June 2012 (Question 1)
Ai) Fundamental Differences between conventional and Islamic Accounting: Differences
| Conventional Accounting
| Islamic Accounting
| 1. Users of Accounting Information
| Conventional Accounting verified the information to all users but focus on providing information to the shareholders and creditors only, ie providing funds to the company.
| In contrast, Islamic accounting focus on providing information to all users, ie socially responsible (individual, management, society, state and people)
| 2. Asset valuation
| Use historical cost. But current accounting standards are adopting fair value measurement.
| Use current cost. The reason is that one of the main objective of financial reporting from Islamic perspective is calculation of zakat.
| 3. Objective of financial reporting
| Focus on facilitating company to assess their performance based on profit maximization, ie efficient resource allocation by the company.
| In contrast, Islamic accounting focus on providing information that companies are abiding Shari’ah principles in relation to their transaction. In addition, Islamic accounting still focuses on profit maximization as well as other stakeholders, ie achieve socio-economic objective encouraged by Islam
| 4. Accounting Jurisprudence
| Focus on human-made Law, ie Common Law
| In contrast, Islamic accounting focus on abiding Shari’ah principles. Promote equality and justice to all stakeholders.
| 5. Type of information
| Focus on identifying economic events and transaction.
| In contrast, focus on both economic and socio-economic events and transaction. Therefore, more holistic in their reporting, ie include financial and non-financial information in the reports.
| 6. Presentation of reports
| Focus on giving information to main providers of finances, ie shareholders and creditors.
| While in Islamic accounting, need additional statement, ie value added statement in reflecting financial and non-financial...
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