The Difference between Shariah Compliance and Shariah Based Products and Services

Shariah is defined as Islamic law or Law of Allah.  It shows one of many ways that humanity strives to harmonize and maintain internal and external belief systems in an holistic approach to life. Hence Shariah covers not only religious rituals, but also many aspects of day-to-day life, politics, economics, banking, business or contract law, and social issues. 

Corporate Governance from Islamic Perspectives

The primary objective of a limited company is maximisation of shareholders’ wealth. For a quoted company, shareholders’ wealth can be measured by the share price which should reflect the future dividends to be received by shareholders. Normally, responsibility and accountability are heaped onto director’s shoulder. Directors are responsible to increase the value of share by enhancing the company performance and in the same time are accountable with the decision that they have made. One of the difficulties with the practical application of this objective is that there are other parties with interests in the organisation. These include; trade creditors, loan creditors, management, employees and general public. 

DO WE REALLY NEED MASB ISLAMIC ACCOUNTING STANDARDS?

ABSTRACT

It is widely accepted that the primary objective of financial reporting and accounting is to provide useful information to assist users in making economic decisions. Thus, it can be argued that financial reporting and accounting is therefore, a religious obligation. Hence, if accounting is a religious obligation, then the rules of accountability must be purely divine. In order to do so, appropriate accounting framework based on Shariah principles must be in place. The concern of this project paper is to explore the reasons of why the Malaysia Accounting Standards Board (MASB) has only producing one Islamic accounting standard (FRSi-1)together with two Technical Releases that do not carry any legal capacity and mandatory for Islamic banks to apply yet except the FRSi-1. As comparison, the Accounting and Auditing of Islamic Financial Institutions (AAOIFI) has already come out with more than 15 Islamic accounting standards. This paper will also will analyse the future options of the development of Islamic accounting standards to cater the growth of Islamic financial instruments in the market.

Accounting For Islamic Financial Transactions - Exercises

PART A

An Islamic bank bought goods for $100,000 and it entered into a Mudharabah contract with a client in which the goods were the mudharib capital. At the time of the contract, the goods had fair value of $110,000. The mudharib (client) sold the goods for $120,000.

1. During the same year, the mudharib bought another consignment of goods at $120,000 and sold it for $130,000.
2. Profit is allocated between the Islamic bank and the mudharib at the ratio of 70% to 30% respectively.

Required

Determine the profit of the Islamic bank if the mudharabah goods are valued at:

1. Historical cost
2. Fair value

5 provisions made by Malaysia Accounting Standards Board (MASB I -1) to enhance the usefulness of presentation and disclosure of financial statement and accounting related information by Islamic banks and conventional banks that are involved in Islamic Banking Scheme in Malaysia [ (MASB I – 1) had been abolished ]

1.0       Introduction

It is widely accepted that the primary objective of accounting is to provide useful information to assist users in making economic decisions. Thus, it can be argued that accounting is therefore, a religious obligation. Hence, if accounting is a religious obligation, then the rules of accountability must be purely divine. In order to do so, appropriate accounting framework based on Shariah principles must be in place. The motivation for the development of Islamic accounting comes together with the emergence Islamic economic and Islamic resurgence for the last two to three decades.

THE RATIONALE FOR THE INTRODUCTION AND APPLICATION OF RELEVANT FINANCIAL REPORTING, ACCOUNTING, AUDITING AND GOVERNANCE STANDARDS FOR ISLAMIC FINANCIAL INSTITUTIONS

ABSTRACT

It is widely accepted that the primary objective of financial reporting and accounting is to provide useful information to assist users in making economic decisions. Thus, it can be argued that financial reporting and accounting is therefore, a religious obligation. Hence, if accounting is a religious obligation, then the rules of accountability must be purely divine. In order to do so, appropriate accounting framework based on Shariah principles must be in place. The same goes to the auditing and governance standards that applicable to the Islamic financial institutions (IFIs). The concern of this project paper is to explore the rationale behind the needs for application of relevant sets of financial reporting and accounting, auditing and governance standards for IFIs which are presently thought of many people as synonymous to the requirements of its conventional counterpart. There is danger for such kind of perception because the basic building blocks for respective Islamic financial reporting and accounting, auditing and governance standards with its conventional counterpart are worlds apart.

THE DIFFERENCES BETWEEN CONVENTIONAL AND ISLAMIC ACCOUNTING

ABSTRACT

The concern of this project paper is to explore the differences between Islamic accounting and its conventional counterpart. The distinctions need to be addressed as both accounting is presently thought of many people as synonymous. There is danger for such kind of perception because the basic building blocks for respective accounting are worlds apart. As for professional accountants who have been taught on the idea for accounting to be ‘objective’ and value-free, the idea for attaching a religion may seems to be embarrassing and unprofessional. However, with the resurgence of Islam globally, the awareness for the need of Islamic accounting arises. Islamic accounting as a whole is able to serve the whole gamut of stakeholders. Its principles do not serve the interest of any particular group, but to the society as a whole which can make corporations accountable for their actions and ensure they comply with Shariah principles.

THE FUTURE OF TAKAFUL BUSINESS: ITS OPPORTUNITIES AND CHALLENGES

ABSTRACT

Takaful or Islamic Insurance is a growing and fast developing industry. Islamic jurists resolved that the system of insurance, which falls within the confines of Islamic framework, should be founded on the concept of al-Takaful. Thus, the main reason behind the introduction and development of takaful is to offer an Islamic and Shariah compliant alternative to conventional insurance. An Islamic insurance transacting is a policy of mutual co-operation, solidarity and brotherhood against unpredicted risk or catastrophes, in which the parties involved are expected to contribute genuinely. It is designed to provide protection and indemnity to both individuals and corporate bodies against loss or hazards to their selves or properties. The nature of the principles of takaful is fundamentally different from the principles of conventional insurance in many ways. It has been observed that takaful is still in the development stage but in some countries it has made significant progress. Despite the developments in the field of takaful, there is still room for improvement and also necessary changes need to be made in order to make takaful more beneficial to the Islamic world and not only for the present century but also for the centuries ahead. This project paper endeavours to explore the opportunities and challenges lies ahead in the progress and development of takaful in the years ahead.

SECONDARY SOURCES OF SHARIAH: ‘URUF OR CUSTOMS

ABSTRACT

‘Uruf or custom in summary is the matter on which a community of people agrees in the course of their daily life. Custom is also a common usage to refer to specific actions that are repeatedly performed by individuals and communities. Maliki fiqh and Hanafi fiqh makes use of custom and considers it a legal principle in respect of matters about which there is no definitive actions. Apparently, Maliki fiqh has an even deeper respect for ‘Urf because Malikis put public interest and general benefit as the foundation in the fiqh study to come with the decisions. Malikis even abandon analogy when customs opposes it. The Malikis claims that ‘uruf specifies the general and qualifies the unqualified. On the other hand, Hanafis claim that ‘uruf makes the general specific, qualifies the unqualified, Similar to Malikis, Hanafis are also put custom is put ahead of anology. Shafi’ites takes custom into consideration when there is no text. Because people are subject to it and do it by way of familiarity and habit, thus, the said custom is acted on when there is nothing in the custom contrary to a text or is not suggested by it. This project paper is an attempt to explain the ‘Uruf in details.                   

SALE OF GOODS AND SALE OF DEBTS: A COMPARATIVE ANALYSIS FROM THE PERSPECTIVE OF SHARIAH

ABSTRACT

The application of bay’ al-‘inah (sale and repurchase back) and bay’ al-dayn (sale of debts) is making the Islamic financial industry lost its identity. The issues are serious to the Islamic financial market movement, as it is not about minor details of religious practices (furuq) but sadly dealing with the fundamental (usul) of religion. This time it is riba or usury. Its application in Islamic financial market is partly caused by the lack of knowledge in riba that is both definite and decisive. For this reason, it is critical to put things straight and get to the basics again. This paper endeavours to give a thorough analysis between the Sale of Goods and the Sale of Debts. Only by appreciating the differences between both sales in the eyes of Shariah would only then one can appreciate the distinctions. Compliance to or otherwise to the principles of Shariah is one the agenda of this paper entitled “Sale of Goods and Sale of Debts - A Comparative Analysis From The Perspective of Shariah” which speaks for itself. Some of the issues will be discussed in general while some issues will be analysed in detail.