ACCOUNTING PRESENTATION

~ISLAMIC ACCOUNTING~~

NURUL HAZIRAH MUHAMMADASMALYANA BT ABD MUHSINIZZAH DALILAH ROHIMIMASITA ABU BAKAR

INTRODUCTION

• OLD IDEA • Accounting is an objective, technical and value-free

discipline.• Accounting+religion adjective= seem unprofessional

• NEW IDEA• Embracing the idea of Islamic Banking and finance.

What is Islamic Accounting?

• Specific form of accounting dictated by religious precepts of Islam

• Sources:– Qur’an– Sunnah

• Likely to be normative-deductive:– Shari’ah

DISTINCTIONS BETWEEN ISLAMIC ACCOUNTING AND CONVENTIONAL ACCOUNTING

CATEGORIES ISLAMIC ACCOUNTING CONVENTIONAL ACCOUNTING

Objectives of providing information

To obtain reasonable profit and abide Islamic laws in dealings to achieve socio-objectives encouraged by Islam

To maximize profit after determining scarce resources

Identification of information • Identify socio-economic events, religious and normal transactions

• Social interest is taken care of

• Identify economic events and transactions

• Social Interest is overlooked

I.e.: Failure of company

Profit determination report honest profit for the whole accounting period

Manipulation of profit and loss by auditor

CATEGORIES ISLAMIC ACCOUNTING CONVENTIONAL ACCOUNTING

Valuation of asset and liabilities • Current cost or selling price• To determine the payment

of zakat

Historical cost

Differences in users of information

• Include all range of people who are involved in business regardless of status

• Return deserved profit according to investment

• Focus on society aspect –ethics: no cheating and no manipulate

• Elite group of financiers and banks

• Promote the concentration of wealth and power to the hand of the rich especially those who provide the resources to the business

• Focus on individuality aspect without consider any social aspects

Business activities Comprise activities allowed by Islam

Prohibited economic activities such as selling alcoholic drinks and gambling, lotteries and casinos

APPLICATION OF ISLAMIC BANKING

Islamic Accounting, enable users to ensure that Islamic organisations abide by the principles of the Shari’ah or Islamic Law in its dealings and enables the assessment of whether the objectives of the organisation are being met. Islamic accounting must be holistic in its reporting Hence, both financial and non-financial measures regarding the economic, social, environmental and religious events and transactions are measured and reported.

In Islamic finance the technical term for a transaction between an entrepreneur and the suppliers of funds is mudaraba. Two of the conditions for a mudaraba- type venture show the level of partnership implicit in Islamic contracts:• The gross or net return on capital or entrepreneurship should not be predetermined.• Partners should share not only profits but also losses in proportion to their shares in the enterprise.

In a business based on mudaraba, each partner shares an agreed portion of the profits, which may or may not be predetermined, according to a contract.

TYPES OF ISLAMIC BANKING CONTRACTS

Concessionary Participatory mechanisms

Profit and loss sharing Mudaraba (trustee financing) Musharaka (equity participation) Musaqat (orchard financing) Muzar’ah (share of harvest) Direct investment

Non-profit and loss sharing Qard al-hasanah (benevolent loan) Bai’mua’jjal (spot sales) Bai’salam (Forward contracts) Ijara wa iqtina’ (leasing) Murabaha (cost plus markup) Jo’alah (service charge)

Trade financing

Why we must apply Islamic Accounting?

• Ensure any of society comply with the syari’ah principles and do not harm others while making money ethically

• Achieve an equitable allocation and distribution of wealth among members of society especially the stakeholders of the concerned corporation

• Information relevant - calculating zakah

• Social reporting – to the ummah

Religion and Accounting

The adjective “Islamic” is worried to be added to accounting because:

• May compromise the objectivity of the discipline

• Religion is mostly seen as an unchanging code

• Religion is not subject to logical considerations

Religion and Accounting

• Capitalist is not used before the word accounting.• Epistemology (the nature and sources of

knowledge)• Science has replaced the religion as the authority

in defining what is knowledge.• Knowledge is only what is perceptible through

our senses, experiment,observation, or anything appears logical to our mind.

• Revelation is not considered as knowledge since religious truth cannot be verified by our senses.

Religion and Accounting

• However, science and religion are dealing with two different level of reality.

• Science deals – physical universe that perceptible through our senses.

• Religion deals – higher level reality beyond the sense of perception.

• The ultimate objective of both science and religion is to bring about the well being of human beings.

• Science-physical and material• Religion – social, mental , emotional and the spiritual.

CONCLUSION

Islamic accounting would in fact be more logical to use as it would result in an ethical based accounting system which measures not only profits but social, environmental and religious performance!

THANK YOU!!