Islamic Accounting refers to accounting ideas and practices that have some differences from their

conventional counterparts, resulting to Sharia principles. The sources of Sharia are the Quran and the
Sunnah.1 The Sharia-compliant transactions inhibit riba, and all Muslims have to pay zakat.2 Since, Islamic
banks financial statements reflected different revenue recognition methods and differing classification and
disclosure practices, the Accounting and Auditing Organization of Islamic Financial Institution (AAOIFI) is
needed to develop its approach to objectives and concepts of financial accounting for Islamic financial
institutions, and considers the need for a specific conceptual framework for Islamic accounting. 3 However,
the nature of AAOIFIs standards is towards political and economic rather than achieve socio-economic
justice and becoming in effect an act of worship that fulfils a Muslims obligations to God and society, and
helps attain rewards in the life and the Hereafter.4 Although most Islamic banking adopted the international
accounting standards, however, each country using various approaches and this challenge to adopt standards
of AAOIFI consequently cause the financial statement of Islamic banks non-comparable internationally. 5
Besides, there are two important criteria of Islamic Accounting which are social accountability and full
disclosure. Ones ability to pay zakat should base on current market values in the computation of accounting
statements is strongly coherent to realization principle. 6 The government plays a distinctive role in collecting
and disbursing the zakat.7 In order to ensure the Islamic financial institutions to comply with commercial,
accounting laws and Sharia, the Sharia Supervisory Board (SSB) is responsible to vets proposed
transactions, and reports on the institutions activities. Whereas an Islamic auditor should not only report on

1 (Haniffa, 2011)
2 (Gambling and Karim 1991)
3 (Karim 1995)
4 (Haniffa and Hudaib, 2007)
5 (Karim 2001)
6 (Clarke, Craig and Hamid, 1996)
7 (Naser, Murunde and Al-Utaibi, 2001)

the accuracy of financial statements but also comment on the propriety of managerial decisions and the
extent to which the organisation had adhered to Sharia principles.8

8 (Khan, 1985)