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And We created not the heavens, the earth and all between them, merely in (idle) sport. We created them not except for just ends. But most of them do not understand(Al-Qur’an, 44:38-39).The establishment of objectives is an absolutely necessary first step in the reasoned development of any purposive human behaviour. Objectives of financial statements must be discerned if subsequent debate over alternative standards and reporting practices is to be resolved by reason (AAA, 1975, p41)

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In chapters 3, 4 and 5, the researcher discussed the need for an alternative “Islamicaccounting” which is more useful to Islamic organisations and Muslim users. Thesefactors which suggested the need were classified into the “Push” and “Pull Factors”.In chapter 4, the push factors were discussed where the researcher attempted toargue that the objectives, characteristics, consequences and behavioural effects ofconventional accounting made it unsuitable for Muslim users and Islamicorganisations. In the previous two chapters, the pull factors which make Islamicaccounting both a theoretical and a practical necessity was discussed.In this chapter, the researcher shall attempt to define the objectives andcharacteristics of this alternative “Islamic accounting”. It is hoped that Islamicaccounting will lead to Islamic organisations and other users of Islamic accountinginformation to carry out tasks that will lead to achievement of the socioeconomicobjectives for which Islamic organisations were established in the first place. Further,it is hoped that Islamic accounting will ameliorate many of the undesirableconsequences of conventional accountingAlthough it is traditional to discuss a subject by defining what it is (or what it is not),the researcher has so far avoided defining Islamic accounting. The reason for this isthat this research project is exploring an evolving discipline, which is not well defined.In fact, part of the research project, is to explore the perception held by MuslimAccountants and Academics regarding the objectives and characteristics of Islamic

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accounting. Hence a definition of Islamic accounting cannot be too specific.However, a starting definition of Islamic accounting needs to be given. Islamicaccounting can be initially defined as the “accounting process” which providesappropriate information (not necessarily limited to financial data) to stakeholders ofan entity which will enable them to ensure that the entity is continuously operatingwithin the bounds of the Islamic Shari’ah and delivering its socioeconomic objectives.Islamic accounting is also a tool, which enables Muslims to evaluate their ownaccountabilities to God (in respect of inter-human/environmental transactions).The chapter proceeds as follows: in section 6.1, the methodology for constructingaccounting theories is discussed and arguments are presented for the methodologywhich is adopted in this research to arrive at an Islamic accounting theory. This isfollowed in section 6.2, by a discussion of ethics, which is the basis of Islamicbusinesses and Islamic accounting. The objectives of Islamic accounting are thenarrived at from the ethical objective of Islamic accounting users (i.e. to attain

falah

,dual world success). The operational basis and main objective of Islamic accounting(the notion of accountability) are then discussed in section 6.3 and a model of IslamicAccountability developed. This is followed in section 6.4, by a discussion of thesubsidiary objectives of Islamic accounting. The users of Islamic accountinginformation are identified in section 6.5, and their relative importance compared tofund providers who are given prominence in conventional accounting, are discussed.The characteristics of Islamic accounting are then suggested in section 6.5, in termsof the type and nature of information which should be disclosed, the generalcharacteristics of Islamic accounting and auditing. Finally, given the importance ofprofit measurement in an Islamic context, some income measurement and valuationproblems are discussed from an Islamic perspective in section 6.6.7.The methods used to test the proposals discussed in this chapter will be discussed inthe next chapter.

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How does one develop a theory of Islamic accounting? From the lessons ofconstructing accounting theories in conventional accounting, one could pursuevarious approaches such as those categorised by Belkaoui (1992).Belkaoui (1992) categorises such attempts as the “traditional”, “regulatory” and“other” approaches. The “other” approaches include the events, behavioural, humaninformation system, and the predictive and positive approaches. However, thecategorisation by Belkaoui is not unambiguous because the various categories seemto overlap. However, three basic approaches to accounting theory construction canbe gauged from both Belakoui (1992) and AAA (1977); the empirical inductiveapproach, the deductive approach and the information theory approach (Whittington,1986).

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The empirical inductive approach is an attempt to develop a theory based ongeneralising from empirical phenomenon. It has been used to rationalise

ex-post

,current accounting practice. The development of principles and accounting standarddevelopment process of the Anglo-American professional accounting bodies such asthe AICPA, and the CCAB, is one such approach; where standards are set asguidelines to regulate accounting practice.For the past two decades, the empirical-inductive theory has slipped into the realm ofpositive accounting theory (or PAT). The proposers of this theory, Watts &Zimmerman (1986) attempted to argue that accounting theory should be positive i.e.attempt to explain what is and help to predict future events, instead of trying topreach what ought to be. This has led to capital market research becomingmainstream in accounting. Unfortunately, the regulatory approach has also followedsuit in adopting the decision-usefulness paradigm (for example FASB, 1978).