Islamic Accounting

----------------------- A PRIMA - FACIE CASE FOR ISLAMIC ACCOUNTING

• Purpose Accounting : To permit informed decision which will enable scare resources to be allocated efficient to achieved ‘social welfare’.

|Islamic |Conversational |
|To achieve socio – |To meet needs of |
|economic & religions|‘capitalist’ |
|objective of Islamic|economy. |
|Institution & | |
|Muslims Users. | |
|Provide holistic |Provide materialist|
|information |profit-focused info|
| |information |
|Eg : Islamic Bank, |Not meet socio |
|Tabung Haji |economic objective.|

• Karim (1995) – Not just technical.

• More requiring whole new areas of performance measurement.

RELIGION & ACCTG. – AN EXPLOSIVE MIX ?

Problem: Additional of any religious adjective may compromise the objectivity of the discipline.

Stage 1 : what is worldview behind conversational acctg.?

• In a centrally planned, there is lack of profit motive.

• B/sheet & P/L does not make sense in economic system.

• Acctg. Profession never developed in the communist countries.

• Acctg. Is not obj, neutral & value free as it is potrayed to be.

Stage 2 : prob of epistemology – nature & source of knowledge.

• Enlightenment – science has gained adv & replaced religion in defining knowlwdge.

• UK & US – Acctg. Considered science. Mixing religious considered unprofessional.

• Chapra (2000) – science & religions deals with different levels of reality.

|Science |Religions |
|Science deals with physical universe |Religion deals with higher level |
|perceptible by sense |of reality |
|Source of scientific knowledge are |Depends on Revelations well as |
|reason and its method observation and |reason for its knowledge |
|experiment |-help to transform human condition|
| |from “what it is” to “what should |
| |be” |
|Physical & material |Social, mental, emotional & |
| |spiritual |
|Help religion by helping it realize |Help science by reminding it of |
|‘what ought to be’ by providing a |its ultimate objectives & |
|better description of ‘ what is’, |limitations, to use the power & |
|facilitating prediction & providing |mastery over the universe for |
|better technology for a more efficient|well-being rather than |
|use of all available resources. |destruction. |

• Chapra (2000) – Both science & religion serve better mankind by greater cooperation & coordination.

DIFFERENT BETWEEN CONVERSITIONAL & ISLAMIC

1) Objectives providing the info.

|Islamic |Conversational |
|Enable users to |Efficiently allocate|
|ensure Islamic org |scare resources |
|abide by the |available to their |
|principles of |most efficient uses.|
|Shariah in its | |
|dealings. | |

• In other words, Islamic vs. conversional by having to adhere certain Shariah principles & rules.

- Try to achieve certain socio-economic obj. encouraged by Islam.

2) Types of information identified, ways to measures & valued, measures & recorded.

|Islamic |Conversational |
|Identifying |Identify socio-eco &|
|economic events & |religious events |
|transaction. |transaction. |
|Use historical data|Current valuation |
|(asset & |(calculation of |
|liability). |zakat). |
|Required diff |Is focus on profits.|
|statement. | |

3) Users.

|Islamic |Conversational |
|Elite group of |Serves the whole |
|financiers. |gamut. |
|Eg: | |

SIMILIRATIES BETWEEN CONVERTIONAL & ISLAMIC

Provide information to business.

DEFINITION

Islamic Acctg.

i) Acctg. Process – provided appropriate info to stakeholders. Enable them to ensure comp. is operating within Islamic syariah.

ii) Tools- enable Muslims evaluate their accountabilities to God.

Convertional

- Identification, recording, classification, interpreting & communication economic events to permit users to make informed decisions.

Chapter 2: ISLAMIC ACCOUNTING – PRIMER