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Article
Publication date: 21 October 2013

Adel Mohammed Sarea and Mustafa Mohd Hanefah

The objective of this paper is to determine the level of compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) accounting

Abstract

Purpose

The objective of this paper is to determine the level of compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) accounting standards by Islamic banks of Bahrain.

Design/methodology/approach

The paper is based on diffusion of innovation theory whereby the perceived relative advantage, compatibility, complexity, trialability and observability factors are expected to influence the level of compliance with AAOIFI accounting standards.

Findings

The findings indicate that Islamic banks of Bahrain are in full convergence with AAOIFI accounting standards.

Research limitations/implications

This research, just like many other studies, faces data limitations. Sample size employed for this study contains only the accountants in Islamic banks of Bahrain.

Originality/value

The results of this paper are expected to serve as a guide to the regulatory bodies and the setter of accounting standards for Islamic financial institutions (IFIs).

Details

Journal of Financial Reporting & Accounting, vol. 11 no. 2
Type: Research Article
ISSN: 1985-2517

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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

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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

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Article
Publication date: 8 May 2018

Dodik Siswantoro

This paper aims to analyze the need of Islamic banks for specific Statement of Financial Accounting Standards (SFAS) No. 110 for sukuk accounting in Indonesia. In fact…

Abstract

Purpose

This paper aims to analyze the need of Islamic banks for specific Statement of Financial Accounting Standards (SFAS) No. 110 for sukuk accounting in Indonesia. In fact, some Islamic banks have already prepared International Financial Reporting Standards (IFRS), and accordingly, a suitable standard is needed for this case.

Design/methodology/approach

The research methodology involved interview with a senior accounting manager of an Islamic bank focusing on relevant topics in sukuk to sharpen the analysis. Equally important, research reviewed and compared financial statements on sukuk accounting among Islamic banks, before and after adoption of sukuk accounting standard.

Findings

IFRS require market valuation based on interest rate. As interest rate is unlawful in Islamic teaching, IFRS may not accordingly be suitable. Therefore, SFAS No. 110 was issued by the Indonesian Institute of Accountants (Ikatan Akuntan Indonesia). Considering the fact that this standard did not explicitly adopt the IFRS paradigm, there have been consequent conflicts in Islamic bank management because of preference of global recognition to IFRS. Adopting IFRS would be more compatible with other countries’ general accounting standards. In addition, significant differences are found in sukuk accounting treatments by Islamic banks before and after the standard adoption.

Research limitations/implications

This research only focuses on such question of why specific accounting standard for sukuk accounting is needed by Islamic banks in Indonesia, while only few Indonesian Islamic banks were initially aware of the issue.

Originality/value

This paper may be the first paper discussing the response to and need for sukuk accounting in Indonesian Islamic banks.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 9 July 2018

Md. Hafij Ullah, Ruma Khanam and Tabassum Tasnim

This paper aims to examine the compliance status of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Financial Accounting Standards-1 and…

Abstract

Purpose

This paper aims to examine the compliance status of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Financial Accounting Standards-1 and Islamic Financial Services Board (IFSB) Standard-4 by Islami Bank Bangladesh Limited (IBBL), recognizing the regulatory influence for complying with AAOIFI and IFSB standards and identifying the factors influencing the compliance with these standards.

Design/methodology/approach

The present study used content analysis approach for investigating the compliance status. The study considered IBBL as the only sample because it is the only Islamic bank in Bangladesh which is the member of both AAOIFI and IFSB. Hence, this paper investigated the compliance status of IBBL as a member of AAOIFI and IFSB. The study examined the annual reports of 2008-2012 as these were the latest and contemporary reports in 2013 when the study was conducted. SPSS software version 22.0 was used to analyze the data. A total of 203 items under 13 categories of AAOIFI standard and 133 items under 17 categories of IFSB standard were considered. Ordinary least squares was run to test the hypotheses of the study.

Findings

The study found that IBBL on an average complied 46.31 per cent of AAOIFI and 52.50 per cent of IFSB standards during the period, and importantly, IBBL did not comply some of the categories of required disclosures. The study also observed that size, as measured by total asset and number of branches, has a significant influence on compliance with IFSB standard, but not AAOIFI. The findings of the study depicted that IBBL did not reasonably recognize the importance of complying with AAOIFI and IFSB standards. Poor compliance or non-compliance with AAOIFI and IFSB accounting and reporting standards by IBBL exposed that the bank is not efficient in managing Shari`ah compliance risks, operational risks and transparent financial reporting. Therefore, recognition of the Shari`ah standards by the respective IFIs and a “regulatory push” is vital for improving the level of compliance with these standards.

Research limitations/implications

The study considered IBBL as the only sample of the study because it is the only Islamic bank in Bangladesh which holds the membership of both AAOIFI and IFSB. The fiscal years 2008-2012 only were selected to evaluate the compliance status of the AAOIFI and IFSB standards in preparation and presentation of the financial statements of IBBL for comparative analysis because IFSB standard for accounting and disclosure was formulated in 2007; hence, the study could not evaluate the compliance status before 2008.

Practical implications

The study will help IBBL in identifying their limitations in complying AAOIFI and IFSB standards and also the regulators in designing the accounting and reporting frameworks in regulating Islamic banks in Bangladesh. The study would help IBBL in identifying the reasons for non-compliance, how improvement in compliance level may help the bank in mitigating Shari`ah compliance and operational risk and how new legal and institutional framework may improve the level of compliance with those standards.

Social implications

The study observed that the AAOIFI and IFSB standards were set for increasing the level of Shari`ah compliance, but the compliance status showed that different classes of accounting and reporting were ignored from compliance by IBBL. This study will benefit the stakeholders in choosing a Shari`ah-compliant bank.

Originality/value

This is a unique study which considered both AAOIFI and IFSB accounting and reporting standards in evaluating the reporting compliance status of an Islamic bank and identified the influence of reporting compliance on managing Shari`ah compliance risks, operational risks and transparency. This study expects to instigate the Islamic banks in complying accounting and reporting standards for being Shari`ah-compliant.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 4
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 30 April 2019

Habib Ahmed, Faruq Arif Tajul Ariffin, Yusuf Karbhari and Zurina Shafii

Since International Financial Reporting Standards (IFRS) are not primarily meant for the accounting needs of Islamic banks, the Accounting and Auditing Organisation for…

Abstract

Purpose

Since International Financial Reporting Standards (IFRS) are not primarily meant for the accounting needs of Islamic banks, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established to develop specific accounting standards for Shari’ah compliance. The purpose of this paper is to assess the de jure harmonisation between the disclosure requirements of the IFRS-based Malaysian Accounting Standards (MAS) and those of the AAOIFI.

Design/methodology/approach

Using Malaysia as a case study, the paper examines the extent of the de jure congruence between the IFRS-based MAS and AAOIFI’s Financial Accounting Standard No 1 (FAS1), which is considered to be one of the key disclosure standards for Islamic banks. We employ leximetrics and content analysis to analyse these accounting standards and the additional guidelines introduced by the Malaysian Accounting Standards Board (MASB) and the Central Bank of Malaysia (Bank Negara Malaysia, BNM) to identify the gaps between different tiers of MAS and FAS1.

Findings

The study finds that de jure congruence between the IFRS-based MAS and AAOIFI standards has improved through the introduction of additional accounting guidelines by both the MASB and the banking regulator, BNM. However, some gaps remain between the two standards. These gaps may be difficult to completely eliminate due to differences in the fundamental principles underlying the development of both standards.

Originality/value

While some studies have explored the de facto congruence between AAOIFI accounting standards and others, this paper is the first, to the best of the authors’ knowledge, to examine the de jure congruence between those standards with the IFRS-based MAS.

Details

Accounting, Auditing & Accountability Journal, vol. 32 no. 3
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 12 April 2013

Adel Mohammed Sarea and Mustafa Mohd Hanefah

The purpose of this paper is to determine the need of Islamic Accounting Standards – a review of the literature – for Islamic financial institutions (IFIs).

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.

Details

Journal of Islamic Accounting and Business Research, vol. 4 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 2 September 2014

Abang Salihin, A.H. Fatima and Abdulrahman Anam Ousama

This paper aims to determine whether the “true and fair view override” (TFVO) principle is relevant and applicable in Islamic accounting. In addition, the paper examines…

Abstract

Purpose

This paper aims to determine whether the “true and fair view override” (TFVO) principle is relevant and applicable in Islamic accounting. In addition, the paper examines the roles that TFVO could play in Islamic accounting and auditing.

Design/methodology/approach

A qualitative research method was used based on documentary and textual analysis of the Shari’ah fundamentals (Islamic legal sources) and relevant accounting standards and regulations.

Findings

The paper found that the TFVO is relevant and applicable in Islamic accounting and auditing and not contradictory to the rules of the Shari’ah. Therefore, the concept is acceptable for use in Islamic accounting. Moreover, based on the several roles played by the TFVO, in the Islamic context, the practicality of this concept in Islamic accounting provides further justification for its continued usage.

Practical implications

The findings of the paper provide a basis to support the inclusion of the TFVO in Islamic accounting standards, as well as possible usage by Islamic financial institutions (IFIs). Thus, regulators of IFIs and Islamic accounting standards setting bodies can consider it in their challenging task of standardizing accounting practices due to the different interpretations of transactions from the various Madhahib and multiple accounting concepts and practices. In addition, the discussion in the paper reminds accountants and auditors of IFIs and Islamic organizations that providing a true and fair view (TFV) is paramount; thus an override of inapplicable accounting standards and regulation is allowed, but not Shari’ah. Thus, TFVO can assist accountants to record transactions that reflect the economic reality of the IFIs, especially prior to accounting regulations keeping pace with the rapid business environment.

Originality/value

The paper has highlighted a very important issue relating to the TFV, specifically the TFVO, from the Islamic perspective. The paper is considered as the first paper that contextually analyses this issue based on Islamic legal sources using a qualitative approach. In addition, the paper has contributed to the literature in Islamic accounting and auditing.

Details

Journal of Islamic Accounting and Business Research, vol. 5 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 12 June 2017

Rym Ben Abd El Afou

The paper is intended as an extension of the literature dealing with the Islamic accounting standards issued by the Accounting Auditing Organization for Islamic Financial…

Abstract

Purpose

The paper is intended as an extension of the literature dealing with the Islamic accounting standards issued by the Accounting Auditing Organization for Islamic Financial Institutions (AAOIFI) and still not adopted in Tunisia. Its major aim is to investigate the Tunisian accountants’ basic knowledge and perceptions of Islamic accounting. The study has been designed for the sake of the Tunisian accountants’ predisposition to adhere to the AAOIFI standards, as a population directly concerned by an eventual adoption of such standards.

Design/methodology/approach

The paper opted for an exploratory study using a questionnaire survey based on the relevant literature. The questionnaire has included items pertaining to demographic areas, information sources, basic knowledge, key differences, valuation concepts, obstacles and advantages, educational and training needs regarding Islamic accounting. The conducted study has involved data collected from the part of 200 practitioners across a number of organizations and audit firms, sited at different regions and locations of the country, employing accounting graduates.

Findings

The reached findings suggest that even though Tunisian practitioners are not well aware of most of the AAOIFI standards’ pertaining topics, proponents of stand-alone AAOIFI standards, apart from IFRS, appear to outnumber its opponents. In this context, lack of training programs arranged by professional bodies is considered as the most serious impediment facing the implementation of the standards.

Research limitations/implications

In addition to the usual limitations associated with any survey research (particularly non-response bias and desirability bias), there, also, lies a sample related limitation, as the sample turns out to involve, essentially the private/corporate sector. Pertinent organizations, as the IFI’s, appear to be not well represented in the sample.

Practical implications

The results reached through this study would have some implications on the regulatory bodies, academicians and professionals. Thus, for the AAOIFI standards to be successfully implemented in Tunisia, entirety of concerned parties should take part in improving and consolidating the situation.

Social implications

Ultimately, studying differences in the views of jurisdictions, either those who have adopted the AAOIFI standards or those who have not, might provide certain guidelines to standard setters for potential revisions.

Originality/value

Few short articles have previously exanimate the perceptions and knowledge of accounting professionals on Islamic accounting issues, there is a scarcity of research regarding the subject. To the author’s knowledge, this paper is one of the rare studies of Islamic accounting in Tunisia.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 3
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 21 August 2017

Aprilia Beta Suandi

The purpose of this paper is to examine the classification of profit-sharing investment accounts (PSIAs) under various accounting standards, and determine whether Islamic

Abstract

Purpose

The purpose of this paper is to examine the classification of profit-sharing investment accounts (PSIAs) under various accounting standards, and determine whether Islamic banks maintain uniform practices when the same accounting standards are applied. It also aims to determine whether Islamic banks consider investment account holders (IAHs) important financial statement users by disclosing necessary information pertaining to PSIAs.

Design/methodology/approach

A sample composed of financial statements from 63 Islamic banks from 15 countries is compared with respect to the information related to PSIAs.

Findings

The results show heterogeneity of classification for PSIAs. Applying the same standards does not lead to the uniform classification of PSIAs when banks apply International Financial Reporting Standards, while financial statements applying Financial Accounting Standards by the Accounting and Auditing Organization for Islamic Financial Institutions are more similar. The perplexity in classifying PSIAs brings obscurity on the treatment for PSIA-related accounts, particularly returns attributable to IAHs. The fact of fewer disclosures pertaining to PSIAs in Islamic banks – which apply accounting standards not specifically tailored to Islamic finance – suggests that IAHs receive less attention under those accounting standards.

Research limitations/implications

The main limitation relates to the lack of financial statements available online and the possibility of sample selection bias toward larger Islamic banks.

Originality/value

This research contributes to the limited literature on accounting for PSIAs, and reveals the diversity of reporting methods for unique transactions in Islamic banks and the insufficiency of current accounting standards to guide them, which create possible challenges of comparability.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 10 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

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