The need of accounting standards for Islamic financial institutions: evidence from AAOIFI

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.

Citation

Mohammed Sarea, A. and Mohd Hanefah, M. (2013), "The need of accounting standards for Islamic financial institutions: evidence from AAOIFI", Journal of Islamic Accounting and Business Research, Vol. 4 No. 1, pp. 64-76. https://doi.org/10.1108/17590811311314294