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The purpose of this study is to examine the extent of audit report lag and its association with governance mechanisms in the Islamic banking institutions in Malaysia.

The extent of audit report lag is defined by the number of days from a company’s financial year-end to the signature date on its audit report. The sample of the study comprises 112 observations of Islamic banking institutions’ financial reports for the period 2008-2014. A balanced panel data analysis is performed to analyse the association between the extent of audit report lag and governance mechanisms.

The findings show that the extent of audit report lag for the sample selected ranges from a minimum period of 7 days to a maximum period of 161 days, and the extent of audit report lag is approximately two months on average. A fixed effects analysis indicates that audit committee expertise and audit committee meeting have significant association with the extent of audit report lag. On the other hand, board independence, audit committee size and Shari’ah board expertise have insignificant association with the extent of audit report lag. In addition, one control variable (Islamic bank size) is found to be significantly associated with longer audit report lag.

The findings provide useful feedback for Malaysian policymakers on the past and current practices of financial reports and of governance mechanisms. The findings of the study would help the policymakers in monitoring the Islamic banking institutions’ compliance with financial reports submission requirements. The policymakers perhaps could relook into governance mechanisms that reduce the extent of audit report lag in the Islamic banking institutions and implement regulations to strengthen them.

Unlike the majority of prior studies that investigated the association between the extent of audit report lag and governance mechanisms, this study provides two contributions. First, to the authors’ knowledge, this study is the first piece of research that examined the association between governance mechanisms and the extent of audit report lag in Islamic banking institutions. Second, the study examined the association of new governance variable, namely, Shari’ah committee expertise which has not been previously examined in the literature of audit report lag.

The purpose of this study is to gather the perceptions of the Shari'ah committee members on what and how they safeguard and strengthen their independence in fact and independence in appearance during the discharge of their duties.

Data were gathered through semi-structured interviews with 13 Shari'ah committee members from 13 different Islamic financial institutions (IFIs).

Based on the Islamic worldview and agency theory, the findings suggest that safeguard measures within the context of the Shari'ah committee are strengthened by the following factors: presence of competencies, personal characteristics of the Shari'ah committee members, board engagement, role of the chairman in the Shari'ah committee and accountability to God. Based on the agency theory, it can be suggested that the characteristics of the Shari'ah committee and the presence of an effective governance structure are able to minimise threats to the independence of the Shari'ah committee and enhance its effectiveness.

The insights from this study highlight that proper and fit criteria need to be enhanced to ensure the independence of the Shari'ah committee members when performing their roles for IFIs. Moreover, it shows that board engagement and chairman involvement in overseeing the Shari'ah committee in the discharge of its duties is able to improve the independence of the Shari'ah committee both in fact and in appearance.

This study contributes to the evidence on safeguard measures in the Malaysian context, which is highly regulated in relation to the Shari'ah governance practices in IFIs. This evidence could be considered by other Shari'ah committees in different contexts.

This chapter aims to explore the Shari’ah governance rules applied in the Malaysian Islamic banking arena and the effect of Islamic Financial Services Act 2013 on it.

This is a legal exploratory study primarily focused on library research.

Shari’ah governance is a concept that has been developed and applied gradually in Malaysia and the new Islamic Financial Services Act 2013 has taken it to the next level. However, this does not mean that it has resolved the problems in Shari’ah governance that existed before the enactment of the act.

Islamic Financial Services Act 2013 is a new statute that repealed Islamic Banking Act 1983. As such, not many have reviewed this new piece of legislation. This chapter will give insight into the evolution of Shari’ah governance as part of corporate governance of Islamic banks in Malaysia and will help explain the most recent developments in this arena along with the challenges.

This chapter explores the historical development of shari’ah governance infrastructures in the Malaysian landscape, pre- and post-Islamic Financial Services Act 2013 (IFSA) and its implications on the industry. This chapter analyzed two approaches developed in the shari’ah governance, namely, the inclusivity and uniformity approach. Inclusivity approach showed that the shari’ah compliance responsibility is shared inclusively by the shari’ah committee together with the institution’s top management. While the uniformity approach showed that the end-to-end shari’ah compliance is achieved through issuance of shari’ah standards that can be easily related by the practitioners into their banking operations and business. The coherence implementation of these approaches has enabled another important stakeholder, the judiciary to have more clarity and certainty in dealing with matters pertaining to Islamic banking and finance. Consumers’ trust and confidence in the financial sector is thereby secured and sustained, hence providing financial stability within the industry, which meets with the expectation and mandate given to IFSA.

With the advent of Islamic banking, a new species was added to the banking system which was then, only dominated by the conventional banking. Islamic banking expanded in the world within the last decade and as a result, Islamic finance emerged as an alternative to the conventional finance. This created Islamic companies and Islamic financial institutions which operate based on the principles of Shari'ah or Islamic Law. These Islamic corporate bodies, like the conventional corporate bodies do need good governance rules. In other words, they also need a good, sophisticated “Shari'ah Governance Code” which would be based on the principle of Islamic Law. This is mainly because the objective of the conventional and the Islamic Corporate governance is different as conventional corporate governance structure is more focused on the protection of the rights of the stakeholders; while Islamic corporate governance focus on retaining the Islamicity of whole corporation. The objective of this research is, as the title suggests, proposing the reasons why a special governance Code for Shari'ah corporate bodies are needed. This paper would suggest a proper governance structure to the Islamic companies and will also discuss why the conventional corporate governance Codes are unsuitable for the Islamic companies.

This research which is primarily library based, is an exploratory legal research in nature.

In the course of this research, it is found that there is a need to enact a Shari'ah Corporate Governance Code due to the widespread establishment of shari'ah compliant companies in the world. Hence, the authors had discussed the potential content of such a Code in this paper.

This research will complement the knowledge based on shari'ah corporate governance and is targeted to the existing and prospective shari'ah compliant companies.

This chapter aims to highlight the background of Islamic Financial Services Act 2013 (IFSA). It also highlights experiences of Malaysia in dealing with IFSA. The analysis is tackled along the lines of the background and the constitutional frameworks of the country, the initiatives introduced by the government for the development of shari’ah compliance within the Islamic banking and finance fraternity as well as the relevant organs in carrying out the audit exercises over the Islamic banks and financial institutions in Malaysia. The chapter critically elucidates the implementation of the IFSA and its impact on shari’ah governance. It concludes by suggesting that the areas in the constitutional legal framework of the contemporary Islamic finance in Malaysia support the development of the Islamic banking and finance fraternity as with the shari’ah compliance of the same and it applies to all cooperative society.

This paper aims to provide analysis on the state of Islamic finance through critical appraisal on its current form and practices. This paper argues that the current form of Islamic finance practices is due to its legalistic approach and hence requires value-oriented reform. In this regard, Shari’ah governance system can be one of the mechanisms toward such reformation.

This paper uses case study research method and comparative studies of other’s works to develop understanding on the extent of Islamic finance practices. The study utilizes descriptive, comparative and critical analysis approaches in extracting and analyzing the information.

The literature has indicated the growing frustration of scholars and proponents of Islamic economics on the failure of Islamic finance in addressing the real economic and ethical issues beyond the legal realm of Shari’ah compliance. Legalism leads to a narrow understanding and ignores certain dimensions of Islamic finance practices. Considering all factors and through critical observation, this paper argues that the current form of Islamic finance practices is due to its legalistic approach and hence requires value-oriented reform. At this juncture, the paper suggests that Shari’ah governance system can be one of the mechanisms toward such reformation.

This paper provides valuable discussion and fresh and recent information on Islamic finance practices, including Shari’ah governance practices of Islamic financial institutions (IFIs) through case studies. The study shares experience of Malaysia in developing its Islamic finance framework and practices from legalistic toward value-oriented approach.

Shari'ah governance is a vital aspect that ensures internal shari'ah compliance function in Islamic financial industry, including the takaful industry. Shari'ah audit is a component of shari'ah governance in any Islamic institution as it independently attests the state of shari'ah compliance. Besides, it contributes towards shari'ah non-compliance risk management and enhances the quality of internal shari'ah audit function. The main aim for this chapter is to discuss the scopes and processes of shari'ah audit function in takaful operation. In addition, a discussion on applicable key controls in takaful operation is also provided. This chapter provides an insight into shari'ah audit implementation in a takaful operator, based on the information solicited from an interview session with its shari'ah auditor. This chapter provides fundamental aspects of shari'ah audit exercise in takaful operation and raises takaful operator's views on the challenges and adequacy of guidelines on shari'ah audit for its effective implementation.

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.

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.

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.

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.

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.