Analysis of Sharia Compliance in the Presentation of Islamic Bank Financial Reports
DOI:
https://doi.org/10.35335/87eyr984Keywords:
Sharia Compliance, Islamic Financial Reporting, Islamic Banking, Sharia Supervisory Board (SSB), AAOIFI StandardsAbstract
This study explores the level of Sharia compliance in the financial reporting practices of Islamic banks, with a focus on the presentation, transparency, and ethical accountability reflected in their annual financial statements. Using a qualitative content analysis approach, the research examines selected Islamic banks across various jurisdictions, evaluating their adherence to Sharia principles based on disclosures related to zakat, prohibited income, Islamic financial contracts, and the roles of Sharia Supervisory Boards (SSBs). The findings indicate a wide disparity in compliance levels, with institutions in countries that enforce Sharia-based accounting standards such as those issued by AAOIFI demonstrating stronger compliance than those in dual or conventional regulatory environments. Common strengths include the recognition of Sharia contracts and the existence of SSBs, while weaknesses are often found in the insufficient reporting of zakat, purification of non-halal income, and lack of ethical and social disclosures. The study identifies key influencing factors such as governance quality, regulatory enforcement, institutional commitment, and the application of standardized accounting frameworks. It concludes that enhancing Sharia compliance in financial reporting is essential for strengthening stakeholder trust, ensuring religious legitimacy, and advancing the credibility of the Islamic finance industry.References
Ahmad, M. (2019). An empirical study of the challenges facing zakat and waqf institutions in Northern Nigeria. ISRA International Journal of Islamic Finance, 11(2), 338–356.
Alasmri, A. D. (2020). Exploring the relationship between the board of directors and the Shari’ah Supervisory Board in Islamic financial institutions in Saudi Arabia.
ALERAIG, M., & ALI, M. (2015). Exploring Perceptions on Financial Reporting Standards in Islamic Financial Institutions. Durham University.
Alzahrani, M., & Megginson, W. L. (2017). Finance as worship: a survey of Islamic finance research.
Beyer, A., Cohen, D. A., Lys, T. Z., & Walther, B. R. (2010). The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics, 50(2–3), 296–343.
Binti Kasim, N., Ibrahim, S. H. M., & Sulaiman, M. (2009). Shariah auditing in Islamic financial institutions: exploring the gap between the ‘desired’and the ‘actual.’ Global Economy and Finance Journal, 2(2), 127–137.
Bushman, R. M., & Smith, A. J. (2003). Transparency, financial accounting information, and corporate governance. Financial Accounting Information, and Corporate Governance. Economic Policy Review, 9(1).
Che Azmi, A., & Hanifa, M. H. (2015). The Sharia-compliance of financial reporting practices: a case study on waqf. Journal of Islamic Accounting and Business Research, 6(1), 55–72.
Ginena, K. (2014). Sharī ‘ah risk and corporate governance of Islamic banks. Corporate Governance, 14(1), 86–103.
Haridan, N. M., Hassan, A. F. S., & Karbhari, Y. (2018). Governance, religious assurance and Islamic banks: Do Shariah boards effectively serve? Journal of Management and Governance, 22, 1015–1043.
Hidayah, N. (2014). Religious compliance in Islamic financial institutions. Aston University.
Isni, A. (2018). The role of Sharia Supervisory Board in the Sharia compliance process in Indonesia/Isni Andriana. University of Malaya.
Klinger, C. A., Howell, D., Zakus, D., & Deber, R. B. (2014). Barriers and facilitators to care for the terminally ill: a cross-country case comparison study of Canada, England, Germany, and the United States. Palliative Medicine, 28(2), 111–120.
Ltifi, M., Hikkerova, L., Aliouat, B., & Gharbi, J. (2016). The determinants of the choice of Islamic banks in Tunisia. International Journal of Bank Marketing, 34(5), 710–730.
Malaya, Y. (2016). Shariah Audit in Islamic financial institutions: The effects of spirituality and moderating role on judgement and decision making. University of Malaya (Malaysia).
Mazri, K. F., Ismail, R. F., Arshad, R., & Kamaruzaman, S. A. (2018). Corporate governance attributes as determinants of the Islamic social reporting of Shariah-compliant companies in Malaysia. International Journal of Economics and Management, 12(1), 169–180.
Nienhaus, V. (2011). Islamic finance ethics and Shari’ah law in the aftermath of the crisis: Concept and practice of Shari’ah compliant finance. Ethical Perspectives, 18(4), 591–623.
Noor, R. M., Rashid, N. M. N. N. M., & Mastuki, N. (2011). Zakat and tax reporting: Disclosures practices of Shariah compliance companies. 2011 IEEE Colloquium on Humanities, Science and Engineering, 877–882.
Saleem, S., & Mansor, F. (2020). Exploring compliance of AAOIFI shariah standard on ijarah financing: Analysis on the practices of Islamic banks in Malaysia. Journal of Risk and Financial Management, 13(2), 29.
Suandi, A. B. (2013). Islamic accounting in Indonesia: A review from current global situation. 商学研究科紀要, 77, 241–263.
Syafri Harahap, S. (2003). The disclosure of Islamic values–annual report. The analysis of Bank Muamalat Indonesia’s annual report. Managerial Finance, 29(7), 70–89.
Ullah, H. (2014). Shari’ah compliance in Islamic banking: An empirical study on selected Islamic banks in Bangladesh. International Journal of Islamic and Middle Eastern Finance and Management, 7(2), 182–199.
Ullah, S., Harwood, I. A., & Jamali, D. (2018). ‘Fatwa repositioning’: the hidden struggle for Shari’a compliance within Islamic financial institutions. Journal of Business Ethics, 149, 895–917.
ベタスワンディアプリリア. (2018). A Study on the Balance Sheets of Islamic Banks: Focusing on the Profit-Sharing Investment Accounts. Waseda University.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 Rayyan Nashit, Nadia Tasnim (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
