Roles and impacts of accounting and auditing organization for Islamic financial institutions (AAOIFI) in dealing with the accounting and disclosure of Zakah and Interest (Riba)

Ahmad Nadzri, Farah Aida
Habib, Ahsan
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Master of Business
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Auckland University of Technology

The issues of zakah and interest for IFIs have been highlighted for several years and attracted many arguments among Islamic scholars and public. The increasing public interest on the Islamic Banking since 1970s has been driven by the increasing sensitivity among Muslims to the relationship between religion and economic activities. With the emergence of IFIs, Muslims community has demanded for an establishment of an accounting body to develop a set of accounting standards that adhere to the Islamic tenets, hence AAOIFI was established. However, the journey of AAOFI in achieving such objective has not been smooth. This paper intended to study the effectiveness of AAOIFI in dealing with the issues of zakah and riba for IFIs by examining the disclosure practice of 25 IFIs worldwide. Based on the analysis conducted, it is concluded that the extents of disclosure by the IFIs are much lower than the AAOIFI requirements. The study also found that leverage and origin factors might contribute to the level disclosures of zakah and financial products. In addition, the test performed also revealed that the adopters of AAOIFI do provide more disclosure as compared to the non-adopters. However, the mean result is relatively low to suggest full compliance with the AAOIFI standards.

Islamic accounting standards , Riba , Zakah , Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) , Content analysis
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