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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)
1)
Accounting for
live stock

4)
Accounting 2)
Warehouse Construction
accounting System accounting

3)
Agricultural
accounting
5)
Currency
accounting

Accounting
system

7) 6) Sheep
Treasury Grazing
accounting accounting
Accounting Record
Jaridah Al- Jaridah
Jaridah
Kharaj Annafakat

Jeridah Al- Jaridah Al- Daftar Al-


Mal Musadareen 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
Zakat

Baitulmal,
Religously
motivated Development Waqf ,
Diwan2

Geographical
expansion
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 •Influence economic decision
disclosure of all facts •Timeliness
Undestandability •Information not to deceive user •Information in understandable
form
Materilaity •Disclosure of all necessary •Information that would have
information impact on economic decision

Reliability •True and complete, raliable and •Verifiability, faithful representation,


financial disclosure for them substance over form, neutrality,
prudence and completeness

Faithful •Presented correctly and fully •Must represent fully all


presentation including details for all the transactions it purports to
transaction undertaken represent
Q6. Difference between Conventional and
Islamic financial reporting perspective
ISSUE CONVENTIONAL ISLAMIC
Objectives •Accountability to •Accountability to God
stakeholders •Accountability to society
•Assist users in their •Assist users in their
economic and economic and investment
investment decision decision and accomplishing
of their religious
obligations (zakat)

Measurement •Historical cost, •Historical cost


lower of cost and •Current value
NRV
ISSUE CONVENTIONAL ISLAMIC
Reports •Balance Sheet •Balance Sheet
•Income Statement •Income Statement
•Cash Flow Statement •Cash Flow Statement
•Environmental •Environmental
•Social Report •Social Report
•Value Added Statement
•Current Value B/S
•Statement of sources and
uses of zakat funds
ISSUE CONVENTIONAL ISLAMIC
Disclosure Limited disclosure Full disclosure
•Economic •Economic issues
•Environmental •Environment
•Social such as •Social issues
employee-related, -monopoly practices
products, community -interest/riba
development -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