Implementation of the AAOIFI index on CSR disclosure in Indonesian Islamic banks

Abstract

Purpose

The purpose of this study is to discuss the extent to which Indonesian Islamic banks (IBs) disclose corporate social responsibility (CSR) according to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) index. It also empirically examines the determinants of CSR disclosure in Indonesian IBs, based on disclosure from AAOIFI index, which is based on Islamic principles.

Design/methodology/approach

The determinant used in this paper is the corporate governance (CG) mechanism, which focuses on the board of commissioners (BOC) and Sharia Supervisory Board (SSB) and their characteristics. The paper uses multiple regression analysis to examine the influence of these variables on CSR.

Findings

The results indicate that the level of CSR disclosure of IBs measured by the AAOIFI index continues to be low. The statistical results reveal that CSR disclosure has an insignificant relationship with BOC size and SSB qualifications, while the other results show a negative association between the composition of independent BOCs and CSR disclosure, and the frequency of BOC and SSB meeting has a positive effect on this.

Research limitations/implications

The study focuses on Indonesian IBs. The variables of the CG mechanism are limited to the BOC and SSB, while the BOC exists only in countries that adopt two-tier boards.

Practical implications

IBs should provide a wider range of information to be disclosed. The government should establish specific items that need to be disclosed by IBs, considering there are no specific CSR disclosure regulations for IBs in Indonesia.

Originality/value

This study uses the AAOIFI index, which may be a suitable measure of CSR in IBs. The study also analyzes why certain items in the index have a high disclosure level and others do not.

Citation

Nugraheni, P. and Khasanah, E.N. (2019), "Implementation of the AAOIFI index on CSR disclosure in Indonesian Islamic banks", Journal of Financial Reporting and Accounting, Vol. 17 No. 3, pp. 365-382. https://doi.org/10.1108/JFRA-02-2018-0013