The objectives of Islamic Accounting

The objectives of Islamic accounting are different from traditional accounting.

Furthermore, traditional accounting doesn't provide whole information concerning in term of
Zakat calculation. Given the statement that main viewpoint in determining Zakat is the use of the
selling price when the Zakat's committee is formed, so Islamic business organizations need the
current value of items and not the historical cost. Some of the academics have presented the
objectives of Islamic accounting as follows:
1. Calculation of Zakat
In this method to purpose of renovation in grow of Zakat in term of profit as an importance of
the welfare of the humanity, no for individual interest. The accounting system should be
considered based upon current values. It has been described that one of the most important
criticisms of the accounting system of current values is the low dependence of items.
Meanwhile, the administration of the Islamic business act based on public interests, justice and
equity, it is probable that the existing values-based accounting system present an appropriate
base for Zakat calculation. Since the focus on Zakat can lead to limitation of financial reporting,
thus enchanting into account broader objectives for Islamic accounting has been necessary.

2.

Islamic accountability (stewardship)

In the Islamic method of an accountability is said to be a broader concept, which is

concerned based on Islamic Philosophy. This concept explains the vicegerent status of man in
the world, in which Allah, God Almighty has given amanah or trust of the earth to man
(AlQuran 35:39) while other creatures including angels, animals and non-living matter have no
ability to fulfill it. As stated in the Holy Quran, Allah indeed has offered the trust to the Heavens
and Earth and the Mountains, but they refused to undertake it being afraid they're of but man
undertook it (Al Quran 33:72).
Accountability is referring to the property and resources are held in trust from God and one
furthermost ultimately account to God as to how fine they have been employed. Accountability is
said to be a broader concept than stewardship because it requires an account of the extent to
which the objectives for which the resources were entrusted have been achieved. The
accountant is supposed to take certain actions and refrain from others in managing the
resources given to him, to encounter certain objectives and to account to his principal by giving
information about his actions to him.

3. Useful for decision making

The accounting and auditing organization of Islamic financial institutions in the main
statement of the objectives of Islamic banks and Islamic financial institutions, financial
accounting, has defined the presentation of information in order to assist in the users` decision
makings as the main objective of financial accounting. The transaction of the activities in
accounting must be complied with Shariah guidelines and incoherent in incorporating a balance
between individual character and social character in term of welfare activities.
The enterprise would be encouraged to participate in releasing humans from the
oppression of economic, socioeconomic activities pertaining to Islam, social, and intellectual
influences and releasing the environment from human exploitation, which is providing accurate
and appropriate information for making decisions, setting appropriate prices of the products,
through equitable distribution of wealth, and retaining the environment favorable through green
reporting.
Meanwhile, the accountability is also recognized by a contract between an owner and a
manager. Further, based on Islamic accountability, subsidiary objectivities can be determined
such as Shariah compliance, valuation and circulation of Zakat, reasonable distribution of
wealth among stakeholders, the creation of a cooperative environment and solidarity and other
type of reports that can give in providing information of and encouraging the enterprise to
participate in resolving contemporary the Ummahs (society) problems.
The characteristics of Islamic Accounting
The characteristics of Islamic accounting have concentrated on two aspects, which are financial
measurement and disclosures and presentations.
1. Financial Measurement Aspect
Further, most of the measurement aspect of the Islamic accounting literature precedes
Zakat as a basis of determining measurement tools. There are, at least, three explanations for
taking Zakat as the main focus of measurement issues. First of all, Zakat is a concept in Islam
that agreement definitely with the measurement of assets. This can be in direct from, some
verses in the Quran and Hadith of the Prophet Muhammad (SAW) regarding the timing and the
technique in which Zakat is calculated. Furthermore, Zakat has been declared in many verses
directly after the ordinance of prayer and considered as one of the five pillars of Islam. This
indicates that Muslims are encouraged to establish instruments (including accounting

instruments) in order to provide this obligation can comply with the Shariah of Islam. Thirdly, the
developments in accounting in the early Muslim government are faithfully related to the practice
of Zakat. During that time, the Islamic State had already prepared an accounting books and
reports for the determination and accountability of Zakat.
According of the AAOIFI (1996), it`s been familiar with the current value concept of assets,
liabilities and restricted investments in its statement of accounting concepts. But, due to the lack
of adequate means, such a concept is not suggested. As an alternative of that, historical cost
remains to be applied and the practice of the current value financial statement is only observed
as supplementary information if the enterprise considers its importance for the potential investor
and other users. Therefore, in practice, it is the historical cost which is applied by Islamic banks
(Shihadeh, 1994).

2.

Disclosure and Presentation Aspects

Disclosure and presentation is one of the two aspects that important in the financial

statement.

According from Haniffa & Hudaib (2001), they propose that the importance of

disclosure and presentation is to compliance the duties and obligations according to the Islamic
Shariah. To accomplish this resolution, an Islamic enterprise is predictable to disclose at least:
(1) any prohibited transactions they made (2) Zakat obligation they have to pay and have
already paid and (3) social responsibility. Social responsibility would include charities, wages to
employees, and environmental protection. This means that financial reporting in an Islamic
society is to be expected to be more detailed than what is currently prevalent in Western
societies.
However, besides the distribution aspect of sources, Islam is also concerned about the
acquisition of those sources. Islam have need of that the sources acquired should meet the
category of halal (legitimate). To accomplish this category, those sources should be permissible
(halal) in nature and also permissible in the process of acquisition. The problematic in the Value
Added Statement (VAS) which that because the distributional characteristics of the VAS would
support accountability in Islam and it does not provide a space for such consideration as it is
only concerned with the distributional aspects of the sources.

PREPARED BY,
NUR RASYIDAH BINTI AB HALIM (1112421)