ISLAM AND ACCOUNTING

MERVYN K. LEWIS
GROUP 1
SITI HAJAR BINTI JUMADIR (0931336)
HANISAH BINTI HAMZAH (0939158)
TENGKU MASTURAH BINTI TENGKU PARIS (0939682)
NURHIDAYAH BINTI ZAKARIA (0936052)
NUR IZZIANI BINTI MOHD ADNAN (0933900)
Islamic
law
Islamic
economic
and
financial
principles
Aspects that
shape
relationship
between
Islam and
accounting
NATURE OF ISLAMIC LAW
Shariah
-the way to the
source of life
The Qur'an is the
principal source of
Islamic law
The Hadith and
Sunna are
complementary
sources to the
Qur'an
The interpretations
and opinions of the
learned jurists-
secondary sources
Duty in Islamic law
-individual owes to
God
-those owed to
fellow
Reflects the will of
God
-covers all aspects
of life
Basis of Muslim
faith-the five
pillars of Islam
ISLAMIC BUSINESS ETHICS
Conduct business
-Fair, honest, just
Distribution
-Moderation
-Balance pattern of
consumption
Encourage trade and
commerce
-Earn a living
-Give charity
-Not allow to dominate
Social responsibility
-emphasize on welfare of
community over individual
rights
Requirement for work and
produce
never lazy and helpless
Business principle
-x deceive/ exploit others
-x hoarding
-x stolen goods
Property right
-God: absolute owner
-Man: vicegerent
-ownership of property:
trust
-accountable
Contract law
-freedom of contract,
terms do not conflict
with the shariah
-basic principles
(sale, hire. gift, loan)
Business organization
-partnership
(shirkah al-inan,
Musharakah, mudharaba)
-business entreprise
(ijarah,modern
corporation)
Managerial ethics
-shepherd of the
employee.
-provide guidance
-care for subordinates
ISLAMIC ACCOUNTING
TWO
APPROACHES OF
DEVELOPING
ACCOUNTING
THEORY
Establish objective (Islamic
principles) & relate to
contemporary accounting thought
Test the established objective of
contemporary accounting thought
against Shariah.
[e.g: AAIOFI]
SOCIAL
ACCOUNTABILITY
- Main obj. of Islamic Acctg.
FULL DISCLOSURE
- Truthful & relevant
RECORDS
- Debts (Material credit loans &
transactions)
MATERIALITY
- Useful to users
ASSETS & LIABILITIES
- Separate with unlawful
activities & properties
PERIODICITY
- Zakat obligation (lunar
system)
- Conventional acctg. (solar
system)
ISLAMIC FINANCING PRINCIPLES
Interest (Riba)
free
Zakat
payment
No prohibited
activities
Free from
gharar/maysir
Takaful
concept
Interest
Investment
acc.
Investors &
s/holders
Profit
Distribution
Accounting
Concepts
Social
Activities
1. INTEREST
Prohibited by
Islam
How Islamic
bank
operates?
Through
partnership
financing
arrangements
2.
INVESTMENT
ACCOUNT
Pre-
agreed
profit
sharing
ratio
Depositor
(Financier )
vs
Bank
(Entrepren
eurs)
Any
loss
will be
shared
as well
3. INVESTORS & SHAREHOLDER
Conventional
Shareholder
own
companys
equity
Entitled no
of rights
Can sell the
shares if
dissatisfied
Islamic
Accept deposits
from customer
Based from profit
sharing ratio
Lack of
protection for
depositors
Depositor will
tend to monitor
performance of IB



Profit Distribution
expenses
Direct- investment
related expenses
Indirect overheads,
depreciation,
directors salaries
revenue
Example : the 5
methods in
Murabaha
Accounting
Concept
Payment of zakat
Distribution of cash
profit for mudaraba
Accrual Basis
ISSUES
No
consistencies
in level of
disclosure
External
auditor
Conflicting
views
CONCLUSION
No division
between
worldly and
religious
activities
Accountability
Compliance to
Sharia law