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Journal of Islamic Accounting and Business Research

Accountability in the sacred context: The case of management, accounting and

reporting of a Malaysian cash awqaf institution
Hairul Suhaimi Nahar Hisham Yaacob
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To cite this document:
Hairul Suhaimi Nahar Hisham Yaacob, (2011),"Accountability in the sacred context", Journal of Islamic
Accounting and Business Research, Vol. 2 Iss 2 pp. 87 - 113
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Hidayatul Ihsan, Shahul Hameed Hj. Mohamed Ibrahim, (2011),"WAQF accounting and management
in Indonesian WAQF institutions: The cases of two WAQF foundations", Humanomics, Vol. 27 Iss 4 pp.
AbulHasan M. Sadeq, (2002),"Waqf, perpetual charity and poverty alleviation", International Journal of
Social Economics, Vol. 29 Iss 1/2 pp. 135-151
Farhana Mohamad Suhaimi, Asmak Ab Rahman, Sabitha Marican, (2014),"The role of share waqf in the
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Accountability in
Accountability in the sacred the sacred
context context
The case of management, accounting
and reporting of a Malaysian cash 87
awqaf institution
Hairul Suhaimi Nahar
Accounting Section, School of Management, Malaysia Science University,
Penang, Malaysia, and
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Hisham Yaacob
Department of Accounting and Finance,
Faculty of Economics, Business and Policy Studies,
University Brunei Darussalam, Gadong, Brunei Darussalam

Purpose – The concept of accountability has long been argued in the academic and public policy
debate to have been contextually ingrained in the technical processes of accounting and reporting.
Both processes provide lenses through which the extent of managerial accountability in the corporate
context could be objectively examined. The sacred religion of Islam as a social order with a complete
code of life classifies accountability as being dual; in line with the duality concept in life – in this
temporal world and eternal hereafter, necessitating for accountability concept in accounting and
reporting from the Islamic worldview to transcend beyond the point of worldly objectives. Parallel to
this line of reasoning, the purpose of this paper is to undertake a preliminary empirical investigation
with respect to accounting, reporting and accountability practices of a Malaysian cash awqaf (Islamic
endowment) management institution over a six-year period, from 2000 to 2005.
Design/methodology/approach – The paper uses triangulation research approach, consisting of
case study method and archival documentation review and analysis.
Findings – The preliminary findings indicate that, while the root of accountability in the
management, accounting and reporting practices seems to exist in the awqaf entity studied,
significant improvements remain necessary to ensure accountability could be continuously enhanced
and uphold.
Originality/value – Debating accountability concept in the context of management, accounting and
reporting as practiced by faith-based institution of awqaf from the Islamic perspective inevitably
directs this study to highlight the notion of Islamic accounting and reporting commonly and
extensively discussed in the realm of Islamic finance and banking. The study’s conjecture is that,
by debunking the myth of Islamic accounting and reporting as only serving the acute domain of
transactions reflecting the Islamic financial products in banking environment, it helps to reshape,
broaden and emphasize the all encompassing relevance of Islamic accounting and reporting to that of
not-for-profits, religiously grounded entities such as awqaf institutions. The study further contributes
to the accountability and financial reporting literature in Islamic not-for-profit organizations by
studying the importance of sound accounting practices and reporting transparency in ensuring
accountability. Journal of Islamic Accounting and
Business Research
Keywords Islam, Finance, Banking, Accountability, Accounting, Reporting, Awqaf, Vol. 2 No. 2, 2011
Mutawallis (awqaf trustees), Non-profit organizations pp. 87-113
q Emerald Group Publishing Limited
Paper type Research paper 1759-0817
DOI 10.1108/17590811111170520
JIABR 1. Introduction
2,2 The Islamic revivalism (Al-Tajdid Al-Islami ) ignited post twentieth century had
effectively provided impetus for the reshaping and aligning of Muslims’ (herein
ummah) daily practices with those previously promulgated by Prophet Muhammad
(Peace Be Upon Him) (Yousif, 2004). It began immediately after the collapse of the
Ottoman Empire with the aim of returning Islam to its original pure form (Mawdudi,
88 1992). One of the revivalism agenda is to rejuvenate many of the previously
de-emphasized Islamic institutions such as bayt-al-mal (Islamic wealth administration)
and awqaf (Islamic endowment). While bayt-al-mal administers among others the
collection and disbursement of zakah (compulsory Islamic tax) (Al-Qaradawi, 1999),
awqaf institutions, on the other hand, focus solely on the management of assets (both
liquid and illiquid) voluntarily donated by Muslims for specific purposes (Cizakca,
1998). Both were, however, established with the basic aim of providing social and
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economic safety net, particularly to the poor and needy in Islamic society (Kahf, 1994,
1998; Muhammad, 2010). The imperative of these socio-economic vehicles is duly
emphasized by God (Allah) in the Quran[1]:
And in their wealth and possessions, there is right of the needy (Quran; 51:19).
Help one another in furthering virtue and God-consciousness (Taqwa), and do not help one
another in furthering evil and enmity (Quran 5:2).
The revitalization of awqaf practices had effectively resulted in the establishment of
different forms of awqaf institutions in different parts of the world including corporate,
private (e.g. NGOs) and government controlled entities (Husain, 2007)[2]. Irrespective of
their form of establishment, awqaf institutions are essentially entities with charitable
aims, to which the accountability concept is paramount in the context of their survival.
This necessitates for effective operations, appropriate accounting methods and
transparent reporting being devices reflecting mutawalli’s (awqaf trustee) (Yayla,
2011)[3] accountability to provide collective influence towards awqaf’s survival. Unlike
accountability concept inherent in conventional endowment setting, awqaf institutions
are expected to embrace a more holistic accountability connotation. Mutawallis are
effectively required to observe multiple accountability traits – primary and secondary
(Hisham and Shahul-Hameed, 2006). While the latter is related to the normal managerial
accountability towards waqifs (donor)[4] (Yayla, 2011) and beneficiaries (Ahmad-Zamri,
2010), the former requires mutawallis to observe another form of intangible
accountability – sacred accountability towards Allah. This is premised on the fact
that awqaf operations are effectively governed by Shari’ah (Islamic law) which is
designed by God, to which all Muslims are obliged to adhere to (Lewis, 2001).
Sacred accountability is evidently examinable from the vantage point of Islamic
organizations like awqaf. Its unique attributes and socio-economic implications deserve
due attention; especially the strategic role of accounting and reporting as accountability
tools to enhance ummah’s confidence in current awqaf practices. Mutawalli’s
accountability is even more crucial in the case of cash awqaf where donated liquid
assets (i.e. cash) are collected, pooled and administered. Additionally, given the multiple
accountability traits, mutawalli’s unique position in awqaf arrangement and the
importance of maintaining ummah’s confidence towards awqaf institutions and
practices meant that the role of accounting and reporting for awqaf transactions are
apparently imperative. Thus, proper management of awqaf assets, appropriate
accounting methods and transparent reporting of awqaf transactions should therefore Accountability in
facilitate the upholding of both primary and secondary accountabilities. the sacred
It is envisaged that the additional layer of intangible accountability to the Creator
(Allah) in the sacred accountability framework governing awqaf would ensure and context
enhance the effective functioning of its operations. Hence, examining current
management, accounting and reporting practices in awqaf institutions technically
helps in assessing the extent of mutawalli’s accountability in ensuring the adherence of 89
awqaf practices to Shari’ah requirements, thereby enhancing ummah’s confidence
towards awqaf institutions. This will in turn ensures the survival of awqaf institutions
to serve the ummah’s socio-economic objectives.
Despite the importance of awqaf institutions and the unique role of accountability,
prior research on awqaf has been rather fragmented and relatively under-developed
compared to both secular and other faith-based charity institutions (Al-Qaradawi, 1999;
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Elsergany, 2010; Hamid, 2003; Iqbal, 2000; Mohammad-Akkhtar, 1983; Namazi, 2010;
Hyndman, 1990; Hyndman and McDonnell, 2009; Sinclair et al., 2010)[5]. The literature
on awqaf generally covers the historical aspects (Cizakca, 2004; Razali, 2004), legislations
(Khalid, 2002; Khan, 2002; Siti-Mashitoh, 2006), administration (Hashmi, 1984;
Yayla, 2011; Zainal-Abidin, 1999) and awqaf practices across different geographical
boundaries (Haque, 2002; Kuran, 2004; Mohd-Daud, 1999). Research highlighting
contemporary awqaf practices and the accounting and reporting of awqaf transactions
in the context of upholding accountability are noticeably scarce (Adnan et al., 2007;
Ihsan et al., 2006)[6]. This reflects a major gap in the existing awqaf literature.
Hence, this paper attempts to explore the manifestation of dual accountability in the
sacred, religiously embedded institution of awqaf in Malaysia. Specifically, our first
research objective is to investigate the management, accounting and reporting
practices of a cash awqaf administration by an Islamic Religious Council in one of the
states in Malaysia. Second, based on the accountability framework developed by
Stewart (1984), we seek to locate the extent of mutawalli’s accountability as reflected by
its operations, accounting and reporting practices.
Based on triangulation research approach, i.e. interviews and document analysis,
we find the presence of accountability in the management, accounting and reporting
practices but there is scope for further improvement to ensure accountability is
continuously uphold. Further, as transparent reporting of awqaf transactions serves
the objective of ensuring accountability, we propose some fundamental modifications
to the current accounting and reporting system.
Our paper contributes to the wider literature on accountability in faith-based
institutions and the role of trustees. We also contribute to the awqaf literature and
practices by highlighting the much neglected issues of accounting and reporting for cash
awqaf transactions by a cash awqaf institution operating in a country which claimed to
have a more developed economic model among Muslim countries. Our empirical results
(albeit preliminary) on the extent of mutawalli’s accountability in managing cash awqaf
provide the basis for undertaking future in-depth investigative projects on such
religious institutions which would further contribute to the development of appropriate
future policy framework in the specific context of management and methods for
accounting and reporting of cash awqaf transactions.
The paper proceeds as follows. The next section presents discussions on awqaf and
its position in Islam followed by the nature of accounting, reporting and accountability
JIABR in Islam, including issues related to awqaf operations and awqaf accounting and
2,2 reporting practices in Section 3. Section 4 explains the research method employed in
this study. Section 5 presents the research findings followed by discussions of the
findings and suggestions in Section 6. Section 7 concludes the paper.

2. Islam and the institution of awqaf

90 Islam literally means “peace” and “submission” (Abdalati, 1998; Mawdudi, 1992) and a
Muslim is regarded as one who “resigns himself/herself to Allah” (Mohd-Rizal et al.,
2006, p. 127). The Islamic faith considers Allah as the only God (Quran, 112:1) and
accordingly, Muslims must submit to Allah in everything (Baydoun and Willet, 1997).
Such act of bearing witness to the existence and oneness of God is termed as Tawheed
(unity of God) (Faruqi, 1992). By subscribing to Tawheed, Muslims are required to
observe the rule of Shari’ah.
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The Shari’ah emphasizes, among others, the notions of universal brotherhood as well
as social and economic justice, all of which are deeply ingrained in the Islamic teachings
(Kamla, 2009; Lewis, 2001). It requires that all worldly resources are to be utilized in a
manner fulfilling the needs of all human beings and to serve the objective of achieving
equitable distribution of income and wealth (Dogarawa, 2009). Specifically, Islam
provides that wealth should not be circulated only among certain sector of the society –
the rich (Quran, 59:7). To achieve this aim, Islam instituted several religiously based
economic vehicles including zakah and awqaf, which central tenet lies in the Islamic
concept of sadaqah and infaq (Islamic donations). These wealth mobilization techniques
conceptually subscribe to the equivalent concept of charity in the non-Islamic context.
Awqaf is a much older and more established philanthropic vehicle compared to zakah
in Islam (White, 2006) and it differs from zakah in at least four aspects. First, while zakah
falls under the category of compulsory charity, awqaf is voluntary in nature
(Siti-Mashitoh, 2006). Second, awqaf involves using one’s wealth for religious purposes
over and above the minimum and obligated threshold of zakah (Alam, 2010). Thirdly,
awqaf falls under a specific branch of sadaqah termed as Sadaqah-Jarriyyah (good deeds
which continue even after death) (Haq, 1996). In this context, the soul of the deceased will
continue to be rewarded so long as the awqaf assets he/she donated continue benefiting
the beneficiaries. Finally, and in the specific context of social and economic development,
awqaf extends the role of zakah which ensures the flow of cash fund to those in need –
asnafs or zakah beneficiaries. This is done by mobilizing resources (Raimi et al., 2010;
Salim, 2007) and providing the necessary material infrastructure (Dogarawa, 2009).
Waqafa from which the word awqaf (plural of waqf ) is derived literally means
“confinement and prohibition” or causing a thing to stop or stand still (Hassan, 1984).
Linguistically, it takes the meaning of “stand still, hold still, not to let go” (Ahmed,
2004, p. 2). Awqaf is however operationally defined as ownership of assets meant for
specific charitable purposes determined by the waqif(s) by dedicating the assets’
usufruct to identified beneficiaries (Hashmi, 1984; Hassan, 1984; Kahf, 1998)[7]. This
indicates that awqaf technically involves granting of specific assets to specific
beneficiaries on a perpetuity basis, serving specific noble religious objectives.
The extant literature on awqaf acknowledges the existence of two types of awqaf,
namely, ordinary (illiquid assets, e.g. land and buildings) and specific (liquid assets,
e.g. cash) (Baskan, 2002; Cizakca, 1995, 2004; Yayla, 2011), the ownership of which are
legally sanctioned by Shari’ah from being changed, transferred and inherited
(Khan, 2007). Cash awqaf, which was introduced and flourished during the Ottoman Accountability in
Empire (Baskan, 2002; Cizakca, 1995, 2004; Hoexter, 1998; Kuran, 2001), functions as the sacred
financing device to develop and support ordinary awqaf (Sadeq, 2002) as well as
providing credit facilities with repayments being subsequently used to finance social context
services for those in need (Cizakca, 1995).
Extant awqaf literature also indicates the role of mutawalli in awqaf assets
management. The appointment of mutawalli who possesses almost similar conceptual 91
characteristics to that of trustees in conventional endowment context has
systematically created accountability issues which are commonly addressed by the
need for maintaining proper accounting records and transparent reporting practices
(Yayla, 2011). As Tawheed warrants Muslims to submit to Allah in everything
(Baydoun and Willet, 1997), accounting, reporting and accountability in awqaf context
must also therefore falls under the ambit of Islam. This is discussed next.
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3. Accounting, reporting and accountability in Islam

The non-Islamic perspective generally focuses on two worldly roles of accounting and
reporting. First, they function as a basic yardstick for the assessment of managerial
accountability arising from the separation of ownership from control (Bushman and
Smith, 2001; Davis et al., 1982; Gray et al., 1996; Sunder, 1999; Watkins, 2007). Second,
they act as a guiding device for financial reporting users in making economics (Arnold
and Cooper, 1999; FASB Concept Statement), social (Gray, 2002) and environmental
(Buhr, 1998; Hopwood, 2009; Maunders and Burrit, 1991) decisions often devoid of
religious aims. Such roles, drawn from the secular viewpoint, is deemed to be confined
to only worldly aims and purposes (Quattrone, 2004; Jayasinghe and Soobaroyen,
2009)[8] (Shahul-Hameed and Yaya, 2005), neglecting and displacing the holistic
dimension of Islam being a complete way of life.
Prior studies have acknowledged the Islamic conceptualization role of accounting,
reporting and accountability in at least three specific areas (Haniffa and Hudaib, 2002;
Kamla et al., 2006; Lewis, 2001; Napier, 2009). First, Islam locates the position of
accounting, reporting and accountability in the spiritual context. Second, Islam
introduces the notion of sacred accountability (taklif ) based on religious spirit and
finally, it identifies strategic roles of accounting and reporting in ensuring the
achievement of taklif. Central to the conceptualizing process are the main Islamic
concepts of Tawheed, dualism in life and the role of man as Khalifah (vicegerent). These
concepts collectively establish a framework in explaining how accounting, reporting
and accountability as secular activities as currently understood and perceived in the
non-Islamic context (Laughlin, 1988; Shahul-Hameed, 2000; Tinker, 2004) manifest itself
in the Islamic denomination.
The concept of Tawheed principally commands Muslims to worship and submit to a
single God, i.e. Allah (Quran, 112:1-4) who is the Creator (Quran, 6:12-14) who created
humans for the purpose of worshipping Him (Quran, 51:56). To guide Muslims on how
to submit and worship Him, Allah bestowed Muslims with the religion of Islam as a
Dheen – a complete way of life (Al-Buraey, 1990), with Shari’ah as the social (Faruqi, 1992;
Lewis, 2001; Tinker, 2004) and economic (Chapra, 1992; Mohamed-Haneef, 1997; Naqvi,
1981) constitution. Thus, Shari’ah governs the conduct of human’s worldly and spiritual
affairs by rejecting the sacred-profane dichotomy (Al-Attas, 1993; Elmessiri, 1996).
JIABR Accordingly, Dheen necessitates worldly activities including but not limited to
2,2 accounting, reporting and observing accountability to be regarded as an act of worship
(ibadah) (Yaaqub, 2006)[9] (Quran, 6:162-163). This effectively establishes the link between
worldly activities and human spiritual dimension in the Islamic domain. The
non-recognition of sacred-profane divide in Islam is further reinforced through the
concept of dualism in life whereby this world is considered as a transit point during which
92 humans are tested before the eternal journey to the hereafter (Quran, 3:185; 4:77; 6:32; 13:26;
18:7; 57:20). In view of the temporal nature of this world, worldly activities are therefore not
the end for Muslims but are simply means to attain salvation in the everlasting
hereafter[10]. The next eternal world is promised by Allah (Quran, 82:1-4; 84:1-6; 87:17; 88:1;
101:1-5) beginning with the Day of Judgment during which all humans will be resurrected
and judged (Quran, 81:1-14; 82:1-5; 84:1-13). The judgement entails the presentation of a
“report book” (Quran, 36:12; 56:8-10; 58:6; 75:13; 84:7-8) containing the recording of all
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human (in) actions in this world by the assigned angels (Quran, 78:29; 82:11).
The judgement results would subsequently determine whether humans should be
rewarded with heaven (Quran, 76:11-22; 85:11; 88:8-16; 98:7-8) or punished with hell
(Quran, 77:29-33; 78:21-36; 88:2-7). This is central to the accountability concept in Islam
(taklif ) as the eternal reward and punishment in the next world should provide strong
motivations for Muslims to be accountable for their (in) actions in this world
(Mohamed-Haneef, 1997). Additionally, the link between the three worldly elements
(accounting, reporting and accountability) and duality in life can be discerned in the
word hisab or “account” which has been extensively referred to in the Qur’an (Askary
and Clarke, 1997)[11].
The word “account” in Islam conceptually relates to human’s obligations as Allah’s
representative on earth (Khalifah–vicegerent) (Quran, 2:30; 35:39) and has to “account”
to Allah in the hereafter on all matters pertaining to their worldly endeavours
(Askary and Clarke, 1997; Ros-Aniza and Abdul-Rahim, 2003). Human’s appointment
as Allah’s vicegerent effectively position them as trustee (or steward) to Allah’s resources
(the universe) which are granted as reasons (Quran, 6:95; 13:2; 31:20) and means (Quran,
16:14) for worshipping Allah (Mohamed-Haneef, 1997). As vicegerents, humans agree to
assume such responsibility in covenant with Allah (Abdul-Rahim, 2003), reinforcing
the centrality of accountability in life, especially for Muslims. Thus, Islam considers the
concept of Tawheed, dualism in life and human vicegerency as equally important in
contributing to the establishment of a more comprehensive and sacred accountability
framework, i.e. taklif.
Unlike accountability in non-sacred context, taklif encompasses both primary
and secondary accountability (Hisham and Shahul-Hameed, 2006) with the former
capturing the essence of Dheen whereby worldly activities are considered as ibadah if
resources granted by Allah are utilized for the purpose of pleasing Him by way of
benefitting society. Thus, both accounting and reporting become enabling tools for
humans to evaluate their sacred accountability to both fellow humans and Allah
(Shahul-Hameed and Yaya, 2005). Table I depicts the implications of Tawheed, dualism
in life and vicegerency on accounting, reporting and accountability.
The above presents the essence of the new paradigm in accounting, reporting and
accountability framework termed “Islamic accounting”. It was initially developed to
facilitate the accounting and reporting for Islamic banking and finance transactions but
later include transactions by other institutions operating within Shari’ah parameters.
Accountability in
Implications on accounting, reporting
Concepts Conceptualization and accountability the sacred
(1) Tawheed
Oneness of Allah Allah is the only God to be worshipped The conduct of worldly and spiritual
and submitted by humans affairs are guided by Shari’ah
Allah is the Allah creates everything for a purpose, All activities must be considered as an 93
Creator i.e. to worship Him act of worship (ibadah)
Worldly creatures are resources, Accounting, reporting and
reasons and means to worship Allah accountability are not worldly affairs
disparate from spiritual engagement
Islam as Dheen Islam as a complete way of life with Accounting and reporting are means to
Shari’ah as the governing rule and the worship Allah
rejection of secularism, i.e. sacred-
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profane dichotomy
(2) Dualism in life The existence of the everlasting Islamic accountability concept based on
hereafter and the Day of Judgment the notion of taklif
where human’s performance in this Accounting and reporting as
world is being judged, i.e. accountability accountability tools to ensure
Worldly (in) actions determine human’s observance of taklif
fate in the hereafter (heaven or hell) Need to account to Allah for all worldly
(in) actions. Reward and punishment in
the everlasting hereafter should
motivate Muslims to be accountable for
their (in) actions in this world
(3) Human as Resources (the universe) are granted to Reiterates and reinforces the centrality
Vicegerent human as reasons and means for of Islamic accountability (taklif ) Table I.
worshipping Allah concept in life The implications of
Human appointment as vicegerent Islamic concepts on
reflects trusteeship in covenant with accounting, reporting and
Allah accountability

Islam therefore provides a starting point of departure from the focus of accounting and
reporting to facilitate the secular wealth maximization aims (Kamla, 2009) to also
include the ethical (Briloff, 1986; Francis, 1990)[12] (Gambling and Karim, 1991) and
sacred accountability (Lewis, 2001) beyond single worldly concerns (Baydoun, 2000).
Accordingly, given the spiritual attachment and dual form of accountability, it is
expected that the roles and functions of accounting, reporting and accountability in
awqaf operations would be wider than its conventional endowment counterparts.

3.1 Accounting, reporting and accountability implications on mutawalli’s roles

Awqaf, like other charity entities, practically operate in low value conflict and high trust
environment (Laughlin, 1996). Accountability is thus imperative for such entities to
ensure public confidence and trust as well as continuous flow of funds to support their
activities and survival (Laughlin, 1996; Sinclair et al., 2010). Owing to the unobservable
fiduciary, moral and economics relationship between charity organizations and their
donors, accountability serves the purpose of measuring, evaluating and reporting
trustees’ performance (financial or otherwise) (Cutt and Murray, 2000).
The extant literature on faith-based charity organizations across different
theological beliefs have also acknowledged sound accounting and transparent
JIABR reporting practices as common mechanisms through which accountabilities in such
2,2 organizations could be discharged and assessed (Connolly and Hyndman, 2004;
Jayasinghe and Soobaroyen, 2009; Hisham and Shahul-Hameed, 2006; Laughlin, 1990;
Quattrone, 2004; Steccolini, 2004; Van-Staden and Heslop, 2009). Specifically, it could
be achieved by providing timely, relevant and consistent (non) financial information to
stakeholders (Keating and Frumkin, 2000).
94 Figure 1 shows the framework linking accounting and reporting to the dual
accountability expected of mutawallis in awqaf arrangement.
Being a trustee in awqaf arrangement, the mutawalli is accountable to both waqif and
beneficiaries[13]. Such secondary accountability could be visibly viewed and objectively
assessed through Channel A, consisting of the observance of awqaf deeds and also by
practising sound accounting and transparency in reporting. It is in this context that the
presence of accounting and reporting legislative interventions applicable to charity
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organizations[14] helps in reinforcing the importance of financial reporting being legal

instruments to ensure trustees’ accountability in such organizations. Channel B, on the
other hand, depicts the Islamic paradigm which effectively imposes demand for all
humans to be accountable to Allah and hence, waqif, mutawalli and beneficiaries
(ummah) are all accountable to Allah for their worldly (in) actions. Through this channel,
sound accounting and reporting transparency would function as devices enabling waqif
and beneficiaries to indirectly determine whether mutawalli has discharged his/her
primary accountability to Allah and also serve as means for mutawalli to demonstrate
both his/her primary and secondary accountabilities.

3.2 Issues in accounting and reporting for awqaf

Most literature on awqaf is silent on technical issues surrounding accounting and
reporting of awqaf transactions. Additionally, in the absence of specific financial reporting
standards for awqaf (being a charity, not-for-profit entity), mutawallis (especially in
Malaysia) have only the financial accounting and reporting framework meant for
profit-making corporations as their reference. This raises a number of theoretical and
practical issues in so far as awqaf transactions are concerned. We consider below two main
issues with regards to accounting and reporting for awqaf operations.
3.2.1 Objective of accounting and reporting, accounting terms and reporting format
for awqaf. Accounting primarily helps in constructing (social) reality (Hines, 1988) by
reflecting the nature of reality for transactions it represents (Maurer, 2002). Accordingly,
the objective and model of accounting and reporting for awqaf transactions must
therefore reflect the charitable, not-for-profit reality it posses. Philanthropic motive

(Awqaf Trustee)


Figure 1.
Accounting, reporting and A B
accountability in awqaf
Source: Authors Own
of awqaf effectively renders the decision usefulness (DU) objective for economic decision Accountability in
making less important. While the primary aim of providing relevant information for the sacred
decision-making purposes remains valid, the target users who are expected to utilize the
information in making the necessary decisions and the types of decisions they make, context
are no longer consistent with the operational nature of awqaf transactions.
Target users in the context of awqaf include not only the waqifs (current or
potential) but also the whole ummah, and the decisions are no longer solely economics 95
in nature. Since awqaf practices have a religious root, decisions arising from reported
information do not only aid in making economic decision of whether to be involved in
awqaf practices but also Shari’ah decisions especially in determining whether awqaf
operations have been conducted within Shari’ah parameters and equivalently
important, whether mutawallis have appropriately discharged their primary (to Allah)
and secondary (to waqifs and beneficiaries) accountabilities.
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The conceptual issues associated with the adoption of DU in awqaf also meant that
many concepts, accounting terms and reporting format applied in corporate (for-profit)
context to be of little relevance in catering for the unique nature and structure of awqaf
transactions. For instance, the concept of profit as embedded in for-profit organizations
is also arguably irrelevant in the third sector (specifically charities), given the absence
of surplus over revenue available for distribution (Wells, 2006). Additionally, the
prevailing accounting term “assets” which is conceptually related to “future economic
benefits” (MASB Financial Reporting Standard 101) is also inconsistent with awqaf
operations. Neither waqifs who provide the inward cash flows to cash awqaf fund nor
the mutawallis who manage the awqaf fund, are expected to directly reap the accruing
future benefits from the use of the assets.
Furthermore, the reporting format using the “profit and loss account” is also unsuitable
in the context of awqaf since they operate as not-for-profit institutions which could only
generate either “surplus” or “deficit” instead of “profits” or “losses”. Moreover, the concept
of “deficit” would also be of little relevance to awqaf (particularly cash awqaf ) as the
mutawalli’s disbursing capabilities are effectively bounded by the fund available based on
the amount collected. Hence, applying the economic model of accounting and reporting
(which emphasizes on profit) to awqaf proves to be problematic.
3.2.2 The nature of cash awqaf collections. In the case of cash awqaf operations,
monies collected are conceptually “liabilities” to the mutawalli since they have to manage
the fund according to the pre-specified aims stipulated in the awqaf deeds. Thus, cash
awqaf cannot be considered as income to mutawallis but rather as an income to the fund
which the mutawalli is managing. In this regard, the adoption of fund accounting is
arguably more relevant to better reflect the conceptual underpinning of mutawalli-awqaf
fund relationship and the role of mutawalli as trustee rather than the owner of cash
awqaf fund.

4. Research method
In view of the exploratory nature of our research, we adopt the qualitative approach
whereby data is gathered based on physical observations and archival documents
in the natural setting. It provides rich data for deeper understanding of the identified
phenomenon (Leonard and McAdam, 2000) which cannot be explained by any
measurement or quantification process commonly used in quantitative research
(Zickmund, 2000). The choice of case study method is deemed appropriate as we seek
JIABR to have in-depth understanding of real situation, thus providing accurate perspectives
2,2 whilst ensuring validity of observations (Taylor and Bogdan, 1984).
We analyzed the financial reports prepared by the selected cash awqaf institution
for a six-year period (2000-2005), allowing us to observe and analyze any potential
accounting and reporting patterns that emerge during the period. This eliminates
potential contextual errors and further refines the research method and design (Cooper
96 and Schindler, 2003). We further supplement our archival data observations with
semi-structured and in-depth interviews. This involved face-to-face discussions with
mutawalli which is a much better method of soliciting information given the two-way
communication (Kahn and Cannell, 1957). Furthermore, the in-depth interviews
provide rich data compared to merely observing mutawalli’s activities and also allow
for necessary follow-up procedures for clarifications (Marshall and Rossman, 2006),
i.e. it provides answers to potential “why” and “how” questions.
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Hence, a journal which records all data collected is systematically maintained

including the electronic recording and transcriptions (verbatim) of all interviews.
These avoid losing or misinterpreting any important parts of the interviews which
could adversely affect data analysis process (Leonard and McAdam, 2000). We adopt
multiple analysis methods including content analysis, descriptive statistics and
cross-tabulation. Such triangulation approach aims at addressing both the reliability
and validity concerns in qualitative research (Cooper and Schindler, 2003; Leonard and
McAdam, 2000; Taylor and Bogdan, 1984). In locating mutawalli’s accountability
based on the selected accountability framework (Section 4.2), we further supplement
the process with two specific ratio calculations (Sections 5.3.1 and 5.3.2). This provides
quantifiable measure of accountability in justifying our process of identifying and
locating mutawalli’s accountability within the selected framework.

4.1 Context and sample

We focus on a single cash awqaf institution in one of the 14 states in Malaysia
(Abdul-Rahim and Goddard, 1998)[15]. The Federal Constitution states that all
religious matters are state matters to which the Sultan (the State’s Constitutional Head)
is responsible with the exception of four states without the Sultan (Penang, Malacca,
Sabah and Sarawak). The administration of religious matters in these four states is
assumed by the Yang Di Pertuan Agong (The Majesty) who is selected on a rotation
basis every five years from among the Sultans. Accordingly, several administrative
institutions at both state (e.g. State Islamic Religious Councils (SIRCs)) and federal
levels (e.g. Islamic Development Department – JAKIM) were gradually established to
facilitate this administrative framework.
The early awqaf practices in Malaysia were mainly concentrated on illiquid assets
such as mosques and religious schools (Siti-Mashitoh, 2006) with mutawallis being
appointed from among the leaders in the society (Razali, 2004). With the proliferation of
philanthropic activities among Malaysian Muslims and the advent of new public
management philosophies, the government decided to centralize the management of
awqaf practices by enacting relevant laws empowering SIRCs to assume trusteeships
of all awqaf assets. This effectively renders SIRCs to become the sole mutawalli to all
assets endowed under the awqaf system in Malaysia.
The SIRCs currently handle both normal (illiquid assets) and cash awqaf (share
awqaf ). The latter was formally legalized following the approval of Fatwa
(religious decree) Council in April 2007 and operates in a manner whereby cash Accountability in
endowments from the sale of awqaf share certificates are pooled and used for specific the sacred
religious purposes as determined by the respective SIRCs. Currently, only four SIRCs
in the state of Selangor, Johor, Penang and Pahang have introduced cash awqaf context
Malaysia’s current legal settings with regards to Islamic matters based on the
British designed Federal Constitution have effectively given rise to significant 97
differential levels of operations, administrative and regulatory procedures across
SIRCs in different states. In view of this and given the exploratory nature of our study,
we therefore opine that analyzing accounting, reporting and accountability issues in a
single organizational setting systematically controls for various “noises” arising from
multiple settings approach which could confound the results and analysis thereof.
Hence, we limit our focus on a single SIRC managing cash awqaf operations.
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4.2 Assessing accountability using Stewart (1984) framework

To assess whether accountability has been delivered by our selected cash awqaf
institution, we adopt the established accountability framework developed by Stewart
(1984). This framework is visualized in the form of a “ladder” covering both contractual
and communal accountability reflecting output quality at different levels (Hayes, 1996).
The four levels are:
(1) fiscal (probity and legality) accountability which is concerned with whether
funds collected were spent as planned and/or for authorized purposes;
(2) process accountability which is concerned with whether stipulated procedures
have been properly followed;
(3) programme accountability which is concerned with whether activities
undertaken have achieved its intended results; and
(4) policy accountability (accountability for priorities) which is concerned with
whether the organizations are fulfilling user needs appropriately.

According to Torres and Pina (2003), the quantitative nature of financial reporting
could be located on the first ladder (fiscal accountability) as it provides relevant
information reflecting the entity’s current financial strength as well as future
sustainability[16]. The other three accountability levels (process, programme and
policy) could also be examined through financial reporting activities which provide
the necessary qualitative information disclosure. Therefore, both quantitative and
qualitative dimensions of financial reporting effectively facilitate the assessment of
various accountability levels in awqaf institutions. We adopt Stewart’s (1984) public
accountability framework for at least two specific reasons. First, it accommodates our
aims of analyzing mutawalli’s accountability by further cascading accountability into
four different identifiable dimensions (fiscal, process, programme and policy). Second,
the identifiable dimensions are also arguably supportive of our developed framework
linking accounting, reporting and accountability (Figure 1) whereby it also reflects
mutawalli’s multiple accountability traits.
We take cognizant of the fact that Stewart’s (1984) framework falls short of directly
locating mutawalli’s primary accountability. Nevertheless, we consider mutawalli’s
observance of secondary accountability as tantamount to simultaneously observing
JIABR his/her accountability towards Allah as Muslims are commanded to take care of both their
2,2 relationship with other fellow humans as well as with Allah (Quran, 3:112). In this regards
and in the specific context of awqaf arrangement, discharging accountability towards
waqifs and beneficiaries is considered as means for mutawalli to observe accountability
towards Allah since the worldly activities of properly managing awqaf assets are
effectively an act of worship by virtue of the Tawheedic concept. Thus, Stewart’s (1984)
98 framework provides indirect assessment of mutawalli’s primary accountability.

5. Research findings
5.1 The cash awqaf: legal, administrative and operational background
The existence, operations, administration, accounting and reporting aspects of both
normal and cash awqaf are governed by the State’s Awqaf Share Act (1998) (hereafter
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“the Act”) gazetted on 12 March 1998[17]. The cash awqaf which began its operation in
2000 effectively forms an integral part of the SIRC’s normal awqaf system (illiquid
assets), allowing Muslims without physical assets to participate in such philanthropic
activities. The administrative aspect of the cash awqaf unit is consistent with the
provisions in the Act (1998)[18] and is currently managed by a division within the SIRC
whereby the state’s Sultan is the SIRC’s head and all administrative matters including
that of planning, implementation and managing of cash awqaf fund are under the
responsibility of the Timbalan Yang Dipertua (Deputy Head), assisted by one
“Economic Officer” (EO) with four support staffs.
In the case of cash awqaf, the Act allows the SIRC to accept awqaf participation in
terms of cash based on pre-agreed purposes of either “to finance the maintenance and
development of awqaf properties managed by the SIRC” (Section IV, Rule 9(1)[a])
and/or “to finance any projects or development activities approved by the SIRC”
(Section IV, Rule 9(1)[c]). These effectively form the distribution channels through
which the collected cash awqaf monies could be utilized. Table II presents the inflow
and outflow of fund.
It can be seen that the receipts of fund are mainly from the public. In terms of
disbursements, the amount and the recipients/beneficiaries vary each year. The reason
for the variation was due to the SIRC having to prioritize the disbursements according
to the critical needs of the ummah as explained by the EO:
We focus on critical areas where the ummah needs most, such as education, health and the
upkeep of Muslims’ places of worships including the Mosques and suraus.
As part of cash awqaf operations, the Act further allows the SIRC to invest certain
portion of the cash awqaf collected with the aim of further strengthening the cash
awqaf fund. Table III presents the investment activities by the SIRC. It can be seen that
substantial portions of cash awqaf fund is held in fixed deposits or investment
accounts (Mudharabah) while the remaining unutilized fund is held as bank deposits in
local Islamic banks.

5.2 Accounting and reporting practices

The financial management, accounting and reporting practices of the SIRC’s cash awqaf
unit are guided by Section IV of the Act (Rules 13 [1-5]). It states that the SIRC must
prepare and maintain “complete and correct” accounts of all awqaf monies collected.
Accountability in
2000 2001 2002 2003 2004 2005
the sacred
1. Cash awqaf collection context
(a) Public 69,830 73,712 287,797 110,882 100,171 134,669
(b) State government – 100,000 100,000 100,000 – –
(c) Private organization – 113,000 – – – –
Total cash awqaf income 69,830 286,712 387,797 210,882 100,171 134,669 99
2. Cash Awqaf investment income – 4,279 15,335 22,811 22,964 21,608
Total cash awqaf income 69,830 290,991 403,132 233,693 123,135 156,277
Accumulated cash awqaf income 69,830 360,821 763,953 997,646 1,120,781 1,277,058
3. Disbursements
(a) Mosques/Surau – 6,000 15,000 18,000 39,500 21,000
(b) Health – – 84,602 71,166 4,000 –
(c) Education – – 16,000 12,000 8,000 3,000
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(d) Others 150 39 – – – –

Total 150 6,039 115,602 101,166 51,500 24,000
Surplus 69,830 284,952 287,530 132,527 71,635 132,277
Accumulated surplus 69,830 354,632 642,162 774,689 846,324 978,601
4. Percentage of changes in
(a) Cash awqaf collected (%) – 319 35 246 2 53 34
(b) Cash awqaf investment income (%) – 194 258 49 0.7 26 Table II.
(c) Disbursements (%) – 3,926 1,814 212 2 49 253 Cash awqaf receipts,
expenditures and
Source: SIRC’s Annual Reports 2000-2005 disbursements

2000 2001 2002 2003 2004 2005 Total

1. Bank deposits 69,680 54,632 342,162 74,689 146,324 278,601 966,088

2. Mudharabah account
(a) BIMB – 200,000 200,000 200,000 200,000 200,000 1,000,000
(b) Bank Rakyat – 100,000 100,000 500,000 500,000 500,000 1,700,000
69,680 354,632 642,162 774,689 846,324 978,601 3,666,088
Table III.
Source: SIRC’s Annual Reports 2000-2005 Cash awqaf investments

The SIRC is also expected to publish in “gazette form”, “soonest possible” after the year
end, three types of statements (Rules 13[3]), namely:
(1) a statement detailing all activities undertaken during the year;
(2) a revenue and expenses account for the year; and
(3) the cash awqaf fund’s balance sheet.

The Act further requires the SIRC to have all the above financial statements audited
by the Federal Government’s Auditor General Department (Rules 13[5]). Currently,
the above accounting and reporting responsibilities are assumed by the EO under
the supervision of the Deputy Head. At the SIRC level, the accountant (a certified
practicing accountant) advises the SIRC’s head on matters related to financial
management, accounting and reporting for both awqaf operations.
JIABR Based on annual reports review and interviews with EO, several important features
2,2 of accounting and reporting practices for cash awqaf transactions were observed. The
SIRC prepares and maintains separate financial statements for each type of awqaf,
with accounting treatments on the transactions conforming to the relevant Malaysian
financial reporting standards issued by the Malaysian Accounting Standard Board
(n.d.) for corporate (for-profit) organizations. However, the reporting formats are
100 self-designed. The use of self-designed reporting format was explained by the EO:
Our main problem associated with reporting lies on the absence of established reporting
standards for adoption. Accordingly, we self-designed the reporting format.
The recording of all accounting transactions for cash awqaf is done manually since
investment in a computerized accounting system is still under consideration by the
SIRC. This has prompted the SIRC to practice segregation of duties as part of its
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internal control system. The EO explained:

We segregate critical accounting and reporting duties among our support staffs because we
want to ensure strong internal control is in place. This is important as we are working in the
non-computerized environment.
The cash awqaf financial statements are noted to be very basic, reflecting the
non-voluminous nature of its transactions. It consists of the normal “profit and loss
account” and a “balance sheet”, supplemented with additional notes for further
explanations. These documents are prepared on a monthly and yearly basis with the
yearly documents being audited by the Government’s Auditor General Department
and subsequently tabled at the annual SIRC general meeting for endorsement. The
cash awqaf collection is labelled “total cash awqaf income” in the financial statement
and the sources of reduction in cash awqaf fund are in the form of disbursements
consisting of four major types (Table I). Interestingly, the salaries of staffs handling
cash awqaf administrative duties, other utilities and related overheads are not
considered as “expenses” and hence not recorded as these are absorbed by the SIRC
through fund provided by the government.
Perhaps, the most notable feature of the SIRC’s cash awqaf reporting is its lack of
disclosure on important qualitative information. Specifically, there was no further
disclosure on details related to “expenditures and disbursements” items which various
stakeholders particularly the waqifs (current and potential) would be interested to
know. Periodical statements informing the ummah on the position and movement of
cash awqaf fund are also unavailable for public scrutiny.

5.3 Extant of accountability

5.3.1 Input-output ratio or collection-disbursement ratio. Our first indicator for
measuring and locating mutawalli’s accountability in terms of efficiency is represented
by ratio of output to input, indirectly reflecting cash awqaf fund retention ratio. The
ratio effectively indicates the extent to which cash awqaf fund collected had been spent
or disbursed according to what Shari’ah has prescribed and waqifs have agreed to.
As mutawallis are entrusted to manage the cash awqaf fund, measuring how well the
collected fund is being managed, specifically in terms of its distribution
and disbursement methods, helps in directly assessing mutawalli’s accountability.
Table IV presents our analysis on the SIRC’s efficiency.
It can be seen that the output-input ratios fluctuated considerably across the Accountability in
six-year period. The retention ratios are observed to be high during the first two years the sacred
(2000 and 2001), reflecting the newly established status of the SIRC’s cash awqaf unit.
A reasonable period is required to identify target recipients and streamlining context
distribution mechanisms as the same recipients could also become asnafs under the
zakah system. This is explained by the EO:
Our first two years of operations involve streamlining the distribution channels and mechanisms 101
as recipients could also benefit from other charitable vehicles such as zakah. We want to fully
optimize the usage of awqaf fund so that all sections of the ummah could get the benefits.
The disbursement ratios further indicate that distributions never exceeded half of the
amount collected to ensure the sustainability of the cash awqaf fund. Moreover, the
SIRC adopts an investment policy whereby all remaining cash awqaf fund is to be
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invested in Islamic investment accounts to generate reasonable returns to further

maximize the fund. This effectively requires the SIRC to draw appropriate dividing
lines between disbursing the amounts collected to meet the pressing economic, social
and religious needs of the ummah and the equivalently important mission of ensuring
sustainability with respect to cash awqaf system. The EO explained:
While we focus on optimizing the usage of awqaf fund in meeting the ummah’s critical
economic, social and religious needs, we also ensure that this sacred system could be
sustainable and viable in the long run.
5.3.2 Return on investment. Our second measure of mutawalli’s accountability is the
rate of returns on invested cash awqaf fund. This simple but widely used performance
measure in investment performance studies provide indirect indications with regards
to mutawalli’s accountability premising on the fact that the investment objectives of
cash awqaf fund should be that of maximizing the managed fund and hence, the rate of
returns on investments should also be their main consideration besides Shari’ah
Table V presents the return on investments (ROI) over the five-year period.
Information on invested amount was derived from Table III and the investments

2000 2001 2002 2003 2004 2005

Input 69,830 290,991 403,132 233,693 123,135 156,277

Output 150 6,039 115,602 101,166 51,500 24,000
Ratio (%) (output /input) 0.2 2 29 43 42 15 Table IV.
Results on cash awqaf
Source: SIRC’s Annual Reports 2000-2005 efficiency analysis

2000 2001 2002 2003 2004 2005

Investment returns – 4,279 15,335 22,811 22,964 21,608

Invested amount – 300,000 300,000 700,000 700,000 700,000
ROI (%) – 1.4 5.1 3.3 3.3 3.1
Table V.
Source: SIRC’s Annual Reports 2000-2005 Cash awqaf ROI
JIABR undertaken by the SIRC are all within Shari’ah boundary as only Islamic deposits and
2,2 investment accounts are selected for investments of the cash awqaf fund. It further
reveals that the invested amount increased by more than 100 percent from 2003
onwards, indicating the strengthening of cash awqaf fund. Indirectly, this reflects the
increase in cash awqaf fund available for purposes of distributions as well as
investments. The calculated ROIs are noted to be reasonable and stable across the
102 six-year period. This may be attributed to the nature of Islamic investment accounts
which are relatively safer with low risk attached and hence, gives relatively lower
returns compared to other higher risk investment channels like equity markets.

5.4 Locating mutawalli’s accountability based on Stewart’s “accountability ladder”

Based on Stewart’s (1984) ladder of accountability framework, we present in Table VI
our assessments on the extent of mutawalli’s accountability based on the various
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dimensions specified by the framework. Arguably, all accountability dimensions have

been achieved by the SIRC’s cash awqaf unit based on the identified activities.
Existence of the observable secondary accountability in different dimensions across
the SIRC’s cash awqaf operations indirectly suggests that primary accountability to
Allah has been accordingly observed.

6. Discussions and suggestions

Based on the findings reported in the previous section, we highlight two specific issues
warranting further discussions as we consider them as important in view of their close
connection with the SIRC’s accountability role as the mutawalli managing significant
cash fund. The inability on the part of the SIRC and other stakeholders (e.g. the
financial reporting regulatory authority) to address these issues, in our opinion, would
expose this sacred Shari’ah based economic vehicle at the risk of being unsustainable
in the long run. We further provide suggestions for future public policy formulation.

6.1 Issue I: accounting and reporting

6.1.1 Financial reporting framework, the nature of cash awqaf collections and expenses.
As argued earlier in Section 3.2.1, applying corporate (for-profit) financial reporting
framework to charity entities is inappropriate and does not reflect the reality of awqaf
transactions. Our documentation review and in-depth interview exercises reveal that
the SIRC currently applies the corporate (for-profit) financial reporting framework to
its awqaf operations with cash awqaf collected considered as “income” to the SIRC
being the mutawalli (Section 5.2). Additionally, associated expenses are also not
recognized and hence, reported. The question of whether a portion of cash awqaf fund
could be used to absorb the associated administrative costs needs to be properly
addressed from the Shari’ah perspective.
The SIRC currently treats all related expenses associated with its cash awqaf as
being “subsidized items”, thereby neglecting the matching concept in expenses
recognition. It is recommended that if the practice of “subsidized expenses” is to
remain, a separate note reflecting the treatment of associated expenses at unit level
(Cash awqaf unit) should be included with all relevant costs items being properly
disclosed. This would better reflect the real financial position of its cash awqaf fund.
Indeed, the absence of specific accounting and reporting standard for awqaf effectively
leaves the SIRC to opt for accounting and reporting techniques inconsistent with
Accountability in
Ladder Accountability dimensions Relevant activities identified
the sacred
1 Fiscal: ensuring cash awqaf The cash awqaf fund was used according to its planned context
collected was used (spent/ objectives of:
disbursed) as planned Disbursement. Distributed to areas permitted by
Shari’ah and agreed by waqifs
Investment. A portion of cash awqaf fund was invested 103
in investment channels permitted by Shari’ah, aims at
strengthening fund’s value
2 Process: adherence to stipulated Disbursement and investment. The cash awqaf
procedures operations have complied with:
SIRC’s internal operational disbursement proceduresa
and Shari’ah requirements (in permissible areas);
SIRC’s internal investment procedures and Shari’ah
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requirements (on permissible channels)

Accounting and reporting
Compliance with the act’s provisions with respect to
accounting and reporting and preparing the necessary
3 Programme: whether activities The achievement of both planned objectives:
conducted have achieved the Awqaf operations. Relevant beneficiaries have benefited
intended results from awqaf assistanceb
Investment. The fund value has strengthened over the
years with positive investment returns yearly (Table V)
4 Policy/priorities: fulfilling user Fund usage. SIRC’s policy on fund usage balances the
needs appropriately ummah’s needs (awqaf distribution) and the importance
of strengthening cash awqaf fund (investment) for
future survival and sustainability
Disbursement. SIRC’s disbursement policy prioritizes
three critical sectors (education, health and maintenance
of house of worships) of ummah’s current needs
Investment. SIRC’s investment policy prioritizes
investment channels providing minimum risk exposure
to cash awqaf fund while generating modest returns
Table VI.
Notes: aOur selected SIRC has established internal procedures for both disbursement and investment Locating mutawalli’s
activities; bbeneficiaries were contacted to survey their view as to whether the cash awqaf received accountability based on
had, at least lessen the financial burdens they were facing; all respondents contacted agreed that the Stewart’s (1984)
awqaf assistance provided great relief to their financial burdens “accountability ladder”

its underlying altruistic reality. Hence, the financial reporting regulatory authority,
specifically in Malaysia, needs to expedite the process of developing specific standards
for mutawallis’ guidance.
6.1.2 Issues in reporting. The transparency in awqaf reporting is vital due to its
charity-based status. The quality of awqaf reporting essentially determines its survival
because if stakeholders’ transparency demand can be fulfilled, there is high likelihood
that it will continue to receive endowments. Informative (non) financial disclosure of
awqaf transactions effectively enhances waqifs’ (current and potential) confidence in
both, the awqaf practices and the institutions managing it. Unfortunately, the existing
legislative enactment is rather weak in enforcing the mutawalli to make public disclosure
of its awqaf activities. The subjective wording in the Act (“soonest possible”) with
JIABR respect to the production of annual audited financial statements compromised the
2,2 demand for timely reporting. The limited availability of annual audited financial
statements for public scrutiny further reinforce the exclusivity of such documents,
rendering mutawalli’s accountability and performance difficult to be consistently
monitored and assessed. This potentially weakens mutawalli’s motivation for
demonstrating accountability through quality reporting.
104 Besides the above regulatory issue, the observed quality with regards to
non-financial disclosure by the SIRC equally requires further improvement as it
would strengthen the transparency construct (Stewart, 1984; Leat, 1990)[19] and hence,
meeting the accountability demands by waqifs. For instance, comprehensive qualitative
information relating to the objectives (Gray, 1984)[20] and detailed target awqaf
recipients would certainly enhance ummah’s understanding on awqaf practices and
hence, their confidence in such sacred, religiously rooted activities.
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Consistent with discussion in Section 3.2 earlier, we present our proposed templates
for cash awqaf reporting called “Statement of Cash Awqaf Activities” (SOCAA) in
Table VII and the Cash Awqaf Fund Balance Sheet in Table VIII. Developed based on
fund accounting which records and monitors cash awqaf fund entrusted to mutawalli,

The SOCAA for the year ended 2010 Managed by: SIRC of PQRS
2010 2009
No. Items Note RM RM RM RM

1 Cash awqaf collected XXX XXX

2 Investment income XXX XXX
3 Total cash awqaf fund available XXX XXX
4 Disbursements (XXX) (XXX)
5 Expensesa (XXX) (XXX)
6 Net movement in cash awqaf fund XXX XXX
7 Total cash awqaf fund brought forward XXX XXX
8 Total cash awqaf fund carried forward XXX XXX
Table VII.
The SOCAA template Note: aAssuming expenses are NOT absorbed by the SIRC

The cash awqaf fund balance sheet as at 31 December 2010 Managed by: SIRC of PQRS
2010 2009
Items Note RM RM RM RM

Fixed assets: tangible XXX XXX

Current assets
Cash at bank and in hand XXX XXX
Investment deposits XXX XXX
Total current assets XXX XXX
Current liabilities (XXX) (XXX)
Net current assets XXX XXX
Net assets XXX XXX
Table VIII. The cash awqaf funda XXX XXX
The cash awqaf fund
balance sheet template Note: aAs per item no. 8 in Table VII
it conceptually emphasizes accountability rather than profitability (Van-Staden and Accountability in
Heslop, 2009), consistent with the not-for-profit nature of awqaf institutions. the sacred
6.1.3 Computerized accounting and reporting system. While technological
advancement in accounting and reporting provides a push factor for the context
systemization of accounting and reporting processes in many corporate and public
organizations, the SIRC maintains the traditional manual approach of recording and
reporting its cash awqaf transactions. This may be attributed to the non-voluminous 105
nature of transactions involved. However, the systemization of accounting and reporting
activities will benefit the SIRC in terms of its internal control while improving efficiency
and effectiveness of all accounting and reporting activities (Borthick, 1996; Sutton,
2000). It also lessens the SIRC’s reliance on human capital which could be better
channelled to other critical areas such as promotional and educational activities.
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6.2 Issue II: operational-disbursements issue

The findings on cash awqaf disbursements reported in Table I (item 3) indicate the
concentration of distribution in three main sectors, namely health, education and the
maintenance of mosques/surau. These sectors also received due attention through
the Islamic instrument of zakah. Hence, instead of having both zakah and awqaf
institutions concentrating on the same sectors, the SIRC should further streamline its
choice of distributional sectors. Perhaps, it should focus its attention on areas which could
stimulate ummah’s economic activities. Prior awqaf practices in other Islamic countries
(Section 2) include the channelling of cash awqaf fund into “capital fund” for business
start-up financing (Cizakca, 1995), thereby lessening the burden of borrowing costs
imposed by the for-profit banking institutions (Islamic or otherwise).
This could be an option to be considered as it has never been practiced in Malaysia.
It effectively facilitates ummah’s efforts to earn a living, and consequently, changing
their economic status from being recipients of charity or zakah into donors or
endowers. Verily, Allah prefers Muslims to give more instead of receiving more (Quran,
2:177). Alternatively, the pooled cash awqaf fund could also be used to build
multi-purpose complex (one-stop-centre) including that for Islamic administrative
activities, training, shelters for destitute and new converts, leisure, business centres as
well as centres for religious activities (Husain, 2007)[21]. These allow for the efficient
administration and streamlining of Islamic activities by having all related activities for
the betterment of the ummah under one roof.

7. Summary and conclusion

Religiously rooted charity and not-for-profit organizations provide a vantage point in
studying the intermingling issues of accounting, reporting and accountability. Thus,
awqaf institution as an Islamic charity entity presents a unique setting worthy of
investigation. We studied one cash awqaf institution operating in Malaysia covering
the areas of accounting, reporting and accountability over a period of six years. The
practical imperative of our study lies on the fact that awqaf survives on ummah’s
philanthropic instincts, which is technically influenced by their confidence towards
awqaf practices itself and the institutions managing the awqaf fund. Hence, we argue
that the religious root of awqaf and the concern over its survival reinforce the practical
imperative of accountability and reporting transparency by mutawalli.
JIABR Since accountability involves processes of giving account to specific authorities for
2,2 one’s (in) actions or (mis) conducts (Roberts, 1991; Roberts and Scapens, 1985;
Williams, 1987), we therefore considered the SIRC’s accounting practices and its
subsequent quality of reporting as the observable accountability devices reflecting its
accountability level. In general, our empirical results, based on triangulation research
approach, suggest that accountability does exist in different dimensions (based on
106 Stewart’s (1984) accountability framework) across the SIRC’s cash awqaf operations.
However, we also identify several issues (Section 6) worthy of debate to which it
presents potential rooms for further refinement and improvement in the areas of
management, accounting and reporting of cash awqaf. These we believe cannot be
ignored, for they represent the risks of negotiating non-accountability, with serious
repercussions in both the temporal world and the everlasting hereafter.
We recognized that no study is without its limitations and we acknowledged that
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our study also suffers from several limitations. First, we only focused on a single
mutawalli managing one aspect of awqaf operation – cash awqaf. Second, we adopt a
single accountability framework developed by Stewart (1984) in examining and
locating mutawalli’s accountability. While we recognize that these render our results to
be context specific and hence non-generalizable, we however believe that these
systematically offer opportunities for future research. Overall, we consider our study
as important to the development of awqaf in the future which will greatly depend on
good governance and reporting transparency by awqaf institutions.

1. Muslims considered Qur’an (n.d.) as the word of Allah based on God’s proclamation in the
Qu’ran itself (Quran, 81:19).
2. An example of private awqaf institution is that in Singapore (see Husain, 2007), while NGOs
led and government controlled awqaf institutions are common in Indonesia and Malaysia,
3. See Yayla (2011) for an excellent discussion on the definition, roles and the nature of
mutawalli’s appointment.
4. This accountability framework is based on the setting where waqifs are not managing assets
they donated. Otherwise, the secondary accountability dimension is irrelevant and
5. Additionally, research on awqaf institutions is rather limited compared to the bayt-al-mal
institutions which have been extensively studied due to its closed connection with the
Islamic institutions of zakah (or tithes) (e.g. Al-Qaradawi, 1999; Elsergany, 2010; Hamid, 2003;
Iqbal, 2000; Mohammad-Akkhtar, 1983; Namazi, 2010). For discussions of research related to
non-Islamic charities, see among others Hyndman (1990), Hyndman and McDonnell (2009)
and Sinclair et al. (2010).
6. The only available literature specifically on awqaf financial reporting is the theoretical
papers by Adnan et al. (2007) and Ihsan et al. (2006).
7. Based on definitions by renowned religious scholars, Sheikh Abu Zahra and Qadi Abu Yusuf.
8. Nevertheless, there has been literature that argues to the contrary. Quattrone (2004) in the
case of Christianity, and Jayasinghe and Soobaroyen (2009) in the case of Hinduism and
Buddhism, provide evidence of the intertwined nature of financial reporting, accountability
and religion in their respective theological beliefs.
9. Worldly activities will become an act of worship in the presence of two elements: Accountability in
(1) if intention (niyyah) is purely for the sake of seeking the pleasure of Allah; and (2) if
worldly activities are conducted within the ambit of Shari’ah, i.e. permissible by the religion. the sacred
See Hadith on “Actions are judged by intentions” narrated by Imam Bukhari and Muslim context
(e.g. Yaaqub, 2006).
10. This does not suggest that Muslims should take the worldly affairs lightly. Allah in fact
commands Muslims to strive hard in attaining success in both worlds by leading a balanced 107
life of getting material comfort in this world and seeking happiness in the hereafter
(Quran, 2:201; 28:77; 62:10).
11. Repeatedly mentioned in the Holy Qur’an in excess of eighty times (Askary and Clarke,
12. We take cognizant of the fact that discussions on accounting and morality do exist in
the non-Islamic context (e.g. Briloff, 1986; Francis, 1990) but the arguments are
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centred mainly on human to human relationship without spiritual attachment as in the

case of Islam.
13. We thank the first reviewer who pointed out that such accountability dimension is context
dependent whereby the framework is only applicable to situation where mutawalli is a
different natural entity from waqifs, which are common and legally acceptable practices in
Malaysia. In the case where the mutawalli is also a waqif, then the mutawalli is directly
accountable to beneficiaries and Allah.
14. For example, the financial reporting guideline “Statement of Recommended Practices” on
charity in the UK and the relevant GAAP related to non-profit entities in the USA.
15. We have to observe the state’s anonymity despite earlier agreement to the contrary.
Throughout the course of our negotiation, we consider this as an illustration of Abdul-Rahim
and Goddard’s (1998) theorization that accounting and reporting in Malaysia’s SIRC is
deeply intertwined with the element of power. In our case, our study on elements of
accounting, reporting and accountability in these institutions are also intermingled with
power and the struggle to maintain the reputation of those in power.
16. The relevant information includes sources of the entity’s resources and channels to which it
was used, as well as resources left for use in future period.
17. Act No. 208, (36/65): The Government Gazette, Islamic Administrative Enactment, Vol. 51
No. 6, pp. 30-44.
18. Section IV, Rule No. 10(1&4).
19. In the context of Stewart’s (1984) “Accountability Ladder”, qualitative information
conceptually provides indications with regards to process and program accountability as
well as accountability for priorities (Leat, 1990).
20. Charities are in better position to provide quality qualitative reporting given the presence of
established specific aims which allows for the establishment of clear defined objectives and
the appropriate accountability measures (Gray, 1984).
21. One good example in this context could be found in Singapore, see Husain (2007).

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About the authors

Hairul Suhaimi Nahar obtained his PhD from Universiti Putra Malaysia, Master of Science
Degree in Accounting from the International Islamic University, Malaysia and a Bachelor Degree
in Accounting and Finance from Lancaster University, UK. His research interests cover the areas
of Takaful and Awqaf (operations, accounting and reporting), corporate governance and
financial reporting quality. Hairul Suhaimi Nahar is the corresponding author and can be
contacted at:
Hisham Yaacob obtained his Master of Science Degree in Accounting from the International
Islamic University, Malaysia and a Bachelor Degree in Accounting from MARA University of
Technology (UiTM), Malaysia. He is currently a PhD student at Malaysia Science University.
His research interests are in the areas of operations, accounting and reporting for Awqaf

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