ACCOUNTING IN ISLAM

Prepared by:

JURIAH BINTI LATIF

SHARMA BINTI JABIR

AZIZAH BINTI YAHPAR

Q1: Historical development-5th to 12

century

The religion of Islam start in Makkah (610

AD) – Quran to prophet Muhammad.

Muslim civilization start when prophet

Muhammad raised as the final messenger

(622 AD)

Accounting System

1)

Accounting for live stock

2) Construction accounting

3)

Agricultural accounting

4)

Warehouse accounting

Accounting system

5) Currency accounting

6) Sheep Grazing

accounting

7) Treasury

accounting

Accounting Record

Jaridah Jaridah Al-

Kharaj Jaridah

Annafakat

Jeridah Al-Mal

Jaridah Al-Musadareen

Daftar Al-Yawmiah

Daftar Al-Tawjihat

Types of accounting

reports

Al-Khitmah Al-Khitmah Al-Jame’ah

The development of accounting records &

reports in the islamic state have most

likely contributed to the development and

practice of accounting in Itally as

documented by Pacioli in 1494

Q2: Factors behind the development

islamic accounting records & reports in

Muslim civilization

Development

Zakat

Baitulmal, Waqf ,

Diwan2

Geographical expansion

Religously motivated

Q3: The features of accounting practice

Based on syariah/islamic ethics & islamic eco.

-Accountibility to society

-Full disclosure

Support socio-justice

Q4: The world view behind the theory and

practice of conventional accounting.

Theory

Based on ethical value concept

Secularism

Emphasis on reasoning as well as

illumination of rationality

Continued…

Practice

Western world view and form the basis

of accounting system

Relies on ethical value concepts and

rational economic foundation

Focus on rational economic decision

model

Accountability to primary users

Limited disclosure

Support / enhance capitalism

Q5: Difference characteristics of Islamic

accounting information and conventional

accounting

Islamic Conventional

System •Syariah regulations •Conventional regulations

Relevance •Truth, fair and accurate

disclosure of all facts

•Influence economic decision

•Timeliness

Undestandability •Information not to deceive user •Information in understandable

form

Materilaity

Reliability

Faithful

presentation

•Disclosure of all necessary

information

•True and complete, raliable and

financial disclosure for them

•Presented correctly and fully

including details for all the

transaction undertaken

•Information that would have

impact on economic decision

•Verifiability, faithful representation,

substance over form, neutrality,

prudence and completeness

•Must represent fully all

transactions it purports to

represent

Q6. Difference between Conventional and

Islamic financial reporting perspective

ISSUE CONVENTIONAL ISLAMIC

Objectives •Accountability to

stakeholders

•Assist users in their

economic and

investment decision

•Accountability to God

•Accountability to society

•Assist users in their

economic and investment

decision and accomplishing

of their religious

obligations (zakat)

Measurement •Historical cost,

lower of cost and

NRV

•Historical cost

•Current value

ISSUE CONVENTIONAL ISLAMIC

Reports •Balance Sheet

•Income Statement

•Cash Flow Statement

•Environmental

•Social Report

•Balance Sheet

•Income Statement

•Cash Flow Statement

•Environmental

•Social Report

•Value Added Statement

•Current Value B/S

•Statement of sources and

uses of zakat funds

ISSUE CONVENTIONAL ISLAMIC

Disclosure Limited disclosure

•Economic

•Environmental

•Social such as

employee-related,

products, community

development

Full disclosure

•Economic issues

•Environment

•Social issues

-monopoly practices

-interest/riba

-corrupt practice

-non-fulfillment of

contract

-amount of zakat paid

-computation of zakat

-designated company

Q7. Difference of Islamic Accounting in the

context of objectives, measurement and

disclosure and presentation of information. 1. Objectives

-Rizal Yaya & Shahul Hameed (2006)

Decision usefulness

Stewardship

Islamic Accountability

Decision usefulness

-provide information that is useful in making

business and economic decision.

-information about islamic bank’s compliance

with the islamic syariah

-information about financial position and

performance

-cash flow information

-information to assist the concerned party in

determination of zakat

-social and environmental information

Stewardship

-contribute to the safeguarding of the assets,

and to the enhancement of the managerial

and productive capabilities of islamic bank,

encouraging compliance with its established

goal and policies

Islamic Accountability

-premised on both the accouter & the

accountee having dual accountabilities

-arise from concept khilafa; accountable to

Allah on the day of judgment for all resources

under their control, how it is used

-contract between an owner & a manager,

social contract between firm & society.

Conventional

-accountable and provide useful information

mainly to shareholders, lenders & creditors.

2. Measurement

Zakat as a cornerstone of determining

measurements tools

-concept in Islam deals with specifically

with measurement of assets,

-one of the 5 pillars of Islam,

-development of accounting in early

Muslim government

Based on the selling price prevailing at the

time zakat fall due

Apply current cost not HC

3. Disclosure & Presentation of

Information

Economic performance / financial

statements

Social responsibilities information

Zakat information

Any prohibited transaction

Non-fulfillment of contract

Value added statement

Q8. Shortcoming of conventional historical

cost accounting from Islamic perspective.

Historical cost has no syariah basis to

applied in an islamic perspective,

The contract fulfillment principle cannot

be used,

Use current value measurement (CVM)

-disclose the truth as it is

-HC would lead to the understated

valuation