Competency and effectiveness of internal Shariah audit in Islamic financial institutions

2018 ◽  
Vol 9 (2) ◽  
pp. 201-221 ◽  
Author(s):  
Azam Abdelhakeem Khalid ◽  
Hasnah Haron ◽  
Tajul Ariffin Masron
Keyword(s):  
Financial Institutions ◽  
Design Methodology ◽  
Islamic Law ◽  
Content Type ◽  
Islamic Financial Institutions ◽  
Conceptual Relationship ◽  
Muslim Scholars

Purpose The purpose of this paper is to propose the conceptual relationship between competency and effectiveness of internal Shariah auditors in Islamic financial institutions (IFIs). Design/methodology/approach Normative and theorizing based on the main sources of Islam, mainly Maqasid al-Shariah theory, has been utilized in this research. Findings This study demonstrated how Maqasid al-Shariah or higher objectives of Islamic law have gradually captured the attention of increasing numbers of modern Muslim scholars for solving contemporary issues. Originality/value This study uniquely captured Maqasid al-Shariah for the competency of internal Shariah auditor.

Analysing the AAOIFI Sharīʿah standard on zakat

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Khurram Parvez Raja
Keyword(s):  
Financial Institutions ◽  
Islamic Law ◽  
Financial Statements ◽  
Insurance Companies ◽  
Single Individual ◽  
Content Type ◽  
Long Run ◽  
Islamic Financial Institutions ◽  
The Law ◽  
Islamic Insurance

Purpose The Sharīʿah Standard No. (35) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) aims to identify the zakāt base for institutions (including Islamic insurance companies) as well as the subsidiary and the mother company of the institution (the company). By zakāt base, the standard means the items of financial statements that should or should not be included in the calculation of the zakāt base, and the liabilities or allocations that should or should not be deducted from zakatable assets. The standard also covers payable zakāt rates, disbursement of zakāt funds on the eight categories of zakāt recipients and the rulings pertaining to disbursement. The focus then is on companies or corporations. There is no indication in the aims as to who owns the wealth of the corporation, that is, whether it is the company itself or it is the shareholders and whether it is treated as a joint wealth of the shareholders or of a single individual in the form of the company. The author will rely on this issue as one factor on the basis of which the standard is to be judged. Design/methodology/approach Quran and hadith. Works of earlier jurists. Findings In this study, the author has summarized the provisions of zakāt according to the traditional law, but only those that are relevant for the financial institutions and the standard issued by the AAOIFI. After that, the author mentioned the major points that have been addressed by the standard. In the last section, the author has shown that the rulings of the Islamic Fiqh Academy and the AAOIFI on zakāt are totally confusing and merely a reproduction of the rulings of traditional law. The main reason for this confusion is that the nature and entity of a corporation have not been addressed and have been treated like a partnership, thus, jumbling up the entire issue of zakāt through banks. Originality/value The main purpose in undertaking this original work is to examine the AAOIFI Sharīʿah Standards from the perspective of traditional Islamic law, that is, the law of the senior schools as laid down in their authentic manuals. If there is an extensive deviation from this law, then this must be pointed out in the hope that it will be corrected by the concerned institution and the banks that adopt these standards. Neglecting such a corrective action for long will result in damage not only to these institutions in the long run but also to the law of Islam that has been so carefully crafted over centuries. The purpose is to show how far this standard deviates from traditional Islamic law and claims to be called the authentic view on a particular subject. Nevertheless, it is not the purpose of this work to explain and elaborate on the meaning and utility of these standards.

scholarly journals Islamic Financial Services Act (IFSA) 2013 and the Sharīʿah-compliance requirement of the Islamic finance industry in Malaysia

2018 ◽  
Vol 10 (1) ◽  
pp. 94-101 ◽  
Author(s):  
Mohamad Akram Laldin ◽  
Hafas Furqani
Keyword(s):  
Content Analysis ◽  
Financial Institutions ◽  
Financial Services ◽  
Design Methodology ◽  
Islamic Finance ◽  
Content Type ◽  
Governance Framework ◽  
Finance Industry ◽  
Islamic Financial Institutions ◽  
Comprehensive Framework

Purpose This paper aims to observe the development of the Sharīʿah governance framework (SGF) and practice in Islamic financial institutions (IFIs) in Malaysia. Design/methodology/approach The study is a qualitative-based research. It uses various documents and content analysis approach to understand and analyze the structure, process and practice of SGF in IFIs in Malaysia. Findings It is found that the Central Bank of Malaysia, Bank Negara Malaysia, has attempted to develop a comprehensive framework of Sharīʿah governance for IFIs in Malaysia. The framework governs the practice of the industry, covers stakeholders’ scope of duties and responsibilities and provides details on processes and procedures in the operations of IFIs to achieve the objective of Sharīʿah compliance. To maintain the relevance of the SGF to the needs of the industry, the framework has also been updated recently in 2017. The amendments aim to strengthen the effectiveness of Sharīʿah governance implementation within the Islamic finance industry. Originality/value This study attempts to comprehensively examine the evolution of the SGF Sharīʿah governance framework for IFIs in Malaysia. The Malaysian model of the SGF is unique and could be emulated by other countries in developing the Islamic finance industry in their respective jurisdictions.

Executives’ observance of zakat among Islamic financial institutions: evidence from Bahrain and Malaysia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jessie P.H. Poon ◽  
Yew Wah Chow ◽  
Michael Ewers ◽  
Trina Hamilton
Keyword(s):  
Financial Institutions ◽  
Design Methodology ◽  
Change Agents ◽  
Islamic Finance ◽  
Board Members ◽  
Content Type ◽  
Financial Firms ◽  
Management Positions ◽  
The Board Of Directors ◽  
Islamic Financial Institutions

Purpose The purpose of this paper is to examine the influence of Shariah board members and managerial networking on zakat observance among executives of Islamic financial firms (IFFs) in Bahrain and Malaysia. Design/methodology/approach The methodology is based on surveys administered to 106 respondents and personal interviews conducted with individuals holding management positions in IFFs. Findings The paper finds that: networking among IFF executives in Bahrain positively influences their observance and perception of zakat in their firms; and higher representation of Shariah on the board of directors increases executives’ favorable perception and observance of zakat in Malaysia. Differences in findings may be explained by Bahrain’s global Shariah institutions where networking offers opportunities for socialization of zakat ethics. In Malaysia, on the other hand, Shariah directorship sets the pace and direction of zakat ethics. Originality/value The seminal work of DiMaggio and Powell (1991) on neo-institutional theory has drawn attention to executives’ agency in creating cognitive frameworks that help promote the development of firm standards and norms. However, application of the theory to Islamic finance is largely absent. This paper contributes to an empirical understanding of the theory by highlighting sources of IFFs’ social agency in the development of zakat norm and its observance, namely, managerial networking and Shariah directors as change agents.

Layers of misconceptions about Islamic banking

2019 ◽  
Vol 10 (3) ◽  
pp. 874-892 ◽  
Author(s):  
Malik Shahzad Shabbir ◽  
Awais Rehman
Keyword(s):  
Data Analysis ◽  
Financial Institutions ◽  
Design Methodology ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Significant Difference ◽  
Challenges And Opportunities ◽  
Islamic Financial Institutions

Purpose This paper aims to identify some important misconceptions about Islamic banks, which impact investor’s portfolio in term of threats, challenges and opportunities. This paper is trying to attempt to present five different layers of misconceptions regarding investor portfolio. Design/methodology/approach This paper distributed 132 questionnaires among investors of Islamic financial institutions and multiple regression of least significant difference (LSD) method implied for data analysis. Findings The results of this paper show that two variables, such as opportunity and challenge, out of three are positively significant and the remaining one variable, threat, is insignificant regarding investor portfolio. Originality/value This paper is the first ever attempt in its nature to identify the different misconceptions about Islamic banking system and its impact on investor portfolio.

Comparative study between IFRS and AAOIFI disclosure compliance

2017 ◽  
Vol 15 (3) ◽  
pp. 269-292 ◽  
Author(s):  
Hana Ajili ◽  
Abdelfettah Bouri
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Design Methodology ◽  
Islamic Banks ◽  
Accounting Disclosure ◽  
Content Type ◽  
Factors Associated ◽  
Financial Reporting Standards ◽  
Disclosure Requirements ◽  
Islamic Financial Institutions

Purpose This study measures and compares the level of compliance with the disclosure requirements provided by the International Financial Reporting Standards (IFRS) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). This study also aims to investigate the factors associated with this compliance in a sample of Islamic banks (IBs) in Gulf Cooperation Council member states. Design/methodology/approach The sample consists of 39 IBs between 2010 and 2014. Among the selected IBs, 23 banks were complying with the AAOIFI standards and 16 banks were complying with the IFRS standards. An unweighted disclosure index was used to measure the level of compliance with IFRS/AAOIFI disclosure requirements. Findings It was found that the level of compliance with IFRS is higher than that of compliance with AAOIFI. In addition, the results reveal that compliance with IFRS/AAOIFI disclosure requirements is higher for larger and older IBs. Finally, it was observed that compliance was more noticeable for IBs having a higher leverage and multinational subsidiaries. Originality value These findings would be of great help to regulators and policymakers to better understand the accounting disclosure practices of IBs.

Limited purpose banking (LPB) and Islamic finance

Humanomics ◽  
2014 ◽  
Vol 30 (2) ◽  
pp. 122-135 ◽  
Author(s):  
Edib Smolo ◽  
Abbas Mirakhor
Keyword(s):  
Financial Institutions ◽  
Design Methodology ◽  
Financial System ◽  
Islamic Finance ◽  
Extensive Literature ◽  
Content Type ◽  
Finance Industry ◽  
Islamic Financial Institutions ◽  
Alternative Solutions ◽  
Practical Implications

Purpose – This paper primarily aims to review and analyze a new model for Islamic finance based on Laurence J. Kotlikoff's idea of limited purpose banking (LPB). In addition, this paper aims to highlight, explain and discuss various aspects of LPB and how it suits the original aspirations of pioneer writers in Islamic finance. Design/methodology/approach – Based on an extensive literature review, this paper aims to highlight, explain and discuss the reform of the Islamic finance industry based on Kotlikoff's model of LPB. Findings – Based on a modified LPB model, Islamic financial institutions could be established to provide specific services with clear aims and objectives. These LPB Islamic financial institutions would operate in a similar way to LPB. Research limitations/implications – As there is no perfect plan, the proposal of this paper is far from being perfect and is open to discussions and improvements. The paper will, hopefully, spark off quite a discussion on the topic; may result in a better understanding of the model; and provide some alternative solutions to the current structurally ill financial system. Practical implications – The paper provides some practical ideas for a better implementation of Shari'ah principles in financial intermediation of the Islamic financial system. Originality/value – Kotlikoff's LPB proposal for reforming the financial system is new and has been directed to the conventional financial system. This paper represents the first attempt to apply his proposal to the Islamic finance industry.

Compliance with AAOIFI guidelines in general presentation and disclosure by Libyan Islamic banks

2015 ◽  
Vol 11 (2) ◽  
pp. 90-99 ◽  
Author(s):  
Nassr Saleh Mohamad Ahmad ◽  
Abdu Samia Daw Ben Daw
Keyword(s):  
Financial Institutions ◽  
Design Methodology ◽  
Financial Statements ◽  
Future Research ◽  
Two Dimensional ◽  
Islamic Banks ◽  
Policy Makers ◽  
Content Type ◽  
Islamic Financial Institutions ◽  
Training Programmes

Purpose – The purpose of this paper is to reveal the level of compliance with Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) guidelines in general presentation and disclosure in the financial statements of Fashlowm Islamic branch of the Gumhouria Bank as the biggest bank in Libya. Design/methodology/approach – The study used two-dimensional analysis, which combines a questionnaire with content analysis. It allowed a better understanding of the picture than would have been provided by the questionnaire alone. Findings – The results of this study indicate that the level of compliance with AAOIFI guidelines regarding general presentation and disclosure in the financial statements is low. Many reasons were identified as being behind such a low level. The lack of training programmes on AAOIFI standards was at the forefront of these reasons. Research limitations/implications – The sample is limited to the Fashlowm Islamic branch of Gumhouria Bank. This is may not be true for other branches and banks. Further research is needed in this area. Originality/value – The AAOIFI has existed for over 20 years, but little empirical research has been conducted into compliance with the standards developed by this body in the Libyan context. This paper helps to address this gap and provide a foundation for future research and development in this area. Moreover, the findings of this study may be useful to policy makers and legislators.

scholarly journals Understanding the mushārakah mutanāqiṣah of Koperasi Pembiayaan Syariah Angkasa (KOPSYA)

2018 ◽  
Vol 10 (1) ◽  
pp. 62-77
Author(s):  
Norbaizurah Abdul Jabar ◽  
Razli Ramli ◽  
Sazali Abidin
Keyword(s):  
Financial Institutions ◽  
Design Methodology ◽  
Profit Sharing ◽  
Content Type ◽  
Early Settlement ◽  
Islamic Financial Institutions

Purpose In Malaysia, both Islamic financial institutions (IFIs) and Islamic co-operatives (ICs) provide mushārakah mutanāqiṣah (diminishing partnership) (MM) financing. It was initially a preferred contract as it is deemed to be more Sharīʿah-compliant and free from the element of ribā (interest) in comparison to other Sharīʿah-compliant sale contracts. Nevertheless, MM is now considered less appealing to IFIs due to its existing challenges. This paper aims to emphasise on MM as practiced by ICs which will highlight approaches to default, pricing of rental rates, profit sharing method and early settlement which differ to the practice of MM by IFIs. Design/methodology/approach This study focuses on Koperasi Pembiayaan Syariah Angkasa (KOPSYA), an IC based in Malaysia, which the authors concurred as being an ideal organisation to study on the matter due to its strong stance in promoting Sharīʿah-compliant financing products. Findings The research highlights the flexibility of MM implementation in KOPSYA to provide some insights on the rationale behind MM operations in KOPSYA. Originality/value The authors are hopeful that this paper will aspire further interest by giving the readers better understanding on the implementation of MM in KOPSYA and how it will benefit the customers.

The harmonization of audit reports of Islamic banks

2017 ◽  
Vol 8 (2) ◽  
pp. 203-228 ◽  
Author(s):  
Mondher Fakhfakh
Keyword(s):  
Empirical Evidence ◽  
Financial Institutions ◽  
Design Methodology ◽  
International Federation ◽  
Islamic Banks ◽  
Content Type ◽  
Auditing Standards ◽  
Islamic Financial Institutions ◽  
Independent Auditors ◽  
Audit Reports

Purpose The purpose of this paper is to examine the level of harmonization of auditors’ reports issued by independent auditors of Islamic banks. Design/methodology/approach The homogenization of the auditors’ reports of Islamic banks has been statistically measured. Supranational auditing standards on auditors’ reports (ISA 700 and AAOIFI standard) are used as the control. Findings The results show lack of harmonization in several elements related to the form of the auditor’s report and in all elements related to the content of the auditor’s report among the Islamic banks. Originality/value This paper provides new empirical evidence about the measurement of harmonization in the form and content of the auditors’ reports of Islamic banks. It discusses the level of compliance with the elements enumerated by the standards issued by the International Federation of Accountants and the Accounting and Auditing Organization for Islamic Financial Institutions.

Level of Maqāsid ul-Shari’āh’s in financial reporting standards for Islamic financial institutions

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Murniati Mukhlisin
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Design Methodology ◽  
Reporting Standards ◽  
Complete Understanding ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Compliance Level ◽  
Compliance Measure ◽  
Islamic Financial Institutions

Purpose This study aims to measure levels of Sharīʿah-compliance in Islamic financial institutions (IFIs) financial reporting standards with the objective to investigate the application of Maqāsid ul-Sharīʿah as a compliance measure reflected in the reporting standards. Design/methodology/approach This paper adopts Maqāsid ul-Sharīʿah’s model to measure levels of Sharīʿah-compliance amongst three available financial reporting frameworks and presentation standards; international financial reporting standards (IFRS), accounting and auditing organization for Islamic financial institutions (AAOIFI), Pernyataan Standar Akuntansi Keuangan (PSAK) Syariah. NVivo 10 software is used in this paper to help measure quantitatively the compliance level of each standard. Findings The findings suggest that the use of Maqāsid ul-Sharīʿah leads to a more complete understanding of how the meaning of Sharīʿah and its values can be integrated into the demands of financial reporting, and hence, offering greater convergence between ethics and accounting regulations amongst IFIs. Originality/value It documents different context of content analysis that takes examples of Islamic financial reporting studies and uses both classical and contemporary theoretical bases. The main outputs are designed for standard setters and policymakers with expectation for Sharīʿah objectives (i.e. Maqāsid ul-Sharīʿah), to be embedded in the preparation of financial reporting standards for the IFIs. Hence, they will be able to show their full accountability then gain better trust from the stakeholders.

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