Factors influencing compliance level with AAOIFI financial accounting standards by Islamic banks

Abstract

Purpose

The purpose of this paper is to investigate the compliance level of Islamic banks with disclosure accounting standards in some Middle East and North African countries, and most importantly to analyse the factors associated with compliance.

Design/methodology/approach

This study uses a self-constructed checklist of 203 items to measure the compliance of 38 Islamic banks with disclosure accounting standards during the 2011-2013 period. A multivariate regression analysis is used to determine significant factors influencing the extent of this compliance.

Findings

The results show a wide variation in compliance levels among the disclosure accounting standards and reveal that compliance is positively related to the listing status, the existence of an audit committee, the bank’s age and the country of domicile.

Research limitations/implications

This study analyses the compliance level with only disclosure accounting standards. It remains to future research to examine compliance with all Accounting and Auditing Organization for Islamic Financial Institutions’ Financial Accounting Standards (AAOIFI FAS). Moreover, the explanatory power of the model remains modest. This connotes the existence of omitted variables that could be explored in future research.

Practical implications

The research contributes to the international financial accounting literature about the banking industry. The results are relevant for researchers, accounting professionals, stakeholders, standard-setters and regulatory bodies that are concerned with Islamic banks’ disclosures.

Originality/value

Although AAOIFI was established since 1991, very few empirical studies about compliance with the FAS have been undertaken. To the authors’ knowledge, there are no studies that investigated the determinants of compliance level with AAOIFI FAS. Then, this study concentrates on disclosure accounting standards (FAS 1 and FAS 5) with a high risk of non-compliance.

Citation

Mnif Sellami, Y. and Tahari, M. (2017), "Factors influencing compliance level with AAOIFI financial accounting standards by Islamic banks", Journal of Applied Accounting Research, Vol. 18 No. 1, pp. 137-159. https://doi.org/10.1108/JAAR-01-2015-0005