Articl 1: The relevance of religious belief to the material world is often overlooked, even by the devout, but any

study of the major religions will show that there is a considerable body of teaching on how believers should conduct their working lives, undertake monetary transactions and manage their financial assets. Economic activity involves human behaviour, and this introduces a moral dimension, as humans have choices and their actions can be a force for good or bad. Seeking divine guidance for economic decision making can be helpful in making the right choices, and can ease consciences where decisions affect the lives of others. Economic governance, whether at national or corporate level, can be a lonely and thankless task, but if those exercising responsibility feel they are carrying out their duties on behalf of the Almighty, this can inspire and motivate themselves and others.

Islamic law and economics

All three monotheistic religionsJudaism, Christianity and Islamprovide general guidance on everyday living including on economic and financial affairs. For Muslims the authoritative source of guidance is the Holy Quran, the revealed word of Allah, and the Hadith, the sayings and practices of the Prophet Muhammad and his companions, referred to as the Sunnah. Since the time of the Prophet over 1400 years ago there have always been differences of opinion in the interpretation of how this guidance should be interpreted and applied. The Islamic scholars who specialised in this interpretation are referred to as the ulema or fiqhaa,
articl 2:

In developed economies, auditing is deemed significant because the process of wealth creation and political stability depends heavily upon confidence in processes of accountability, and how well the expected roles are being fulfilled (Sikka et al., 1998). As such, the courts, regulatory agencies and various stakeholder groups have played their parts in demanding that the profession move in an expeditious fashion to meet its responsibilities as perceived by the public (see Humphrey et al., 1992; Jacob, 1992; Ali et al., 2006). In contrast, for countries undergoing economic transition from communism to capitalism (Sucher & Zelenka 1998; Sucher et al., 1999; Hao, 1999; Sucher and Bychkova, 2001; Sucher and KosmalaMacLullich, 2004; Lin and Chen, 2004) and in societies that have different cultural values (Hines 1992) or philosophies, the role of external auditing should be considered on its own merit since it is interwoven with historical, political, social and cultural processes. Management of Shariah Non-Compliance Audit Risk in the Islamic Financial Institutions The studies conducted on Shariah audit are very limited. Thus, this study attempts to venture findings related to Shariah audit, that later can contributes to the development of Shariah audit literature. To date we have writing which attempts to explore the perceptions of Accounting Academicians, Audit Practitioners and Shariah Scholars on the practice of Shariah Audit for Islamic Financial Institutions that highlights the importance of developing a proper governance of the Shariah compliance issues (Shahul Hameed, 2007). In addition to that there is also study that identifies the issues and challenges of

Shariah compliance process in the IFIs on corporate governance and Shariah compliance in institutions offering Islamic financial services (Grais & Pellegrini, 2006).
Scope of Shariah Compliance Audit The scope of work encompasses the examination of the adequacy and effectiveness of the system of Shariah control and the quality of performance in carrying out assigned responsibilities. Shariah rules and principles shall provide direction to the scope of work and activities to be reviewed.

Articl 3 Shariah auditing has a key importance as there is a growing awareness among Islamic institutions that every such institution should contribute towards achieving the objectives of the Islamic law- the Maqasid Ash-Shariah (Shahul and Yaya, 2005). It is suggested that there is a need to have regular independent shariah audits in IFIs as people are now experiencing a movement along a continuum from a society that trusts everything and audits nothing to a society that trusts nothing and audits everything. The concept of shariah auditing should be extended to the activities relating to among others, the system, the products, the employees, the environment and the society Sulaiman (2005) found that what ought to be desired (the desirable) may not coincide with what is actually desired (the desired) and in consequent what is actually desired may not be the same as the actual practice. Therefore, to determine if there exists of a gap between the desirable and the actual, the gap to be examined should look into two aspects: 1) between the desirable and the desired, and 2) between the desired and the actual practice.

Articl 4: Pakistan got independence from British rule and separated from Indian subcontinent in the name of Islam. The freedom movement (partition from India) of Pakistan was based on the two-nation philosophy, which states that Hindus and Muslims are two different nations each nation have different religion, customs and different life style. Pakistan was created so that the people can spend their lives in accordance to Islamic principles and teachings. While the world is now recognizing the significance of Islamic finance industry, in Pakistan, as early as in 1948, Mr. Muhammad Ali Jinnah (Founder of Pakistan) emphasized the virtues of Islamic principles and in his address at the inauguration of the State Bank of Pakistan (Central bank of the country), he said : I shall watch with keenness the work of your Organization in evolving banking practices compatible with Islamic ideas of social and economic life. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice.

The Islamization of economy efforts received a serious blow when on 21st June 2002, on a review petition by United Bank Limited (UBL), the Supreme Courts Shariat Applet Bench set aside all the previous judgments in this regard, including its own historic decision of 23rd December 1999, and the decision of the Federal Shariat Court of 14th November 1991. The Shariat Applets Bench (SAB) of the Supreme Court asked the FSC to re-hear the original case. Since then, the case has been lying in a long queue of cases. Hence, a new turn came in the transformation of banking and financial institutions of Pakistan, which later foster the State Bank and other authorities to chalk out the strategy to alter the present practice of the financial institutions. The commandments and views of Holy Quran on the prohibition ofRiba are clear and unequivocal. The constitution of Pakistan 1973, in its article 227 providingthat all existing laws shall be brought in conformity with the injunctions of Islamic as laiddown in the Holy Quran and Sunnah. Article 37 of the same (1973) constitution deals with the Principle of Policy states that it is the duty of State to eliminate Riba early as possible.

Articl 5: Islamic financial institutions (IFI) have been growing over 20% per annum over the last decade and it is expected that by 2012 the Islamic asset s should reach about USD 1.6 trillion and with revenue of 120 billion (Islamic Development Bank Group, 2010). The foundation of Shariah in relation to Islamic financial transactions is enshrined in the Qur'an. Sunnah should also be followed. Riba-interest is forbidden in Quran. However, avoiding gambling and speculation along with uncertainty coupled with exploitation and unfairness are also considered to be important elements of the foundation of the Shariah by the Islamic scholars (Jobst, 2007). For clarification purposes, Fatwas are given and it is a dynamic source of the Shariah, therefore, critiques argue that Islamic financial transactions are subject to different interpretations. Relying solely on Fatwas issued by Islimc jurists had raised a number of serious concerns (Rosly 2010). Besides Islamic jurists, differences also exist how IFIs report their financial report. IFIs do not report their financial statements using a common set of standards. Bahrain based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) published Islamic Accounting Standards in accordance with Islamic Shariah, and these are applied in three jurisdictions, namely Dubai, South Africa and Syria. Pakistan states that some of their Islamic accounting standards are adopted from AAOIFI pronouncements. (The AOSSG Working Group on Islamic Finance, 2010) Currently, IFRS remains the only globally recognised set of financial reporting standards and is a regulatory requirement of all publicly listed companies in Europe. Adopting Islamic accounting standards by IFIs may affect their ability to enlist in major capital markets such as in the EU, as well as investors may question completeness and effectiveness of the standards, and may doubt the reliability and comparability of the financial statements prepared using accounting standards other than IFRS. 4

Following sections explored some of the transactions and economic events that take place in Islamic financial institutions, which, some argue, require separate set of accounting standards to measure and present these in the annual report of Islamic financial institutions, as the critique identified deficiencies in the IFRS framework.

Article 6:
The Corporate Governance (CG) for Islamic Financial Institutions (IFIs) is assuming growing Significance with the steep growth in Islamic Finance system both regionally and now globally. This industry has become a major source of wealth creation and financing of investment projects world Wide and cumulative worth of its transactions are reaching a trillion dollar. IFIs provide a viable Option to savers and investors who are inclined to deal with exclusively Islamic financial system given Their religious and ideological stance To the extent that an IFI is principally a company structure it ought to align, adopt and abide by the generic global corporate governance principles and models including the OECD principles of Corporate Governance, originally issued in 19992 and other elaborate guidelines that have emerged internationally as well regionally. Islamic finance, however is a specialized industry which is based on Quran and Sunnah. It offers a distinct view on eligible financial transactions and implicitly brings to forefront a rich and superior architecture and texture to the field of corporate governance. The driving force of corporate governance for IFIs on one hand is the concept of justice, moral obligation, accountability, and equality that are fundamental to Islamic ideology and on the other hand, is the nature of permissible transactions which tend to have different risks associated with it than conventional banking business.