Introduction to Islamic Banking and Finance
AAOIFI reporting standards: Measuring compliance
Thea Vinnicombe[pic], a, [pic] a Faculty of Business (Fachberreich Wirtschaft), Fulda University of Applied Sciences (Hochschule Fulda), Marquardstraße 35 36039 Fulda, Germany
Available online 4 March 2010.
Abstract
Islamic banking and finance have grown rapidly in recent decades. Islamic banks offer a range of products, which, in complying with Islamic law, often differ from traditional Western financial products. Consequently, developing accounting standards to guide Islamic financial reporting is now an important issue. To this end, the Accounting and Auditing Organization for Islamic Financial Organizations (AAOIFI), was established in Bahrain in 1991. While the AAOIFI has published a substantial body of accounting and governance standards empirical research into compliance with these standards is lacking. This article addresses that gap. A benchmark index is constructed to measure the compliance of Islamic banks licensed and domiciled in Bahrain. The findings of the study show compliance to be very high with respect to the governance standard relating to the in-house supervisory boards of Islamic banks, and reporting the Islamic murabaha contract. In contrast, compliance with the AAOIFI 's requirements regarding the zakah religious tax and the mudaraba contract is relatively low.
Keywords: Shari 'a law; Riba; Mudaraba; Islamic accounting standards; Murabaha; Zakah
Article Outline
1.
Introduction
2.
The AAOIFI
3.
Measuring compliance
4.
Determinants of the compliance index 4.1. The importance of Shari 'a compliance 4.2. The importance of the Islamic community 4.3. Mudaraba and musharaka financing 4.3.1. Mudaraba financing 4.3.2. Murabaha financing 4.4. Zakah 4.5. The Shari 'a Supervisory Board
5. Empirical investigation and conclusions 5.1. Sample 5.2. Data
6. Results 6.1.
Thea Vinnicombe[pic], a, [pic] a Faculty of Business (Fachberreich Wirtschaft), Fulda University of Applied Sciences (Hochschule Fulda), Marquardstraße 35 36039 Fulda, Germany
Available online 4 March 2010.
Abstract
Islamic banking and finance have grown rapidly in recent decades. Islamic banks offer a range of products, which, in complying with Islamic law, often differ from traditional Western financial products. Consequently, developing accounting standards to guide Islamic financial reporting is now an important issue. To this end, the Accounting and Auditing Organization for Islamic Financial Organizations (AAOIFI), was established in Bahrain in 1991. While the AAOIFI has published a substantial body of accounting and governance standards empirical research into compliance with these standards is lacking. This article addresses that gap. A benchmark index is constructed to measure the compliance of Islamic banks licensed and domiciled in Bahrain. The findings of the study show compliance to be very high with respect to the governance standard relating to the in-house supervisory boards of Islamic banks, and reporting the Islamic murabaha contract. In contrast, compliance with the AAOIFI 's requirements regarding the zakah religious tax and the mudaraba contract is relatively low.
Keywords: Shari 'a law; Riba; Mudaraba; Islamic accounting standards; Murabaha; Zakah
Article Outline
1.
Introduction
2.
The AAOIFI
3.
Measuring compliance
4.
Determinants of the compliance index 4.1. The importance of Shari 'a compliance 4.2. The importance of the Islamic community 4.3. Mudaraba and musharaka financing 4.3.1. Mudaraba financing 4.3.2. Murabaha financing 4.4. Zakah 4.5. The Shari 'a Supervisory Board
5. Empirical investigation and conclusions 5.1. Sample 5.2. Data
6. Results 6.1.
References: 1. Introduction The study of Islamic accounting has grown in recent years with substantive contributions from scholars such as (Baydoun and Willet, 1995), (Baydoun and Willet, 1997), (Gambling and Karim, 1986) and (Lewis and Algaoud, 2001) 4.2. The importance of the Islamic community The meaning of Islam is to submit oneself to God, and those who do so form the umma, the community of Muslims (Lewis, 2001, p 4.3.2. Murabaha financing Islamic banks have been successful in obtaining funds (deposits) on a PLS basis, but “the same degree of transformation to PLS financing” has not yet developed (Algaoud and Lewis, 1999, p 4.5. The Shari 'a Supervisory Board The standards and guidelines published by the AAOIFI are viewed not as a replacement for the individual SSBs, but as providing a means to harmonize differences (Karim, 1995, p