In the name of God, the compassionate the merciful
Islamic accounting is one of the brilliant innovations from Islamic banking professionals, particularly, the AAOIFI standards. Islamic Accounting gives us a new dimension of what accounting is versus what accounting ought to be. Perhaps the 2008 economic crunch has taught us a lesson that we rather need more honest finance professionals who care more about the public interest rather than personal whims and caprices. In addition to this, remember that Islamic banking and finance have developed at a bullet train speed so innovation in the area must also correspond with the same rate of speed. Today, Islamic banking and finance has been embraced by ardent capitalist institutions such as Citibank, HSBC, ABSA, etc. and this has stimulated the interest of accountants and other job seekers to the possibility of new opportunities in this new discipline. The legal evidence for the permissibility of Islamic accounting is Quran 2:282 “O you who believe when you deal with each other in a transaction involving future ob
ligations in a fixed period of time, reduce them to writing, let a scribe write down faithfully as between the parties…”.
Islamic accounting has been defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) as “The process of identifying, recording, and communicating economic and other relevant information inspired by Islamic worldview and complied with Shari’ah to permit informed judgements and decisions by potential and expected users’ information to enhance social welfare and achieve mardhatillah (blessings of God)”. Unlike conventional accounting, Islamic accounting is inseparable from religion (Islam). This serves the Falah (success in this world and the hereafter).
Some features of Islamic Accounting
There are no differences in terms of recording (double entry system). However, there is a clear distinction between Accounting Objectives and different users’ information needs; what type of information is identified? Islamic accounting is strictly compliant with the principles and rules of Shari’ah. It also has different Islamic contractual relationships (mudarabah instrument; murabahah etc.). The accountability relationship is distinct, (to God and mankind).
Some differences between conventional accounting and Islamic accounting
Conventional accounting permits informed decisions whose ultimate purpose is to efficiently allocate scarce resources available to their most efficient and profitable uses by providing information efficiency in the market (FASB, 1978). In Islamic accounting, it’s about adhering to Shariah principles and achieving socio-economic objectives. The type of Information Identified by Conventional accounting concentrates on identifying economic events and transactions (accounting for money). On the other hand, Islamic accounting identifies both financial and non-financial measures regarding economic, social, environmental, and religious events and transactions are measured and reported. Conventional accounting mainly uses historic cost or lower to measure and value assets and liabilities. In Islamic accounting, the current value is obligatory in the computation of Zakah.
In the area of users of accounting information, conventional accounting dismisses a Whole range of stakeholders by using the term “and others” when mentioning the accounting information users and emphasizes creditors and shareholders. Islamic accounting serves the whole stakeholders. User Groups of Accounting Information for Islamic Banks (AAOIFI, 2010) Investors (potential and existing) (lawful and equitable investment), creditors (potential and existing) (lawful trade assets), regulators, shari’ah supervisory board & advisory Council (shari’ah compliance), customers (lawful goods and services), zakah agencies, and others who may be affected by the disclosure or non-disclosure of information.
Observations of the objectives of accounting from an Islamic perspective have ultimately revealed that the discipline is about thriving to achieve success in this world and the hereafter. It is the belief in one God, the belief in the prophethood of Muhammad (SAW), the belief in the akhirah and conformity to the shariah in behaviour. This ambition is referred to as the Falah. And Allah knows best!
Am grateful to God Almighty. My endless thanks go to Osumanu A-Hassan and Obeng Yaw Manu for allowing me to share knowledge of Islamic banking and finance on mypublisher24 for this long. This is a free-flow generosity. This will go into the annals of history as the first media house in Ghana to allow Islamic banking and finance knowledge to spread in Ghana and beyond unabated. Wal hamdullilahi rabal-allameen!
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana.
Email: yahaya0246873726@gmail.com
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