Chapter 3

CHAPTER 3
ISLAMIC ACCOUNTING AND

FINANCE
Islamic Ethics and Accounting
1
Ethics and Accounting
 The word “ethics” is derived from the Greek
word of “ethos” which means the character,
spirit and attitudes of a group of people or
culture.
 Ethics relate to morals & treating of morals
questions. Ethics also indicate a philosophical
reflections on moral beliefs & practices.
 Accounting is an area of human activity
which tends to be considered as neutral &
value free.
 This means that when preparing accounting
information certain requirements will be
applied but no moral adherence.
2
 As a result, accountants do not
consider their social roles as moral
agents, because accounting has no
substantial moral dimensions.
 How do you see this point of view?
 Do you agree that accounting activities
to be value-free?
3
 Ethics should be implanted into
accounting practices, because “ethics”
distinguish right from wrong, or good
from bad, justice from injustice.
 Muslim accountants are expected to
behave religiously and ethically during
their professional practices.
 Muslim accountants have the Islamic
obligation to: shareholders, creditors,
employees, suppliers, the state, and
the public.
4
 Accountants are also considered as
gatekeepers of financial markets.
 Because accounting is considered as

a moral discipline, it requires solid
ethical codes of conduct and strict
rules to protect the social
responsibility of the public.
 Ethical education should be
developed in the academic programs
to prepare ethically conscious
professionals.
5
AAOIFI’s code of ethics for
accountants
 AAOIFI has developed a
code of ethics derived
from shariah rules and
principles.
 These codes provides a an
ethical framework to the
accountants.
 The basic assumption of
this code is prepared for
Muslim accountants to
comply with the
requirements of the
religious obligations.
6
accountants
 Accountants should adhere ALLAH’s
orders and refrain from things forbidden
by HIM.
 In addition, accountants should comply
with professional code of conducts
issued by AAOIFI and other Islamic
bodies.
 Ethical conduct of AAOIFI consists of
sections:
• Shariah foundation of accounting ethics.
• Principles of ethics, and
• Rules of ethical conduct.
7
accountants
 Shariah foundation of accounting
ethics are:
• Integrity,
• Vicegerency,
• Sincerity
• Piety
• Righteousness
• Allah’s fearing, and
• Accountability to ALLAH
8
accountants
 Ethical principles of accounting are
include:
• Trustworthiness
• Legitimacy
• Objectivity
• Professional competence & diligence
• Faith-driven conduct, and
• Professional conduct & technical
standards.
 From the shariah foundation & the
principles, rules are developed. See
pages 43-45. 9
Incorporating Islamic ethics in
accounting education
 It is not enough to have an ethical
code of ethics.
 Ethical code of conduct is only an
operational guide to give awareness
to the accounting students.
 AAOIFI code of conduct serves as a
collection of Islamic ethical concepts
and principles but lacks operational
guide on how to impart the Islamic
ethical principles into the Islamic
financial institutions.
10
 AAOIFI tried to develop professional
code of conduct to set a filter
mechanism to resolve the accounting
challenges.
 It is suggested that professional ethics
should be incorporated into the
curriculum of tertiary and professional
education.
 There are 3 models of ethics education
in degree programs.
 Devote half a semester of
introduction to business course to
general ethics.
 Integrate ethics into each & every
accounting course throughout the
program.
 Develop a capstone course at the
senior level that deals with critical
issues of social responsibility.
 The author suggested to introduce the
capstone course for the final year students
of accounting.
 This capstone course will cover the main
aspects of Islamic Worldview such as:
• Tawhid
• The role of INSAN in this world as a vicegerent.
• That the success of the hereafter depend on
the success of this worldly life.
13
 According to the author, a well
designed ethics education is essential
to deal with the current critical issues
of the accounting failure in the capital
markets.
 In addition, ethical commitment of
the accounting practitioners is
necessary.
14
Islamic ethical principles of Maslaha
and Accounting ethics
 The principle objective of the shariah
is the realization of benefits to the
people.
 There are 3 areas of the primary
shariah objectives:
• To educate individuals
• To establish justice
• To realize maslaha to the people.

15
 Maslaha as a principle of legal
reasoning to argue that “good” is
lawful and that “lawful” must be
good.
 Thus, maslaha concerns:
• Substance of human life.
• Completion of human livelihood
• Protection of interests which is classified
into:
 Essentials
 Complementary, and
 Embellishment 16
‫وما ارسلناك اال رحمة للعالمين‬
“And We have sent you (O Muhammad) not
but a mercy to the whole universe”
(Al-Ambiya:107)
Alleviate Hardship Eliminate Prejudice
Establish Justice
Essentials
Maqasid as-Shari’ah
(The Objectives of
Shari’ah)
Religion
Wealth
Intellect
Life Posterity
Preservation and Promotion 17

 Complementary interests are whose
neglect leads to hardship but not total
disruption of life.
• Use of vehicles, computers & telephone.
 Embellishment refers to interests
whose realization leads to
improvement and attainment of what
is desirable.
• Cleanliness, having wrist watch, having
personal car, etc.
18
 There are 2 shariah principles:

• Removal of hardship,
• Prevention of harm.
 “Allah never intends to make religion
a means of inflicting hardship on you”
19
 Generally, the principle of maslaha
gives a guidelines to the accountants
and the professionals to enable them
for making decision relating
accounting information.
 But the decision and judgments on
accounting information should be
shariah-based.
 These principles should also be
practiced.
20

Chapter 3

Uploaded by

Copyright:

Available Formats

Chapter 3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 3

Uploaded by

Copyright:

Available Formats

CHAPTER 3

ISLAMIC ACCOUNTING AND

Islamic Ethics and Accounting

 Because accounting is considered as

Preservation and Promotion 17

 There are 2 shariah principles:

You might also like