Emerald | Journal of Islamic Accounting and Business Research

Accountability in the sacred context: The case of management, accounting and reporting of a Malaysian cash awqaf institution

Hairul Suhaimi Nahar, Hisham Yaacob — 2011-09-27 00:00:00.0

Abstract

Purpose – The concept of accountability has long been argued in the academic and public policy debate to have been contextually ingrained in the technical processes of accounting and reporting. Both processes provide lenses through which the extent of managerial accountability in the corporate context could be objectively examined. The sacred religion of Islam as a social order with a complete code of life classifies accountability as being dual; in line with the duality concept in life – in this temporal world and eternal hereafter, necessitating for accountability concept in accounting and reporting from the Islamic worldview to transcend beyond the point of worldly objectives. Parallel to this line of reasoning, the purpose of this paper is to undertake a preliminary empirical investigation with respect to accounting, reporting and accountability practices of a Malaysian cash awqaf (Islamic endowment) management institution over a six-year period, from 2000 to 2005. Design/methodology/approach – The paper uses triangulation research approach, consisting of case study method and archival documentation review and analysis. Findings – The preliminary findings indicate that, while the root of accountability in the management, accounting and reporting practices seems to exist in the awqaf entity studied, significant improvements remain necessary to ensure accountability could be continuously enhanced and uphold. Originality/value – Debating accountability concept in the context of management, accounting and reporting as practiced by faith-based institution of awqaf from the Islamic perspective inevitably directs this study to highlight the notion of Islamic accounting and reporting commonly and extensively discussed in the realm of Islamic finance and banking. The study's conjecture is that, by debunking the myth of Islamic accounting and reporting as only serving the acute domain of transactions reflecting the Islamic financial products in banking environment, it helps to reshape, broaden and emphasize the all encompassing relevance of Islamic accounting and reporting to that of not-for-profits, religiously grounded entities such as awqaf institutions. The study further contributes to the accountability and financial reporting literature in Islamic not-for-profit organizations by studying the importance of sound accounting practices and reporting transparency in ensuring accountability.

Determinants of corporate social responsibility disclosure: the case of Islamic banks

Sayd Farook, M. Kabir Hassan, Roman Lanis — 2011-09-27 00:00:00.0

Abstract

Purpose – The purpose of this paper is to develop and test a theoretical model of the determinants of Islamic banks' social disclosures. In testing the hypotheses, the level of social disclosure in Islamic banks' annual reports is gauged based on a benchmark derived from Islamic principles. Design/methodology/approach – Applying the principles of systems-oriented theories such as political economy, legitimacy and stakeholder theories, as well as agency theory, hypotheses linking Islamic social disclosure and its determinants are developed. The sample comprised 47 Islamic banks in 14 countries and the data related to the dependent (Islamic banks social disclosures) variable are collected mainly from the annual reports, while data for the independent variables (determinants) are collected from various sources. Regression analysis was conducted to test the hypotheses. Findings – Corporate social responsibility (CSR) disclosure by Islamic banks varies significantly across the sample. According to the regression results, variation is best explained by the “influence of the relevant publics” and the “Shari'ah (SSB supervisory boards) corporate governance mechanism” variables. Using alternative variable measures, the regression results suggest that “level of social and political freedom” and “the proportion of investment account deposits to total assets” are also significant determinants of Islamic banks' CSR disclosure. Research limitations/implications – The major limitation of this paper is the small sample size of only 47 Islamic banking institutions. Future studies may expand the sample size used here. Practical implications – The results indicate the significance of the SSB as a governance mechanism that may increase the CSR disclosure of Islamic banks. Thus, from a policy perspective, bodies that regulate Islamic banking should consider mandating the SSB for all “Islamic banks”. Originality/value – This research is the first to provide an a priori basis for CSR disclosure of Islamic banks and to test using empirical data. The findings of this research should be of significant value to regulators, shareholders and deposit holders of Islamic banks. In a more general context, this paper is one of a few that has operationalised Gray et al.'s conception of “levels of resolution of perception” and empirically tested the concept using non-traditional organisations (Islamic banks) in a non-Western context. This adds further credibility to systems-oriented theories in explaining CSR disclosures of non-Western organisations operating in non-Western cultures.

The nature of smoothing returns practices: the case of Islamic banks

Neila Boulila Taktak — 2011-09-27 00:00:00.0

Abstract

Purpose – The purpose of this paper is to examine empirically the nature of smoothing returns practices in a sample of 79 Islamic banks across 19 countries during the period 2001-2006. Design/methodology/approach – Previous researchers' methods, based on the variation and determination coefficients, are used in this study to detect the smoothing practices. Findings – Results indicate that the revenues from the “Shariah-based products” derived from the profit and loss sharing principle show higher variability than the “Shariah compliant revenues” and that income from this source is relatively lower. They also show that a large number of Islamic banks engage in natural income smoothing. Based on the determination coefficient results, 70 per cent of banks were found to have less smoothed total revenue than their net income. Results based on variation coefficient further confirm this finding, with 67 banks having a coefficient of total revenue higher than that of the net income. Practical implications – The results suggest that Islamic banks should strengthen the use of smoothing techniques, such as the profit equalization reserves (PER) and the investment risk reserves (IRR), as they allow them to further stabilize the revenues payout for the investment account holders (IAH) and therefore mitigate withdrawal risk. Standardizing the smoothing techniques could be a solution to overcome the variability of this category of revenue. Originality/value – This work is the first of its kind for Islamic banks. It extends previous research by examining whether or not managers may smooth their results naturally or intentionally. It also helped to bridge the gap in the literature by providing the empirical evidence on the smoothing returns in Islamic finance.

Management accounting systems in Islamic and conventional financial institutions in Malaysia

Siti Zaleha Abdul Rasid, Abdul Rahim Abdul Rahman, Wan Khairuzzaman Wan Ismail — 2011-09-27 00:00:00.0

Abstract

Purpose – The purpose of this paper is to explore whether there is any difference in the management accounting systems (MAS) of conventional and Islamic Financial Institutions (IFIs) in Malaysia. Design/methodology/approach – The paper was based on a survey of 45 conventional and IFIs listed on the Malaysian Central Bank's web site. The respondents were the chief financial officers (CFO). Post-survey semi-structured interviews were also conducted with eight respondents to gain further insights into the survey findings. Findings – The survey results indicate that IFIs use MAS information that is broader in scope, more timely, more integrated and more aggregated than conventional financial institutions. The post-survey interviews provide deeper and contextualised insights into this issue. The interview findings illustrate that IFIs normally develop and adopt an integrated accounting and enterprise system. Within this comprehensive enterprise system, the management accounting function is integrated with other functions of the organization. Research limitations/implications – Since this study was conducted in the context of Malaysian financial institutions, the results may not be generalizable to other organizations. The findings of this study highlight the importance for IFIs to have integrated enterprise systems. Besides assisting in complying with Shari'ah and regulatory requirements, the integrated systems also support better decision making. Originality/value – The paper fills a gap in the literature, as very few studies have examined the issue of management accounting in financial institutions. The paper is also one of the limited studies that explore the issue of MAS in IFIs.

Arab springtime: in search of Al-Adalah Al-Ijtima’iyyah Fil Islam[1]

2011-09-27 00:00:00.0