Академический Документы
Профессиональный Документы
Культура Документы
www.emeraldinsight.com/1759-0817.htm
JIABR
4,1 The need of accounting standards
for Islamic financial institutions:
evidence from AAOIFI
64
Adel Mohammed Sarea
College of Business and Finance, Ahlia University, Kingdom of Bahrain, and
Mustafa Mohd Hanefah
Faculty of Economics and Muamalat,
Universiti Sains Islam Malaysia (USIM), Malaysia
Abstract
Purpose – The purpose of this paper is to determine the need of Islamic Accounting Standards –
a review of the literature – for Islamic financial institutions (IFIs).
Design/methodology/approach – The basis of the paper was stakeholder theory to analyse the need of
accounting standards and to design the conceptual framework as evidenced from Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI). The evidence reviewed suggests the need for
Islamic accounting standards to fill the gap in accounting practice among Islamic financial institutions.
Findings – The AAOIFI accounting standards serve as a guideline that may reflect the unique
characteristics of IFIs and become a useful tool to meet the various needs of IFIs. Currently, one of the
major challenges facing IFIs lies in the preparation of the financial statements under different
accounting standards and which may lead to problems of comparability, reliability and compliance
level measurement. This has resulted in a heated debate among scholars which has hitherto translated
to the evolving existing literature surrounding the interpretation of the level of compliance with the
Islamic accounting standards. The paper concludes with various recommendations for future research,
the most important of which is the need for future studies on how AAOIFI accounting standards can
be made mandatory in all Muslim countries.
Originality/value – This paper contributes towards a better understanding and acceptability of the
need of Islamic Accounting Standards.
Keywords Islamic accounting, Islamic financial institutions, AAOIFI Standards, Accounting, Islam
Paper type Literature review
1. Introduction
At present, Islamic banks represent the majority of Islamic financial institutions (IFIs),
which are spread locally and internationally across both Muslim and non-Muslim
countries. The emergence of Islamic banking is due to the increasing demand from
Muslims communities worldwide for Shari’ah complied Islamic financial products,
services and the variety of modes of Islamic finance. However, Islamic banking is
evolving and growing at a rapid rate with an impressive record of more than 200 IFIs
operating in 63 Islamic and non-Islamic countries (Maali and Napier, 2010). The past
ten years saw high growth in the number of IFIs around the world that has attracted
Journal of Islamic Accounting and major Western institutions such as Citibank, HSBC, and Deutsche Bank, which operate
Business Research Islamic windows within conventional banks (Maali and Napier, 2010). Furthermore,
Vol. 4 No. 1, 2013
pp. 64-76 given the rate of growth of the IFIs, the continuous sustainability of the development
q Emerald Group Publishing Limited by IFIs in both Islamic and non-Islamic countries needs Islamic accounting standards
1759-0817
DOI 10.1108/17590811311314294 otherwise called accounting and auditing organization for Islamic financial institutions
(AAOIFI) accounting standards due to the unique characteristics coupled with the Accounting
growing demand of IFIs’ products and services so as to facilitate and enhance the
credibility and reliability of the financial statements and reports.
standards for IFIs
It is argued that the current standards which are based on conventional framework
seem insufficient to guide the IFIs. Currently, the various IFIs apply different
accounting standards in their preparation of their accounts due to the absence of
Islamic accounting standards (Zaini, 2007). The trend towards the AAOIFI standards 65
has become a pressing issue that has generated heated debate among Organization of
Islamic Cooperation countries.
In reference to the above objectives, this research attempts to contribute to the current
framework and serve as a guide for IFIs regarding interest free transactions through
determining the levels of compliance with the AAOIFI accounting standards by
Islamic banks.
7. Conclusion
The adoption or compliance with the AAOIFI accounting standards and IFRS has
become the focus among IFIs. The objectives of the AAOIFI accounting standards are
to prepare and develop accounting, auditing, governance, ethical, and Shari’ah
standards relating to the activities of IFIs.
Based on the stakeholder theory, this paper discussed the importance of the AAOIFI
accounting standards for IFIs globally.
The AAOIFI accounting standards for IFIs that are in accordance with the Shari’ah
requirements are the best choice for increasing foreign investments and investor’s
confidence among Muslim societies and economies.
AAOIFI through its global network has also persuaded regulatory authorities to
adopt its standards, but until now AAOIFI has not been fully successful. It does not
have the power to enforce its standards on IFIs globally. It is strongly recommended
that Muslim countries should give full support to AAOIFI standards by adopting and
making them mandatory for all IFIs.
References
AAOIFI (2008), Financial Accounting Standards, Accounting and Auditing Organization for
Islamic Financial Institutions, Manama.
AAOIFI (2010a), Accounting Standards, Accounting and Auditing Organization for Islamic
Financial Institutions, Manama.
AAOIFI (2010b), Financial Accounting Standards, Accounting and Auditing Organization for
Islamic Financial Institutions, Manama.
Abdul Rahim, A.R. (2003), “Accounting regulatory issues on investment in Islamic bonds”,
International Journal of Islamic Financial Service, Vol. 4 No. 4, pp. 1-11.
JIABR Abongwa, A. (2006), “An empirical investigation of the relationship between culture and
accountants attitude towards the harmonization of international accounting standards in the
4,1 United States of America and Cameroon”, PhD thesis, University of Nebraska, Lincoln, NE.
Ahmed, E. (2002), “Accounting issues for Islamic banks”, in Archer, S. and
Rifaat Ahmed, A.K. (Eds), Islamic Finance Innovation and Growth, Euro Money Books
and AAOIFI, Nestor House, London.
74 Al-Shammari, B., Brown, P. and Tarca, A. (2008), “An investigation of compliance with
international accounting standards by listed companies in the Gulf Co-operation Council
member states”, The International Journal of Accounting, Vol. 43, pp. 425-47.
Ariss, R. and Sarieddine, Y. (2007), “Challenges in implementing capital adequacy guidelines to
Islamic banks”, Journal of Banking Regulation, Vol. 9 No. 1, pp. 46-59.
Callao, J. and Láinez, A. (2007), “Adoption of IFRS in Spain: effect on the comparability and
relevance of financial reporting”, Journal of International Accounting, Auditing and
Taxation, Vol. 16, pp. 148-78.
Che Pa, A. (2006), “An exploratory study on the understanding and accounting for Islamic bonds:
perspective of Malaysian bank managers”, Master thesis, International Islamic University
Malaysia, Selangor.
Choi, F. and Meek, G. (2005), International Accounting, 5th ed., Prentice Hall, Upper Saddle River, NJ.
Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman Publishing,
Boston, MA.
Haarman, C.F. and Schmid, S. (2006), “The stakeholder theory”, available at: www.edalys.fr/
documents/Stakeholders%20theory.pdf (accessed 20 May 2012).
Hamat, Z. (2009), “Business Zakat accounting and taxation in Malaysia”, paper presented at the
Conference on Islamic Perspectives on Management and Finance, Organized by School of
Management, University of Leicester, Leicester, UK, 2-3 July.
Hameed, S. (2001), “Islamic accounting – accounting for the new millennium?”, paper presented
at the Asia Pacific Conference 1 – Accounting in the New Millennium, 10-12 October,
Reinassance Hotel Kota Bharu, Kota Bharu.
Hameed, S. (2009), “IFRS vs AAOIFI: the clash of standards?”, MPRA Paper No. 12539,
International Centre for Education in Islamic Finance, Kuala Lumpur.
Hameed, S., Wirman, A., Alrazi, B., Nazli, M. and Pramono, N. (2006), “Alternative disclosure and
performance measures for Islamic banks”, International Islamic University Malaysia,
Selangor, available at: www.iiu.edu.my/iaw/Students (accessed 11 April 2011).
Harahap, S. (2003), “The disclosure of Islamic values-annual report the analysis of Bank
Muamalat Indonesia’s Annual Report”, Managerial Finance, Vol. 29, pp. 70-89,
ABI/INFORM Global.
Haverals, J. (2007), “IAS/IFRS in Belgium: quantitative analysis of the impact on the tax burden
of companies”, Journal of International Accounting, Auditing and Taxation, Vol. 16, No. 1
pp. 69-89.
Haverty, J. (2006), “Are IFRS and US GAAP converging? Some evidence from People’s Republic
of China companies listed on the New York Stock Exchange”, Journal of International
Accounting, Auditing and Taxation, Vol. 15, pp. 48-71.
Hussein, M.E. (1981), “The innovative process in financial accounting standards setting”,
Accounting, Organizations and Society, Vol. 6 No. 1, pp. 27-37.
Ismail, H. and Abdul, L.R. (2001), Survey and Analysis of Financial Reporting of Islamic Banks
Worldwide, Arab-Malaysian Banking Group, Kuala Lumpur.
Iwona, V. (2004), “Implementation of international accounting standards in Poland: can true Accounting
convergence be achieved in practice?”, Accounting in Europe, Vol. 1 No. 1, pp. 143-67.
standards for IFIs
Joshi, P.L. and Ramadhan, S. (2002), “The adoption of international accounting standards by
small and closely held companies: evidence from Bahrain”, The International Journal of
Accounting, Vol. 37, pp. 429-40.
Karim, R.A. (2001), “International accounting harmonization, banking regulation, and Islamic
banks”, The International Journal of Accounting, Vol. 36, pp. 169-93. 75
Karim, R.A. and Tomkins, C. (1987), “The Shari’ah and its implications for Islamic financial
analysis: an opportunity to study interactions among society, organization, and
accounting”, The American Journal of Islamic Social Sciences, Vol. 4 No. 1, pp. 101-15.
KPMG and ACCA (2010), Harmonising Financial Reporting of Islamic Finance-Report, 2010,
available at: www2.accaglobal.com/pubs/general/activities/library/financial_reporting/
other/tech-af-hfrif.pdf (accessed 12 May 2012).
Lovett, R. (2002), “The adoption of international accounting standards: a diffusion of an
innovation”, PhD thesis, Nova Southeastern University, Fort Lauderdale, FL.
Maali, B. and Napier, C. (2010), “Accounting, religion and organizational culture: the creation of
Jordan Islamic Bank”, Journal of Islamic Accounting & Business Research, Vol. 1 No. 2.
Masood, A. and Tahir, I. (2008), Towards a Theory of Islamic Financial Reporting, Griffith
University, Nathan, pp. 1-39.
Maurer, B. (2010), “Form versus substance: AAOIFI projects and Islamic fundamentals in
the case of sukuk”, Journal of Islamic Accounting & Business Research, Vol. 1 No. 1,
pp. 32-41.
Mir, M.Z. and Rahaman, A.S. (2005), “The adoption of international accounting standards in
Bangladesh: an exploration of rationale and process”, Accounting Auditing and
Accountability Journal, Vol. 18 No. 6, pp. 816-29.
Mirza, M. and Nabil, B. (1999), “Accounting policy choice in an interest-free environment”, paper
presented at the Islamic Perspective International Conference III in Jakarta, Indonesia,
15-18 February.
Mutter, M. (1993), “Evaluation of the actual disclosure level in the financial statement of the
Jordanian companies”, Dirasat Magazine, Vol. 2.
Nadzri, F. (2006), “Roles and impacts of accounting and auditing organization for Islamic
financial institutions (AAOIFI) in dealing with the accounting and disclosure of Zakah and
interest (Riba)”, Master of Business Thesis, AUT University, Auckland.
Pomeranz, F. (1997), “The accounting and auditing organization for Islamic financial institutions:
an important regulatory debut”, Journal of International Accounting, Auditing & Taxation,
Vol. 6 No. 1, pp. 123-30.
Shadia, R. (2007), “Islamic accounting standards”, pp. 1-9, avilable at: http://islamic-finance.net/
islamic-accounting/acctg5.html (accessed 7 May 2011).
Tag El-Din, S. (2004), “Accounting Standards of Islamic Financial Institutions: Analysis of the
Balance Sheet Structure”, Markfield Institute of Higher Education, available at: www.irti.
org/irj/go/km/docs/documents/IDBDevelopments/Internet/English/IRTI/CM/downloads/
Distance_Learning_Files/Analysis_of_Balance_Sheet_Structure_Seif_elDin.doc (accessed
7 July 2012).
Vinnicombe, T. (2010), “AAOIFI reporting standards: measuring compliance”, Advances
in Accounting, Incorporating Advances in International Accounting, Vol. 26 No. 1,
pp. 55-65.
JIABR Whittington, G. (1989), “Accounting standards in the UK after 20 years: a critique of the Dearing
and Solomons Reports”, Accounting & Business Research, Vol. 19, pp. 195-205.
4,1 Zaini, N. (2007), “An exploratory study on the understanding of AAOIFI accounting standards
for investment in Islamic bonds: the case of Malaysian’s accounting academics”,
Master thesis, International Islamic University Malaysia, Selangor.
76 Corresponding author
Adel Mohammed Sarea can be contacted at: Adelsarea@yahoo.com