Academic journal article International Journal of Business and Society

Disclosures and Perceptions of Practitioners on Items of Financial and Social Reporting Index Developed for Malaysian Islamic Banks

Academic journal article International Journal of Business and Society

Disclosures and Perceptions of Practitioners on Items of Financial and Social Reporting Index Developed for Malaysian Islamic Banks

Article excerpt

1.INTRODUCTION

Islamic finance has been regarded as part of an Islamic economic system that has inherent social relations (Ahmed, 2011). In this regard, Islamic banks have been established since 1970s with the aim of upholding socio economic justice as promulgated by Islamic teachings. Consequently, all Islamic bank products or services have to be offered or delivered within the parameters of Shari'ah which mean that they are not allowed to engage in any kind of interest (riba) bearing borrowing or lending contracts (Archer & Karim, 2007).

To date, the formation of Islamic banks is believed to have captured the majority of Muslim customers worldwide, which is approximately more than 1.3 billion or around 24% of the world's population. The overwhelming acceptance of Islamic bank products or services could be due to the fact that the Islamic banking and finance industry is on its way to becoming a truly viable and competitive alternative to the conventional system, and, in recent times, has made a series of breakthroughs and improvements (Khan & Bhatti, 2008).

In the Malaysian scenario, in 1983, Bank Islam Malaysia Berhad (BIMB) became the first Islamic bank to be established. The bank has now proven its capability to succeed as they currently have more than 80 branches throughout Malaysia. According to the Central Bank of Malaysia, Bank Negara Malaysia (BNM) (2017), there are 16 banks operate as either fully fledged or subsidiary Islamic banks in Malaysia.

Nonetheless, the issue of accountability is of immense concern in today's business world, as demonstrated by the demise of huge and well established corporations around the world in recent years. Parmalat, Enron and WorldCom are a few examples of such classical collapses in the history of corporations. On the local front, accounting irregularities have been found to exist in companies like Transmile, Energo, Welli Multi, Megan Media and GP Ocean (Securities Commission of Malaysia, 2010).

Many corporate failures have been linked to the quality of corporate financial statements. The corporate demise and scandals, which are normally caused by accounting irregularities, are a sign of poor credibility, integrity and independence. As a result, this has severely diminished the status or standing of the accounting profession in the eyes of the public, who have begun to openly criticize how accountants perform their professional duties in providing a true and fair view of the corporate financial position.

The concept for the Islamic financial and social reporting (IFSR) generally lies in the blend of reporting requirements from the Islamic financial and social perspectives (Marsidi et al., 2016). The existing Islamic social reporting (ISR) concept includes financial components within its reporting system concept but it is not as comprehensive as the social components. Hence, the IFSR has been developed to give more emphasis to the financial aspects while retaining the core components of social reporting.

The Islamic financial components in the IFSR are designed based on the technical approach from the setters of the relevant existing standards and guidelines, i.e. MASB, AAOIFI, IFSB and BNM. In contrast, the ISR concept has essentially arisen from the theoretical perspective. As such, the technical and theoretical methods that are used in the IFSR will broaden and deepen the implications of IFSR within its context of usage.

Considering the growing importance of the Islamic banking industry, particularly in Malaysia, and the alarming issue of accountability in the world of business today, the study has several objectives. The first objective of the paper is to examine the views of the practitioners, i.e. accountants, concerning the importance of the components or items in the IFSR index developed by Marsidi et al. (2016). The other objective of the paper is to examine the extent of compliance or awareness among the Islamic banks in Malaysia with respect to the IFSR. …

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