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Article
Publication date: 14 December 2020

Harun Sencal and Mehmet Asutay

As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between…

Abstract

Purpose

As an essential component of Islamic governance for ensuring religious compliance, Shari’ah annual reports (SARs) play an important role in providing communication between Shari’ah board (SB) members and stakeholders. This paper aims to determine the ethical disclosure in SARs to identify how close the Shari’ah disclosure to the standards set by AAOIFI and also substantive morality of Islam. The research also aims to examine the factors determining disclosure performance.

Design/methodology/approach

Two disclosure indices are developed to generate data from the SARs: the AAOIFI standards for Shari’ah governance index for form related approach, an Islamic ethicality augmented index reflecting on substantive morality approach. The sample consists of 41 Islamic banks from 15 different countries for the period of 2007–2014. Sampled 305 SARs were examined through disclosure analysis in line with the two indices developed for this study. The econometric analysis was run to identify the factors determining disclosure performance.

Findings

The findings suggest that AAOIFI guidelines have an influence on the level of disclosure, even if Islamic banks have not adopted them. However, the level of disclosure for the ethically augmented index is found to be very limited with reliance on general statements in most of the cases. As part of determining factors, the popularity of Shari’ah scholars is significant for both indices, while the existence of an internal Shari’ah auditing department holds some explanatory power. The adoption of AAOIFI standards at the country level, the regulatory quality and the duration of Sharīʿah-compliance are particularly deterministic factors in terms of complying with AAOIFI standards for SARs.

Originality/value

Although SB is the most crucial division of corporate governance in Islamic banks in terms of securing the “Islamic” identity of these institutions, their most important communication instrument, namely, SAR, has not been explored sufficiently, alongside an insufficient attempt to constitute Islamic corporate governance. Initially, this study attempted to constitute an Islamic corporate governance framework as a theoretical construct, which provides context for the empirical part of the research and this should be considered a novel approach. Second, the empirical part of the research aims to fill the gap observed in the literature such as small sample size and index construction-related matters. This research is conducted with a larger sample size as compared to the available studies in the literature and it has developed two indices for disclosure analysis along with developing an Islamic morality-based index beside an index based on AAOIFI standards.

Details

Corporate Governance: The International Journal of Business in Society, vol. 21 no. 1
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 2 September 2019

Peni Nugraheni and Erlinda Nur Khasanah

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…

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.

Details

Journal of Financial Reporting and Accounting, vol. 17 no. 3
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 4 February 2021

Sherif El-Halaby, Sameh Aboul-Dahab and Nuha Bin Qoud

This paper aims to systematically review the existing studies for Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards which include…

Abstract

Purpose

This paper aims to systematically review the existing studies for Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards which include different tracks of researches and then identify the gaps to propose opportunities for future research.

Design/methodology/approach

By adopting a systematic literature review approach, 46 papers that were published between 2000 and 2020 from 23 journals concerned with AAOIFI were selected for review and analysis.

Findings

The authors combine electronic searches to identify relevant studies using keywords such as “AAOIFI” or and “Islamic standards.” In light of the existing studies’ limitations, this paper derives and summarizes five leading future research tracks: identifies the research gaps in AAOIFI and then suggests that AAOIFI still requires more empirical analyses; identifies the alternative analytical methods as meta-analysis; identifies additional measurements for macro and microeconomics factors; identifies recent tracks as corresponding to Covid-19 pandemic; and future studies should consider the role of central banks and positive criticism for AAOIFI.

Practical implications

This analysis address the literature gaps on measuring compliance, determinants and consequences of AAOIFI adoption as this study serves as a guide for the researchers, regulators and Islamic financial institutions in research associated with this area. The findings would support AAOIFI, regulators and related authorities across jurisdictions with suggestions on improving the current AAOIFI practices.

Originality/value

This literature review is a historical record and guidance for researchers who seek to examine and explore several questions about AAOIFI. To the best of the authors’ knowledge, this is the first paper that applies systematic literature review over AAOIFI research field.

Details

Journal of Financial Reporting and Accounting, vol. 19 no. 2
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 2 October 2017

Hana Ajili and Abdelfettah Bouri

This study measures and compares the level of compliance with the disclosure requirements provided by the International Financial Reporting Standards (IFRS) and the…

1283

Abstract

Purpose

This study measures and compares the level of compliance with the disclosure requirements provided by the International Financial Reporting Standards (IFRS) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). This study also aims to investigate the factors associated with this compliance in a sample of Islamic banks (IBs) in Gulf Cooperation Council member states.

Design/methodology/approach

The sample consists of 39 IBs between 2010 and 2014. Among the selected IBs, 23 banks were complying with the AAOIFI standards and 16 banks were complying with the IFRS standards. An unweighted disclosure index was used to measure the level of compliance with IFRS/AAOIFI disclosure requirements.

Findings

It was found that the level of compliance with IFRS is higher than that of compliance with AAOIFI. In addition, the results reveal that compliance with IFRS/AAOIFI disclosure requirements is higher for larger and older IBs. Finally, it was observed that compliance was more noticeable for IBs having a higher leverage and multinational subsidiaries.

Originality value

These findings would be of great help to regulators and policymakers to better understand the accounting disclosure practices of IBs.

Article
Publication date: 18 April 2016

Sherif El-Halaby and Khaled Hussainey

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and…

2026

Abstract

Purpose

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and governance standards by Islamic banks (IBs).

Design/methodology/approach

The sample consists of 43 IBs across eight countries. The authors use ordinary least squares regression analyses to examine the impact of bank-specific characteristics and corporate governance (CG) mechanisms concerned with Board of Directors (BOD) and Sharia Supervisory Board (SSB) on the levels of compliance with AAOIFI standards.

Findings

The paper finds that the average compliance level based on AAOIFI standards concerning the SSB is 68 per cent; corporate social responsibility (CSR) is 27 per cent; and presentation of financial statements (FSs) is 73 per cent. The aggregate disclosure based on the three indices is 56 per cent. The analysis also shows that size, existing Sharia-auditing department, age and CG of SSB are the main determinants of compliance levels.

Originality/value

The determinants of compliance with AAOIFI standards for IBs around the world have not been explored before, and therefore, this paper is the first of its kind to this issue.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 9 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 3 September 2020

Yosra Mnif and Marwa Tahari

This study aims to examine the effect of the main corporate governance characteristics on compliance with accounting and auditing organisation for Islamic financial…

Abstract

Purpose

This study aims to examine the effect of the main corporate governance characteristics on compliance with accounting and auditing organisation for Islamic financial institutions’ (AAOIFI) governance standards’ (GSs) disclosure requirements by Islamic banks (IB) that adopt AAOIFIs’ standards in Bahrain, Qatar, Jordan, Oman, Syria, Sudan, Palestine and Yemen.

Design/methodology/approach

The sample consists of 486 bank-year observations from 2009 to 2017.

Findings

The findings reveal that compliance with AAOIFIs’ GSs’ disclosure requirements is positively influenced by the audit committee (AC) independence, AC’s accounting and financial expertise and industry expertise, auditor industry specialisation, IB’s size and IB’s listing status. On the other hand, it is negatively influenced by the ownership concentration.

Research limitations/implications

This study has only examined compliance with AAOIFI’s GSs’ disclosure requirements and has focussed on one major sector of the Islamic financial institutions (which is IB).

Practical implications

The findings are useful for various groups of preparers and users of IBs’ annual reports such as academics and researchers, accountants, management of IBs and some organisations.

Originality/value

While the study of the AAOIFIs’ standards has grown contemporary with considerable contributions from scholars, however, the majority of these studies are descriptive in nature. Indeed, the existing literature that has explored the determinants of compliance with AAOIFI’s standards is in the early research stage. To the best of the knowledge, there is a paucity of empirical research testing this issue.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 5
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 19 June 2021

Fahru Azwa Mohd Zain, Wan Amalina Wan Abdullah and Majella Percy

This paper aims to determine the role governance plays in the voluntary adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI

Abstract

Purpose

This paper aims to determine the role governance plays in the voluntary adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Disclosure Standards by Islamic insurance (takaful) operators in the Southeast Asia (SEA) and the Gulf Cooperation Council (GCC) regions.

Design/methodology/approach

This study uses a sample of 44 takaful operators in the SEA and the GCC regions. While corporate governance (CG) strength is measured by the use of the frequently examined variables of the board of directors and audit committee, Shari’ah governance strength is measured by the characteristics of the Shari’ah Supervisory Board (SSB). Content analysis is used to extract disclosure items from the 2014 annual reports. Agency theory, stakeholder theory and political economy theory are argued to support the hypotheses.

Findings

The results show that CG strength has a positive and significant effect on the voluntary adoption of AAOIFI Disclosure Standards by takaful operators, indicating that CG plays an important role in the disclosure of information in the annual reports of takaful operators. However, the results show a lack of association between SSB strength and voluntary adoption of AAOIFI Disclosure Standards. Our results suggest that the SSBs may not be as involved as the other CG mechanisms (such as a board of directors and audit committees) in reviewing financial reports. On another note, the level of the political right and civil liberties has a negative and significant effect on the voluntary adoption of AAOIFI Disclosure Standards, providing an indication that stakeholders in a community with greater freedom tend to be more active in pressuring takaful operators to provide more information to justify their existence in the community. Similar to SSB strength, the legal system is also found to have no significant association with the voluntary adoption of the AAOIFI disclosure standards.

Practical implications

This study provides stakeholders with a tool to evaluate the effectiveness of the governance role in increasing the transparency of takaful operators by examining the governance factors using a self-constructed disclosure index.

Originality/value

Our study is among the first to provide an in-depth analysis of voluntary adoption of AAOIFI Disclosure Standards for takaful operators in these two regions; therefore, this study has implications for regulators and standard setters. The findings of this study are expected to provide information to regulators and standard setters on the role of governance in improving the transparency of takaful operators.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 20 May 2021

Adel Sarea and Monsurat Ayojimi Salami

This paper aims to examine the level of Islamic social reporting (ISR) disclosure of Islamic banking in Gulf Cooperative Council (GCC) countries using a checklist based on…

Abstract

Purpose

This paper aims to examine the level of Islamic social reporting (ISR) disclosure of Islamic banking in Gulf Cooperative Council (GCC) countries using a checklist based on Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) standards.

Design/methodology/approach

A quantitative method – Tobit Model – is adopted in this study. The unweighted disclosure method used to measure the ISR disclosure checklist consist of 51 items in Islamic banks (IBs) in the GCC countries. The stakeholder theory and legitimacy theory are used to investigate the possible banking performance factors affecting the accounting practices such as ISR disclosure in IBs.

Findings

The findings show that the ISR disclosure index is linked to the IBs’ performance indicators in GCC countries. The result indicates both Islamic banking profitability and age establish positive and statistically significant relationship with ISR disclosure while leverage establishes significant negative relationship with ISR disclosure. This implies that Islamic banking profitability, leverage, and age are essential bank performance indicators that make ISR disclosure worthy of doing even in the presence of Islamic bank stakeholders in GCC countries. This finding linked compliance with the mandatory disclosure recommendations of AAOIFI Standard No. 7, as well as voluntary disclosure.

Research limitations/implications

This study used cross sectional data for the year 2019, which is considered more recent despite its being a year data analysis. However, future research should consider mix method as well as more analysis tools provided their number of observations are sufficient enough.

Social implications

The study identifies the factors that may enhance Islamic financial institutions, including Islamic banking in GCC countries, to comply with ISR disclosure. The application of this study supports Accounting standards setters to consider standards that support ISR disclosure in Islamic banking in different countries.

Originality/value

To the best of the authors’ knowledge, this study is novel in exploring the level of ISR disclosure in Islamic banking in GCC countries by using a checklist based on AAOIFI standard No. 7 and establishes the relationship between ISR disclosure index and IBs profitability, leverage, as well as age of Islamic banking in operation.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 28 January 2020

Tawida Elgattani and Khaled Hussainey

The purpose of this study is to investigate the influence of corporate governance mechanisms on Accounting and Auditing Organization for Islamic Financial Institution …

Abstract

Purpose

The purpose of this study is to investigate the influence of corporate governance mechanisms on Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI) governance disclosure in Islamic Banks.

Design/methodology/approach

To test the research hypotheses, the authors created a comprehensive AAOIFI governance disclosure index and used regression analysis for a sample of Islamic banks for the financial years within the period 2013-2015.

Findings

The authors found that audit committee size is the main determinant of the AAOIFI governance disclosure.

Research limitations/implications

This study has a number of limitations that could be taken as avenues for a future study such as, the study used the six variables of CG and the four variables of firm characteristics, based on available data. This research is limited to just Islamic banks.

Originality/value

The research contributes to Islamic accounting literature by identifying the driver for the AAOIFI governance disclosure for Islamic banks that mandatorily adopt AAOIFI standards.

Details

Journal of Financial Reporting and Accounting, vol. 18 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 23 September 2013

Wan Amalina Wan Abdullah, Majella Percy and Jenny Stewart

The paper aims to contribute to the discussion on Shari'ah governance systems by examining the extent of disclosure on the Shari'ah Supervisory Board (SSB) as well as the…

4131

Abstract

Purpose

The paper aims to contribute to the discussion on Shari'ah governance systems by examining the extent of disclosure on the Shari'ah Supervisory Board (SSB) as well as the content of the Board's report in the annual reports of 23 Islamic banks in Malaysia and Indonesia. The paper also investigates the disclosures about zakat (Islamic levy).

Design/methodology/approach

The study is a cross-sectional analysis of annual report disclosures in the year 2009. The paper uses both disclosure indices and content analysis to measure the extent of disclosures about SSB and zakat. The paper also tests hypotheses examining the relationship between SSB characteristics and the extent of the SSB-related and zakat disclosures.

Findings

The results indicate that SSB-related and zakat disclosures are still limited, with only four banks disclosing more than half of the SSB Index. What is noticeable is the low level of disclosure on sensitive matters. Among the factors associated with SSB-related disclosures are cross-membership with other SSBs and the expertise of SSB members in accounting, banking, economics or finance

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Originality/value

Originality/value

The study is the first to provide an in-depth analysis of Shari'ah disclosures in Malaysian and Indonesian Islamic banks. As such, this study makes an important contribution to the debate on Shari'ah governance systems and has implications for regulators and standard setters. The Malaysian and Indonesian standard setters could play an important role in ascertaining appropriate disclosure requirements relating to the SSB as the study suggests that the level of disclosure is less than expected. The evidence also suggests the need for mandatory enforcement of standards on these types of disclosures.

Details

Journal of Islamic Accounting and Business Research, vol. 4 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

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