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11.0 INTRODUCTION
In this concluding chapter, the aims and objectives of the study together with the
motivation for the study are reiterated in the next section. A summary of the discussion
11.2. In section 11.3 the main theoretical findings of the study are summarised. This is
followed by section 11.4, which presents a summary of the main findings of the
empirical surveys. In section 11.5 the limitations of this research and suggestions for
further research are presented. The thesis is concluded in section 11.6 with the original
This study has aimed to investigate the possible need for ‘Islamic accounting’ as an
in most parts of the world. In particular, it aimed to study whether the objectives,
Islamic organisations and Muslim users and if not, to propose the outlines of an Islamic
accounting theory. The second part of the study was aimed at obtaining evidence as to
conventional accounting for Muslim users and Islamic organisations, as well as the
The motivation for the study is the seemingly inexorable dominating tendency of Anglo-
states such as China to adopt Anglo-American accounting methods in line with the
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despite the known influence of cultural, religious, social, business and political factors
Further conventional accounting has been accused, in the social and critical accounting
certain negative social values rather than being objective and neutral as held out be, by
the accounting profession. If this were true, the impact of conventional accounting
would be more disastrous for Islamic society, which has a different world-view and
accounting. Thus the researcher was motivated to enquire as to what factors made
conventional accounting inappropriate for Islamic society and what factors drove the
need for the development of an ‘Islamic accounting’ which would be more appropriate
for Islamic society. Having argued the need for an Islamic accounting, the study aimed
characteristics and consequences. Finally the study aimed to test this theoretical outline
further research which can expand the survey to other Muslim countries.
value-free and objective technical activity, it was argued that accounting affects and is
assumptions, which were the outcome of the Western worldview, values and social and
economic values. These values, the result of the historical evolution of European
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different from that of Islamic civilisation (Chapter 2). It was shown that while the
consumerism, utilitarianism as its core values, the Islamic values present a dual-world
view of trusteeship of God’s resources and accountability here and in the hereafter.
This worldview affects Islamic economic objectives and norms which is aimed at
The basic difference was due to the Islamic teaching of Tawhid or Oneness (Unity) not
only of God but also of creation and the practical consequence of this teaching is the
unity of the state and mosque as opposed to the secularist thrust in the West.
A comparison of the Islamic world-view and values with that of Islam showed significant
differences. For example, the strong belief of accountability in the hereafter had
implications for the definition of welfare and success. Success in the West is mainly
include material progress and good deeds undertaken. God’s pleasure takes the place
of (or at least conditions) the utilitarianism of modern economic theory. Further the
prohibition of interest, gambling, alcohol and aleatory contracts in Islam, has major
economic and accounting implications. Interest bearing securities are prohibited, hence
profit calculations, which preserves equity between stakeholders, become much more
important in Islamic accounting. Further calculation of Zakat (an Islamic religious tax)
becomes an important issue which has further implication on the valuation system used
in accounting.
The implications of these different world views on the economic behavioural codes and
on both conventional accounting and Islamic accounting was postulated in Figure 2-4 in
means that worldview affects accounting and vice-versa through user behaviour, it was
behaviour of Muslim users of accounting information (Figure 2-5). This may in turn lead
11.2.2 The Push factors: Why conventional accounting is inappropriate for Islamic
organisations and users.
This study next investigated in detail the factors, which necessitated the development of
an Islamic accounting system (Chapters 3,4 and 5). The researcher grouped these
factors into two categories; the push factors and the pull factors. The push factors are
those that made the existing conventional accounting system inappropriate for Islamic
organisations and users while the pull factors consists of those factors which provided
The push factors, which rendered conventional accounting inappropriate for Islamic
with problems of the definition of social welfare which decision usefulness is supposed
to obtain. It was shown that the developed capital market assumptions underlying the
creditors) may not be true of developing countries in general and Muslim countries in
particular. Further, the definition of social welfare, which was supposed to result from
the use of accounting information, was shown to have some problems in the context of
an Islamic society. Specifically social welfare could not be measured only in material
welfare, seem to indicate. This could in fact lead to efficiency at the expense of equity
The researcher showed that the requirement to calculate Zakat and preserve equity
cost and prudence (together with the historical cost profit model) inappropriate from an
Islamic point of view. It was suggested that a modified form of realisable income might
In tandem with the concern of critical and social accountants, the damaging
micro level resulting from the use of conventional management accounting tools such
as budgeting and performance evaluation was shown to be unIslamic. The use of these
tools could lead to cheating, conflict between employees and managers, between
materialist ones.
The first category of ‘pull factors’ for Islamic accounting was then investigated (Chapter
4). It was shown that a paradigm shift in epistemology is taking place in the Muslim
world through the attempted Islamisation of Knowledge. This movement was seeking to
resulting from their historical experience with Christianity. For the Muslim, however, the
movement was ‘back to original roots’ as for the Muslim world, the present bifurcation of
perspective. This was claimed to be one of the causes of the Muslim malady of poverty
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life inconsistent with their fundamental beliefs. Islamisation of knowledge seek to recast
modern disciplines (especially those of the social sciences) in the light and the vision of
suggested in the literature with a view to adopt the appropriate approach to Islamise
accounting, which this research project is an initial attempt. It was found that following
all the steps suggested was too daunting due to time and financial constraints for a PhD
project such as this. Thus it was thought best to incorporate only parts of the suggested
which are anti-Islamic and substituting these with Islamic principles deduced from the
paradigm of Burrell and Morgan was not appropriate for this research, the researcher
located this research in a third dimension (the Islamic paradigm). This was due to
special nature of this research, which took into account both the warnings of Hopper
and Powell (1985), that there is a strong relationship between the positions on each
This study also reviewed the development of Islamic organisations and features of the
Islamic Economic System, which constituted the theoretical basis of these institutions
(Chapter 5). In particular, the problem of the riba (interest) which is prohibited under
Islamic Law but which forms the corner stone of capitalist financial institutions and
markets, were discussed. It was shown, that although there were differences of opinion
on the definition of riba even in Muslim circles, which tried to exclude commercial
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interest from the prohibition, the majority of Muslim scholars and masses consider all
Organisations were discussed and it was shown that modern corporate form of
organisation was allowed under Islam with the exception of debt capital and possible
misgivings of limited liability. However, all Islamic organisations would have to follow
the Shari’ah with the consequence that they could not operate in certain prohibited
Hence, all Islamic organisations are ethical investors although the criteria of what is
was shown that the profit maximisation model is not suitable for Islamic organisations
as their objective tend to incorporate secular utility and ‘ritual utility’, the latter
Various types of Islamic business and non-profit organisations were reviewed briefly.
Islamic insurance companies and Islamic businesses. The objectives and operations of
Islamic banks were reviewed in some detail. This review showed that the structure,
objectives and operations of these Islamic organisations were somewhat different from
different. For example, the operations, the nature of the financial instruments used by
Islamic banks and the need to allocate profits between the banks and depositors,
required different capital adequacy ratio regulations and different accounting standards
and procedures. In addition, the ethical nature of these banks required different
Islamic accounting (Chapter 6). This was done after considering the ethical background
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of Islamic organisations and the objectives of Islamic economics under which Islamic
business organisations operate. The attainment of falah (success and welfare), which
included both economic and social attainments, was shown to be the objective of
hereafter, in the Islamic perspective but it was recommended for Muslims to keep track
Consistent with this world-view and economic paradigm, the researcher defined and
model, showing a dual accountability role for Islamic organisations (or accountors) –
one to God (in the form of social accountability to society and stakeholders) and one to
Besides the primary objective of “Islamic accountability”, the researcher also proposed
on Shari’ah compliance, the proper assessment and distribution of Zakat, the equitable
and fair distribution of wealth generated by the organisation among its employees and
Further, the researcher also suggested that stakeholders other than shareholders might
with the Islamic concept of taklif’ or “responsibility according to capacity”. Since large
corporation used more community resources, they would have to be accountable for
The researcher also considered the characteristics of Islamic accounting and proposed
that it be holistic and integrative rather than restricted by the monetary measurement
concept to “internalities” only. It was proposed that Islamic accounting should inform
accounting entity. The researcher also suggested that traditional auditing should be
extended to Islamic auditing which would attest the compliance of the Islamic
Finally, the researcher noted the importance of income calculation in Islamic accounting
Due to this and the wealth transfer implications of Zakat, it was suggested that the
historical cost model should be replaced with a mixed valuation model using current
valuation for stocks and fixed assets but separating the operational and holding gains.
users, the questionnaire method (both postal and delivered) was considered to be most
accounting issues (Chapter 7). This was in line with the Islamic jurisprudence principle
of ‘ijma (consensus of scholars or the learned) which is used to expand Islamic Law.
The choice of Malaysian Muslim Accountants and Accounting Academics were targeted
as the population to be surveyed as the researcher viewed that these were the relevant
ulema or scholars whose perceptions were important. The choice of Malaysia as the
research site was due to several reasons such as familiarity in terms of language and
contacts, finance and time considerations. More important in selecting Malaysia as the
research site was that the country is in the process of long-term Islamisation in its
political, social and economic system. Malaysia has set up Islamic banks, insurance
and investment companies as well as setting up Zakat collection agencies and Islamic
operating in parallel with the conventional system has been set up. In addition, there is
a developed stock exchange with many big companies, which can be described as
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Muslim if not Islamic. Further, there is a general Islamic resurgence in Academia as well
The Islamic accounting Questionnaire (IAQ) was used to elicit perception of Malaysian
Islamic organisations
accounting
• The information which Islamic accounting should provide and its characteristics.
From the above research areas, ten hypotheses were formulated to be tested in the
Muslim accountants, there were 105 respondents representing an overall response rate
of 34% and 5.7% of the total population of Malaysian Muslim Accountants. Of the 157
represented a response rate of 64.3% and 22.9% of the total population of Muslim
Accounting Academics.
Multi-item scores for each research area was computed using means of several
historical cost, prudence and money measurement were inappropriate for Islamic
accounting.
between the responses and certain characteristics of the respondents. This included
the sector in which the respondent worked (public, commerce or firm), whether the
qualifications of the respondent. The place of qualification and the level of social and
and experience of respondents seems to have negligible effect on the answers. Since
this was an exploratory study, the relationships were not explored further.
Due to the exploratory nature of the subject, it was decided to use simple statistical
tests of central tendencies, to test the ten hypotheses formulated. Due to the non-
normality of some of the sample distributions, both non-parametric sign test of median
From the testing of the hypothesis (Chapter 9), it was found that:
on profits (Hypothesis 1). In other words, they perceived that Islamic organisations
should work under the constraints of the Shari’ah, ensure the just treatment of all
employees even at the cost of reducing shareholder’s profits and promote the
participate in activities, which are not in line with Islamic socio-economic principles
(Hypothesis 2). This meant that Islamic business organisations should not raise
debt finance and deal in futures and options or undertake short selling or contra
trading.
3) The belief in the ability of the socio-economic principles in the Qur’an and Sunnah
population mean and medians of more than 4 (meaning strongly agree). This at
least implies that secularisation of the middle class accounting professionals and
academics have failed in Malaysia. This bodes well for the development of Islamic
4) The respondents also perceived that conventional accounting do not direct Muslim
5) However, the respondents did not believe that financial statements provided under
the attainment of their objectives (Hypothesis 5). Despite this, the respondents
(hypothesis 6). This finding could be due to the perception that general belief that
Islamic accounting as their median and mean score for this question was more than
four.
8) The respondents also held the belief that Islamic/Social objectives of Islamic
(Hypothesis 8). Although they did not reject the objective of shareholder wealth
employees, government and the community (Hypothesis 9). This lends increasing
10) Finally, the respondents believed that Islamic accounting emphasises Islamic/social
information rather than purely financial information on profits, cash- flows and
activities and social impact on the community. Further, the respondents perceived
that current values should be used in the balance sheet and called for Shari’ah audit
As the main objective of this questionnaire was seeking consensus, a proportion test
was conducted using the conservative cut-off mark of 40% of population disagreement.
This had to be rejected in all cases except that of conventional accounting principles.
This means that at least 60% of the Malaysian Muslim Accounting Academics and
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Accountants agree or strongly agree to those areas shown above, except for
measurement. This shows strong support for the development of an Islamic accounting
system that is more in line with Islamic values and more appropriate for Islamic
the ‘finance’ and ‘non finance’ questionnaires (Chapter 10). It was found that the type of
operating behaviour. It was found that Islamic business organisations better adhered to
Islamic guidelines in financing activities to a higher extent and to a slightly lesser extent
generally adhere to Islamic guidelines in all three activities. Hence, Islamic culture and
unIslamic manner but does not completely purge it except in the choice of financing.
However, accounting does affect influence Muslims in all types of organisations to seek
quick profits which could be considered against the broad objectives of the Shari’ah.
Islamic organisations also do not seem to avoid luxury projects and do not seek
decisions. Thus, there is some evidence of unIslamic behaviour in the search for profits
There also seems to be lesser Islamic commitment among foreign directors whereas a
higher Islamic commitment seems to exist among employees and managers. Islamic
managers, except for Non-executive directors. This may indicate evidence of unIslamic
Islamic commitment is highly correlated with the type of company; Islamic company
highest, Muslim companies moderate (but with high variability) and non-Muslim
It was found that about one-third of the respondents agreed to padding and cutting
corners (such as training, safety and welfare) to achieve budgets, while another one
third were neutral and the rest disagreed. Slightly more than one-quarter of the
respondents agreed that budgets caused friction among employees and between
employees and managers, while about 40% of the respondents were neutral with about
one-third disagreeing. Hence, while in general, it can be inferred that budgeting does
lead to unIslamic behaviour, the extent of such negative behaviour does not seem to be
high.
The responses in the performance evaluation area indicated that performance is based
circumstances and to a lesser extent social and community work are seem to be taken
reliance on accounting numbers (which may be considered unIslamic) but this seem to
unIslamic behaviour.
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behaviour among Muslims. It seems that staff welfare, training, benefits, working
conditions and even safety are sacrificed to increase profits. However, the answers are
not consistent as the majority of respondents reported that working conditions are taken
seriously. Perhaps, this is the case as long as it does not affect profits too much!
Further, the inductance affect of accounting does not seem to lead to the sacrifice of
Islamic ideals. Overall, the results indicate that conventional accounting might lead to a
strong profit focus (and thus unIslamic behaviour), the inconsistency in responses
Questionnaire, however, the results from both the finance and non-finance
questionnaire were not generalisable to the population of finance managers and non-
finance personnel in Malaysian companies as the sample selected was not random.
Hence, inferential statistical tests could not be applied, as the results would not have
been valid. However, the sample statistics has given some preliminary insights on the
As with all research, this research had some limitations. In particular several important
aspects of Islamic accounting could not be investigated due to the length and time
limitations. These include the structure of the Islamic accounting report, and the in-
depth discussion of recognition and measurement system for Islamic accounting. The
scope of the empirical research was also restricted due to cost and time considerations
to Malaysia.
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broaden the consensus. This could also reveal differences in perceptions due to
scholars or ulema as their opinion lends credibility to any consensus of academics and
The range of accounting principles tested could also be extended in future research to
include conventions other than the historical cost, prudence and monetary
Future research could also look into the design of data-capture systems and
There is also need to refine and extend the survey of the behavioural accounting
covering a period of time could lead to much better insights than surveys regarding the
culture, commitment and behaviour and how it changes over time will provide better
any.
This research, to the researcher’s knowledge, is the first to enquire into the need for
Islamic accounting. Previous research such as those by Baydoun & Willet (1998),
Hamid et al., (1993) and Abdulgader (1990) had addressed different aspects of Islamic
accounting such as Islamic corporate report, profit allocation problems in Islamic banks
contribute comprehensively into the need for Islamic accounting although it does not
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The previous comprehensive study by Gambling & Karim (1991) was quite in depth but
it did not really answer why Islamic accounting was necessary by questioning the
all. This study is the first to suggest that Islamic accounting is needed because of the
interaction of values with economic behaviour and accounting and that the different
value system of Islam required a different accounting system. It showed that the
consistent with a capitalist economic system rather than an Islamic economic system
This study also the first to examine in detail the objectives, characteristics, and macro
inconsistent with Islamic values and therefore not conducive to Islamic organisations.
This study is also a first attempt in the Islamisation of accounting and the exposition of
the Islamisation of knowledge and its link to the sociological paradigms of Burrell &
general.
This research is also a first in its exposition of the implication of the objectives and
accounting system, although the need for modification of accounting for Islamic banks
had been recognised in previous literature. This study extends it briefly to various types
of Islamic organisations.
shows that Islamic accounting has different objectives and characteristics, different from
was also remarkable as it also showed the failure of secularisation of these groups.
Although the results of the behavioural accounting questionnaires were mixed and may
not be very reliable, it did add some insight into the possibility of negative behavioural
researcher.