SHARI’AH
AUDITING: A REVIEW OF SHARI’AH AUDIT PRACTICES IN ISLAMIC FINANCIAL INSTITUTION
(IFIs)
Azwan
Abdul Rashid, Masdiah Abdul Hamid, Ahmad Subhi Mohamad Sidek, Wan Mohammad
Taufik Wan Abdullah, Inaliah Mohd Ali
Department
of Accounting, Universiti Tenaga Nasional, Pahang, Malaysia
It is therefore of crucial importance that Shari’ah auditors are able to play their
role in ensuring that activities and operations carried out by the Islamic
finance industry are subject to proper checks and balances and that their
reporting is in line with Shari’ah principles.
The presence of an auditor
is perceived as fundamental for the quality
of financial reporting
and is an important element in
the process of securing corporate accountability. From a conventionalauditing perspective, the auditor is required to
critically examine and evaluate whether the financial statements are prepared
in accordance with GAAP and any relevant financial reporting framework.
On the other hand, Shari’ah auditing of IFIs requires
the Shari’ah auditor ensure
that management is not only fully
adhering with GAAP and with the relevant
reporting framework, but also ensure that management follow
the Shari’ah framework to ensure a
sound and effective internal control system
accordance with Shari’ah principles in achieving the ultimate objective of Shari’ah (Yaacob & Donglah, 2012).
The Shari’ah auditor is not only required to conduct a review
of IFI activities in accordance with Shari’ah
principles; he is also responsible for expressing his opinion on the IFI
financial statements (AAOIFI, 2004; Mohammed Sarea & Mohd Hanefah, 2013).
To perform his auditing role effectively, a Shari’ah
auditor should possess adequate and appropriate Islamic knowledge (AAOIFI,
2004). Yaacob and Donglah (2012) argues that a Shari’ah auditor has a similar role to that of the Muhtasib (Hisbah member), a role that is
related to the concept of Taklif (accountability and responsibility) in ensuring that the IFIs strictly follow Shari’ah guidelines.
The existence of modern Islamic institution
globally is over 50 years (Yaacob, 2012). The development of IFIs is purpose to provide benefit
and value for society. In line with conventional
development, people have realised that traditional method is not enough for
them to capture the real activities of the business. Contradict with
traditional system; Islamic system has captured a new dimension for society
to perceive the value of accountability. Thus, proper auditing
system in Islamic view is a
basis for the IFIs to achieve their main objective in achieving the Maslahah to the Ummah. However, the absence of proper Shari’ah guidelines and standards is a major problem
facing the current Shari’ah auditing
framework (Kasim, Ibrahim, Hameed, & Sulaiman, 2009).
Additionally, lack of
system pertaining to Shari’ah auditing
also contribute to the failure of IFIs system
in Malaysia. Therefore, regular independent Shari’ah audit
in IFIs are necessary as people
are now experiencing a movement
along a continuum from a society that trust everything and audit nothing to
a society that trust nothing and audit everything. In other words, regular
independent Shari’ah audit in IFIs
perceived as a vital part in order to achieve the ultimate objective of Shari’ah.
Thus, this study
aims to evaluate the Shari’ah auditing practices of Shari’ah auditors in IFIs in achieving the objectives of the Shari’ah.
problems
discussed above, the research question
of this study as follow;
to what extent
the Shari’ah auditors do
examination on the financial reporting and business operation of IFIs?
Over the past
decades, the auditing profession has come under increased scrutiny about the
credibility of the auditor in examining the financial reporting. The biggest
collapse and failure of giant corporation in USA have increased attention of
many people including investors on the relying
of financial reporting, decision making and more concern
of corporate governance issues.
Thus, public
start to evaluate the auditor’s work in fraud detection, reducing the
manipulation issues and re-assess the level of trust they put on audit to
provide assurance and ensure the company’s activities reflect with the economic
activities. Consequently, public has reduce confidence on the work of auditors
and financial reporting. Accordingly, auditing profession has comes out with more guidelines and framework on professional skepticism in order to re-attract a public confident to the profession as a
whole. Haniffa (2010) viewed the auditor as important person who live in
central of human activities to protect and improve the condition of human life
in all dimension. Therefore, the limited scope of conventional auditing framework which focused
on the assurance and attestation services is realized and the movement to the
Islamic based are necessary and viewed from different perspectives. Islam is
concerned on the Islamic values because it reflects to the accountability and
justice not only for society (Ummah), but
also ultimately to Allah. As Allah said in the Holy Quran:
“O you who
believe, why do you say that which you do not do? Grievously odious is it in
the sight of Allah that you say that which you do not do”.
(Surah As-Saff, 61:2-3)
The existence
of IFIs seemed as a new dimension for the auditor since the wider of scope on
the audit process including the compliance with Islamic guidelines is the key
element for IFIs to achieve Maqasid Ash-Shari’ah instead of relying on the conventional auditing framework for audit
purposes. The presence of Shari’ah auditor in the IFIs enables them to assist Muslims as the whole
through their socio-economic justice and to the IFIs itself throughout the
compliance of Shari’ah requirement.
Kasim et al. (2009) claimed that the Shari’ah
auditor capabilities in auditing IFIs because of wider scope should be focused. Therefore, a Shari’ah auditor should knowledgeable in Shari’ah
and competent in order to reflect with the significant growth in Islamic
finance. Apparently, the Shari’ah auditor
is not only knowledgeable in accounting, auditing and finance, but must have a
good knowledge in Shari’ah and Fiqh (Yaacob, 2012).
It is
important to note that the processes of Islamic Financial Institutions (IFIs)
and the practices of Shari’ah
auditing clearly identified to minimise the gap and evaluate the obstacles in conducting
the Shari’ah audit. Apart from that,
the competency of Shariah auditor seems as important factor to assess their
ability and successful of Shariah auditing. Additional skills and knowledge
especially in Fiqh’ Muamalat could enhance the independence and reliability of the shariah
auditor in performing the shariah audit in IFIs.
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