive relationship between operational risk management strategies and MFI growth.Unique contribution to theory, practice and policy: The study recommends that the MFIs to continue practicing effective operational risk management practices such as internal control framework comprising of policies and procedures. MFIs need to uphold the existence and accessibility of operational manuals. It is suggested that adherence to written policies and procedures is positive strategy and it should be emphasized.  The internal audit functions for effective use of resources and accurate financial reporting needs to be emphasized as it had a positive effect on growth. The MFIs should also benchmark their technology with that of banks to reduce human error, to produce timely and relevant data. It is recommended that implementation of know your client (KYC) requirements should be enhanced as it has an effect on growth.

scholarly journals Uloga interne revizije u sprječavanju pogrešaka i prijevara u uvjetima računalne obrade podataka

2017 ◽  
Vol 5 (1) ◽  
Author(s):  
Dubravla Mahaček ◽  
Berislav Bolfek ◽  
Bernarda Šakota
Keyword(s):  
Risk Management ◽  
Financial Reporting ◽  
Computer Technology ◽  
Internal Control ◽  
Internal Audit ◽  
Financial Statements ◽  
Organizational Level ◽  
Computer Data ◽  
Policies And Procedures ◽  
The One

Illegalities and irregularities in the business conduct of enterprises are increasingly common phenomenon, which affects the data reported in financial statements. Therefore, in addition to carrying out the external audit it is necessary to establish internal control over financial reporting. Internal control over financial reporting consists of the policies and procedures of the company, and is designed and operates in order to provide reasonable assurance regarding the reliability of financial reporting and fair presentation of financial statements. Established internal control and internal audit also provide greater opportunities for detecting and preventing fraud and irregularities. Unwanted behaviour was favoured and accelerated by the development of computer technology. While on the one hand computer technology improves business results, on the other hand it facilitates the unauthorized practices and increases the possibility of financial fraud, as evidenced by the increasing number of computer fraud in various companies. Therefore, more attention should be given to new tools, techniques and auditing models to improve the quality and credibility of reporting. In an environment which is constantly changing, companies are exposed to a number of risks. Risk assessment and risk management have become an integral part of business activity at every organizational level. The aim of this paper is to determine whether the internal audit as an instrument of risk management can contribute in preventing irregularities and fraud in terms of computer data processing

The impact of an audit committee's independence and competence on investment decision: a study in Bahrain

2020 ◽  
Vol 5 (2) ◽  
pp. 299-313
Author(s):  
Abdullah Al-Hadrami ◽  
Ahmad Rafiki ◽  
Adel Sarea
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Internal Control ◽  
Investment Decision ◽  
Descriptive Analysis ◽  
Listed Companies ◽  
Financial Reports ◽  
Content Type ◽  
Investment Decision Making ◽  
The Impact

PurposeThis study aims to investigate the impact of the audit committee's (AC) independence and competence on the company's investment decision-making in Bahraini-listed companies.Design/methodology/approachA quantitative method is used, and crosssectional data are collected through a self-administered questionnaire survey. A stratified random sample technique is adopted with a total of 409 respondents from 39 listed companies. A descriptive analysis is used to identify the characteristics of the respondents, while the correlation analysis and linear regression analyses are used to test the model and explain the relationship between variables.FindingsIt is found that the AC independence and AC competence have a positive and significant influence on investment decision-making.Originality/valueThe AC’s independence and competence are importantly crucial for the decision-makers in improving the quality of financial reporting, internal control and audit. This may lead to the increase in investors' trust on financial reports and thereby making favorable investment decisions.

Sign in / Sign up

Export Citation Format

Share Document