Name : Zahid Noor Discipline : MS (IBF) Research Topic : Conventional Accounting & Finance and Islamic Values Riphah

International University ( RCIB ) 274-Peshawar Road Rawalpindi Cantt.

Criticism on Conventional Accounting:
Externalities is not included in financial report (Lee Parker, environmental accounting) Intangible asset cannot be measured adequately(Lev Baruch) Human resources and employee reporting interest are not included. Social Interest is overlooked Promote the exploitation of capitalist over labor and society. Promote the concentration of wealth and power to the hand of the rich. The Islamic world view is thereby, the comprehensive and universalizing, overreaching and complementing design of reality that is premise on the epistemology of divine unity and is evolved into intellection through the process orientation model of unification of knowledge in world system as derived from the primal sources of divine unity.

Quranic verse on Accounting

Oh you who believe! When you deal with each other, in transaction involving future obligations in a fixed period of time, reduce them in writing. Let a scribe write down faithfully as between parties. Albaqarah (2) ayah 282: There is integration between worship ritual and socio-economy-politico and daily life of mankind. Calculation of ones act Clear the account, make neutral To take care of, to try to find To anticipate a reward in the hereafter To take into account, into consideration To order Muslim to perform their duties To avoid fraudulent practices in business and society, to check illegal contract, keep free market and fair price, prevent necessities from being hoarded.

Sharia basis rules of business and accounting.

Islamic Accounting
1. To report accurate income determination 2. To promote efficiency and leadership 3. To comply with the shariah (Islamic principles) 4. Commitment to justice 5. To report a good things 6. To adapt positive social change.

Conventional Accounting & Finance Practices:

Based upon modern commercial law-permissive rather than ethical Limited disclosure (provision of information subject to public interest)

What Islam Says?

Based upon ethical law originating in the Quran & Sunnah Full disclosure (to satisfy any reasonable demand for Information in accordance with the Sharia). Allah s.w.t says: (al-Mujadila, 58:11) Allah will raise to high ranks those who believe and are endowed With knowledge. Allah is well aware of all that you do

Personal accountability (focus on individuals who control resources)

Public accountability (focus on the community who participate in Exploiting resources). Allah s.w.t Says: (al Nisa 4:58) Allah commands you to deliver trusts to those worthy of them and when you judge between people judge we justice. Unity of God Religious Communal Reasonable profit Equity Environment

Economic rationalism Secular Individualistic Profit maximization Survival of fittest Process

Absolute ownership Individuality oriented The normative accounting always influencing Descriptive accounting or individuality interest In operational, they permit everything to reach the highest profit Measure as highest possible profit Historical Cost [Entity]Separation between business and owners [going concern] Business continues forever [Accounting period] Periodical measurement of performance [unit of measure] Monetary Value [Full disclosure principle] Decision making process

Relative ownership Society oriented Normative & Descriptive Accounting always going simultaneously In operational, they do everything in boundaries of Islam (Shariah) Measure as saleable value Market (selling) price rather than historical cost Firm doses not have separate financial obligation Depend on contractual agreement between party One lunar year for zakat calculation Quantity based and monetary based (zakat calculation) Importance for fulfillment of duties and obligation to God, society and individual. Allah Says: But help you one another in righteousness and guarding your duty (toward Allah). Help not one another to sin and Transgressions but keep your duty to Allah. Allah is severe in Punishment. (Al-Maida 5:2) Clear conscience with God in fulfilling all duties. Allah Says: O you who believe! Guard your duty to Allah (ittaqullah) and speak words straight to the point.(Al-Ahzab 33:70) Consistence to shariah rules Most favorable to society (justice) Riba, Usury and interest prohibited Derivatives are prohibited Calculated on business transactions, on assets and on revenues. True and fair view AIOUFI Standards

[Materiality] Relative importance of information for decision making

[Consistency] Consistency based on GAAP [Conservatism] Use least favorable impact on owners Riba, Usury and Interest based transaction appreciated Speculative transaction, gambling, dishonesty, collusion, uncertainty, Manipulation, fraud, free market interference, exploitation, and hoarding. Tax Fraud and none paying of Zakat Window dressing IAS (International Accounting Standards)