islamic accounting
Development of Accounting Theory Based on Islamic
Principles and Accounting Standards Setting
Mechanism
Shaukat Amer
Assistant Professor
COMSAT Institute of Information Technology
Attock Pakistan
Shaukat_amer@comsats.edu.pk
Abstract
The purpose of this paper to explore the possibility to look for a new accounting theory and accounting standards setting mechanism under some of Islamic principles.The paper has discussed basic Islamic principles of
“Amanah” (Custody), “Shahadat” (Testimony), settlement in “Bay” (business deal) and “Shura” (Counseling) in the context..As the accounting standards setting process will be based on Divine Guidance (Quran and Sunnah), the extent of subjectivity in setting and applying accounting standards can be minimized. These are initial thoughts. An accelerated integrated effort at OIC
(Organization of the Islamic Countries) level to further explore the principles, specially “Bay”, may be very useful.The new set of accounting standards would have a wide scope and just not be limited to Islamic finance. The paper provide an insight for another set of accounting standards which may improve the present status of accounting profession.
Key Words: Islamic Principles Accounting Standards Mechanism
Page 1 of 33
1-Introduction
In the context of present criticism on accounting, the financial reporting on the affairs of an entity have a very special meaning. The accounting testifies the correctness and fairness of business transactions to the parties to whom these are related. Stephen A. Zeff (2003) has taken a good stock of journey of accounting profession and its present status in the United States of
America. If we thoroughly review this paper we shall also conclude that one of the basic problems with the present accounting is its departure from its inbuilt role of testifying independently the state of affairs of an entity. Laureen A.
Maines and James M. Wahlen recommend that “Finally, we support
Principles and Accounting Standards Setting
Mechanism
Shaukat Amer
Assistant Professor
COMSAT Institute of Information Technology
Attock Pakistan
Shaukat_amer@comsats.edu.pk
Abstract
The purpose of this paper to explore the possibility to look for a new accounting theory and accounting standards setting mechanism under some of Islamic principles.The paper has discussed basic Islamic principles of
“Amanah” (Custody), “Shahadat” (Testimony), settlement in “Bay” (business deal) and “Shura” (Counseling) in the context..As the accounting standards setting process will be based on Divine Guidance (Quran and Sunnah), the extent of subjectivity in setting and applying accounting standards can be minimized. These are initial thoughts. An accelerated integrated effort at OIC
(Organization of the Islamic Countries) level to further explore the principles, specially “Bay”, may be very useful.The new set of accounting standards would have a wide scope and just not be limited to Islamic finance. The paper provide an insight for another set of accounting standards which may improve the present status of accounting profession.
Key Words: Islamic Principles Accounting Standards Mechanism
Page 1 of 33
1-Introduction
In the context of present criticism on accounting, the financial reporting on the affairs of an entity have a very special meaning. The accounting testifies the correctness and fairness of business transactions to the parties to whom these are related. Stephen A. Zeff (2003) has taken a good stock of journey of accounting profession and its present status in the United States of
America. If we thoroughly review this paper we shall also conclude that one of the basic problems with the present accounting is its departure from its inbuilt role of testifying independently the state of affairs of an entity. Laureen A.
Maines and James M. Wahlen recommend that “Finally, we support
References: Muhammad, 1989 Al-Islam, The Subject of Shura In Islam, www.al-islam.org. accessed May 23, 2008. Ali, Hafiz Zulfiqar, September, 2008, Dur-e -Hazir Key Mali Mamalat Ka Sharai Hukm, Abu Hurera Academy, Lahore, Pakistan, pp 47-110. www.bakkah.net. Accessed August 17, 2009. Messenger of Allah”, www.islamtoday.com. Accessed February 18, 2007. Benston, George J.; Bromwich, Michael And Wagenhofer, ALFRED, 2006, Principles- Versus Rules-Based Accounting Standards: The FASB‟s Standard Setting Strategy, ABACUS, Vol. 42, No. 2, 2006. Bradshaw, Mark T. & Miller, Gregory S., 2002, Are Detailed Accounting Standards Sufficient to Ensure Compliance? Evidence from Non-U.S George J. Benston, Michael Bromwich And Alfred Wagenhofer, 2006, Principles - Versus Rules-Based Accounting Standards: The FASB‟s Standard Setting Strategy, ABACUS, Vol. 42, No. 2, 2006. IIIE‟s Blueprint of Islamic Financial System, 1999, International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan. Jamal , Karim and Sunder, Shyam, 2007, Monopoly or Competition: Standard Setting in the Private and Public Sector, Social Science Research Network, Kandhlawi, Mohammad Yousuf, 1999, Hayatus Sahabah- The Lives of Sahabah, Darul Ishaat, Karachi, Pakistan, pp -xviii. Karolia, AbuBakr, 2001, 'Shura ' – A Vehicle for Mutual Consultation, An Act of 'Ibadah ' (Worship), www.nuradeen.com., Accessed May 18, 2008. accessed on May 18, 2008. Maliks Muwatta, Tanzeem- e- Islami, (www.tanzeem.org) McGregor, Warren and Street ,Donna L., 2007, IASB and FASB Face Modoodi, Syed Abualah, 1946, “ Shahdat-e-Haq”, Jamaat Islami, Mansoora, Lahore, pp- 4,7.