specifies income smoothing

As explained earlier, income smoothing can also be concluded as a calculation of

income that have been done through accounting procedures applied to reduce costs or
income from one period to another period, specifically with changing accounting
policies.
Income smoothing has two types of income smoothing itself, that are real income
smoothing and artificial income smoothing. Real income smoothing specifically
described as income smoothing that has been manipulated through real transactions
with those that are supported and can be changed with transactions. real levelling uses
financial derivatives that tend to increase the real value of the company. In real income
smoothing, companies use strategies to increase productivity. While in artificial income
smoothing, is not directly related to company value. Artificial income smoothing, occurs
when numbers are manipulated by the time of accounting entries to produce a smooth
flow of income.
In Islamic finance theory, the use of income for Investment Account Holders (IAH)
is well recognized. The Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) and the Financial Accounting Standard (FAS) 11 require the Profit
Equalization of Reserves (PER) and the Investment Risk Reserves (IRR). These reserves
reduce returns for Islamic banking institutions and the risk of moderate withdrawals.
However, empirical studies related to the practice of smoothing returns are inadequate
and report mixed results.
There are several basic views according from the informants regarding to the
ethics of income smoothing. from the Islamic perspective ethics, the ethics are based on
the provisions of the rules that have been made by Allah SWT contained in the verses of
the Qur'an. One of a view in Islamic perspective, is that the income smoothing
mechanism said to be unethical because the practice is an attempt by managers in
order to smooth out profits, which does not reflect the condition of the actual financial
statements.
Islam, preaches the Muslims to comply what Allah SWT has commanded and leave
what is His prohibition. Sometimes each individual has different intentions in carrying
out an action, in essence every action and action must be based on intention and good
intentions.
In the ethical perspective of Islam, the relationship between humans and social
believers is based on justice, kindness, not doing tyranny and arrogance. Income
smoothing can be described as one of the effort to manipulate financial statements to
make the financial statements look more stable and attractive from year to year which
is presented to external parties. income smoothing can be done by manipulating
accounting variables or by conducting real transactions, or it can also be done by
choosing an accounting method that is in accordance with the wishes of management.
In the view of Islam, income smoothing should be part of fraudulent information
and attitudes to waste trust. such actions will receive threats and warnings from the
Prophet Muhammad, from Ma'qil bin Yasar al Muzani r.a, he said,
"I heard the Prophet sallallaahu„ alaihi wa sallam said:

"There is not a servant whom Allah gives leadership over others, then he dies in a
state of cheating on those he leads, but Allah will forbid it upon heaven."

However, income smoothing is the exploitation of income against predetermined

goals set by management. Currently income smoothing is very commonly used for a
company. According to some Sharia scholars, income smoothing is unethical because of
high income manipulation. In other words, the Islamic view of income smoothing
demands to work based on knowledge, logical considerations and values set by Allah
SWT.
The client must know the actual income and company account before investing. If
the company does not show actual annual accounts to their investors, then it is
unethical. Sharia companies also may not follow the practice of artificial income
smoothing because of halal factors, because investors who invest in companies
registered in Sharia believe in "fair transactions." Therefore, such corporate sharia
advisory boards must prevent practice income smoothing.
Conclusion

In the view of Islam, this income smoothing behavior seems to contradict the rules
of muamalah fiqh, which contain elements of fraud (tadlis) and obscurity (gharar)
because there are parties who hide information against other parties (unknown to one
party) with the intention to deceive the other party ignorance about the information.
And if this action is proven, then this is prohibited in Islam, because it violates the
principle of "an taraaddin minkum" (mutual pleasure).

However, income smoothing is not totally wrong. This is the exploitation of income
against predetermined goals set by management. Income smoothing is very commonly
used for a company nowadays.

Suggestion

The client must know the actual income and company account before investing. If
the company does not show actual annual accounts to their investors, then it is
unethical.
Sharia companies shall not follow the practice of artificial income smoothing
because of halal factors, because investors who invest in companies registered in Sharia
believe in "fair transactions." Therefore, such corporate sharia advisory boards must
prevent practice income smoothing.

Reference
Saringat, S. M., Haron, R., & Tahir, H. H. (2013). Income Smoothing and Islam: An
Evidence from Malaysian Shariah Compliant Companies. International Journal of
Social Science and Humanity,160-162. doi:10.7763/ijssh.2013.v3.218

Suwandi, S. (2017). Etika Perataan Laba dari Perspektif Akuntansi Syariah.

Akuntabilitas, 10(1). doi:10.15408/akt.v10i1.6119