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ISF 3207 (sect 1)

AUDITING & GOVERNANCE FOR ISLAMIC FINANCIAL INSTITUTIONS

TRANSPARENT FINANCIAL REPORTING


AS A TOOL FOR GOOD GOVERNANCE
GROUP 2

Instructor : Dr. Hamdino Hamdan

1. ANIS SURAYA MOHAMED SAID 1321952


2. FATIMAH MUNIRAH MD ZALIKI 1324106
3. NUR `ALIN `ADILAH MD ALI 1410666
4. NURUL ADILAH ABDUL AZIZ 1414844
5. NURUL NABILAH ZULKIFLI 1329318
01 Introduction & Definition
02 Importance
03 Current Practice
04 Islamic Perspective
05 Issues & Challenges
Recommendations
06 & Conclusion
INTRODUCTION

Important factors in
Transparency good CG
Affect the
attractiveness of
company to investor

willingness degree of transparency


depends on

ability
DEFINITION

Literal Technical
Easily read and understand the
Very clear, easily financial statements of a company
understood, candid,
and frank
Reports that have high quality and
clear information
FIVE PILLARS OF DISCLOSURE AND TRANSPARENCY

Truthfulness

Accessibility Completeness

Materiality of
Timeliness
information
THE IMPORTANCE OF TRANSPARENCY IN FINANCIAL
REPORTING

1 To ensure users understand


2 Increase the confidence of
financial reporting of the shareholders and investors &
company build companys public image
and reputation

As described in the FASB Statement of


Financial Accounting Concepts No. 1,
financial reporting should
provide information that is useful to
3
present and potential investors in making Can identifying and preventing
rational investment decisions and financial reporting problem
provide information to help present and
potential investors in assessing the amounts,
timing, and uncertainty of prospective cash
receipts....
CURRENT PRACTICE

MSWG- The Minority Watchdog Group (Malaysia)


Make a study on Malaysia-Asean Corporate Governance
Transparency Index, Findings and Recognition
Result:
1. Publishing of AGM Minutes
48% of the Top 100 PLCs provided such disclosures
compared to 37% in 2015
2. Whistle-Blowing Policy
86% of the Top PLCs have a Whistle-Blowing Policy
compared to only 70% in 2015.
ISLAMIC PERSPECTIVE

Islam: Allah is the absolute owner


Muslims: Vicegerent, trustee
Muslims are directed to conduct their business in
accordance with the Shariah rules
e.g: to be fair, honest and just toward others

Wealth is considered a trust and a test


Main virtue : prohibition of riba
Virtue of Islamic business: fair, and honest dealing
Prohibition: exploitations
Islamic institutions imply decision-making in a different and more
broader ways

And consult them on affairs (of moment). Then, when thou has taken
a decision, put thy trust in Allah
(Al-Imran 3.159)
ISSUES & CHALLENGES

1. Poor understanding on merits of greater transparency


Companies prefer boilerplate disclosure- standardized
documents, method or procedure

2. Form over substance way of reporting


Flexibility in constructing CG - not being used to the fullest
CG code is merely declared, with little or no explanation
being provided on the extent of compliance.
Companies are reluctant to adopt practices going beyond
the law

3.Passive nature of shareholders and reliance on government


bodies
MCCG 2012
RECOMMENDATIONS

1. Improve Financial Statement Presentation


Poor presentation limits transparency.
Promote effective presentation of financial reporting

2. Communication Enhancements
Enhance the communication skills of the financial preparers and auditors
Protect the reliability of the information

3. Effective disclosure on non-financial information


Provide a clear and complete picture of economic assets and obligations
Convey the risks associated with the business, i.e. The 2008 financial crisis
Preparers and auditors should go beyond required disclosures to provide
investors with a complete understanding of the underlying economic effects
of transactions and account balances.
4. Enhance disclosure for general meeting
Better quality and timely information through notices and
documents ( broad access to issues raised during AGM)
CONCLUSION

Transparency are the prerequisites in building a good framework for


good corporate governance
(YBhg Datuk Ali Abdul Kadir, Chairman, Securities Commission,
Malaysia)

1. Greater transparency in disclosures is essential for effective


financial reporting and supervision.
Information for investors to monitor their governance process
and behavior.
2. Emphasize on the pillars of transparency
3. Protect the best interest of all parties (stakeholders including
management team)
4. Promotes fair and justice management structure
Q&A
session

Thursday| March 30th 2017 | ISF 3207| Section 1