Group Project Report Shariah Audi 1

Topics: Islamic banking, Audit, Auditing Pages: 17 (4015 words) Published: November 24, 2014

GRADUATE SCHOOL OF MANAGEMENT
FIN 6650
Accounting and Control for Islamic Institutions

Group Assignment:
“Issues and Challenges of Shariah Audit: Post IFSA 2013 Establishment”

Prepared for:
Assoc. Prof. Dr. Noraini Mohd. Ariffin

Prepared by:
Siti Azrai Binti Ahmad AkilG1019578
Mirzohid NizamidinivG1124429
Asaad MohamedG1311795

Table of Contents
ABSTRACT3
CHAPTER ONE4
INTRODUCTION4
1.1 BACKGROUND OF THE STUDY4
1.2RESEARCH QUESTIONS5
1.3RESEARCH OBJECTIVES6
CHAPTER TWO7
LITERATURE REVIEW7
2.1History of Auditing7
2.2Shariah Audit and Maqasid al Shariah8
2.3Conventional Auditing versus Islamic Auditing9
2.4 Audit Practitioners in Malaysia9
2.5 IFSA 201310
CHAPTER THREE11
RESEARCH METHODOLOGY11
3.1INTRODUCTION11
3.2RESEARCH METHODOLOGY11
CHAPTER FOUR12
FINDINGS & ANALYSIS12
4.1 Issues and challenges before IFSA 201312
4.2 Issues and challenges after IFSA 201313
CHAPTER FIVE16
CONCLUSION AND RECOMMENDATIONS16
5.1RECOMMENDATIONS16
5.2CONCLUSION16
References18

ABSTRACT
Institutions that offer Islamic financial products and services are expected to operate by the Islamic principles and all activities must be within the Shariah rules. Shariah audit is a way to ensure that the operations of Islamic financial institutions (IFIs) do not have conflict with Shariah principles. Internationally, the AAOIFI (Accounting and Auditing Organizations of Islamic Financial Institutions) and the IFSB (Islamic Financial Services Board) have issued a number of governance standards and guidelines to govern the practitioners in IFI. However, in the context of Malaysia, Bank Negara Malaysia (BNM) also has issued guidelines to provide well-advised regulations of Shariah affairs for Islamic financial institutions. Nowadays, the age of globalization and business is seen as the guiding factor for our social and economic life. In other words, accounting is the most important tool of business acting as a language of business and auditing as the side language of business. However, auditing is the most important factor to provide an accountability of an organization. The main objective of this paper is to appreciate the Shariah audit function in order to complement the Shariah compliance instrument that is already in place by highlighting the issues and challenges that Shariah audit faced after establishment of the new regulatory framework, Islamic Finance Service Act 2013 (IFSA 2013). Based on this study, it is found that there are four issues and challenges in Shariah audit after establishment of IFSA 2013 which is, in conformity of high degree of Shariah compliance, bureaucracy in hiring Shariah auditor, opinion from Shariah audit are binding and at the same time they are accountable with their duties and the final challenge is to fulfil high expectations from public as well as IFIs.

Key words: Islamic Financial Institutions, Shariah audit, Shariah compliance, Islamic Finance Service Act 2013 (IFSA 2013).

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The normal auditing includes the process of examining and inspecting the financial report as presented in the annual report of the company is in true and fair view. However, in the context of IFIs, another audit function is required which is Shariah audit. Shariah audit is a new Shariah term which has the same role and meaning of Hisbah in the early Islamic states. The role of audit has already been started as early as the time of the Prophet Muhammad and the first four caliphs where the activity of monitoring, controlling and preventing fraudulent on consumers in the marketplace were practiced. The prophet Muhammad (pbuh) is the first auditor or Muhtasib. The Prophet himself does checking the quality of food sold in the market with his hand. Then he said… “What is this, o the owner of food?” He said it was wetted by rain. The Prophet said, “Would not you put...

References: 1. Dr Muhammad Yusuf Saleem (2013), “Islamic commercial law”, John Wiley & sons Singapore Pte.Ltd, pp 3-4
2
3. HishamYaacob& Nor Khadijah Donglah(2012), “Shari’ah Audit in Islamic Financial Institutions: The Postgraduates”, International Journal of Economics and Finance; Vol. 4, No. 12; 2012
4
7. Malaysian Business (2013), “Shariah audit in Islamic Banking and Finance”,17 December.
8. Nawal Kasim and Zuraidah Mohd Sanusi (2013),“Emerging issues for auditing in Islamic Financial Institutions: Empirical evidence from Malaysia”, IOSR Journal of Business and Management, Vol 8, Issue 5, pp 10-17
9
10. Nawal Kasim, Zuraidah Mohd Sanussi, Tatik Mutamimah, SigitHandoyo (2012), “Shariah Auditing: An Extended Scope of Auditing in Islamic Financial Institutions”19 December 2012
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