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The Cost and Management, November-December, 2009 9 10 The Cost and Management, November-December, 2009 The Cost and Management, November-December, 2009 11 12 The Cost and Management, November-December, 2009
contractual agreement Organization for Islamic Financial Institutions (AAOIFI) is an Islamic Fictitious Assets should not be revealed in the balance sheet and for contribute to the capital of the operation in varying degrees, and Corporation, Chittagong University Studies, (Commerce) Vol. 4, p.167. Total 80 100 Total 80 100
international autonomous not-for-profit corporate body that was agree to divide the net profits/losses actually earned in the ratios Conclusion: Hye, M. A. (2000), Accounting Theory, Yeasmin Prokashoni, Third Edition, p.15.
between parties. determining the net realizable receivables, direct method of written- 2. It is necessary to have a separate Accounting system for Islamic organizations: 5. ‘Cost Concept’ may be taken as a concept of Islamic Accounting.
established in Bahrain to prepare accounting, auditing, governance, off should be adopted, that is, revalue the account to determine the agreed upon in advance. So far a modest attempt has been made to reveal the objectives, IIIT (1988), Islam: Source and purpose of Knowledge, Herndon, Virginia: International Institute
12. Consistency Consistency based on Consistency based on GAAP. ethics and Shari'ah standards for Islamic financial institutions and the of Islamic Thought, Islamization of Knowledge Series No.5, 1988. Coding Frequency Percent Mean Coding Frequency Percent Mean
extent of the loss to be specifically provided for (Hamat, 1994). d) Ijara (Rental/lease financing): Ijara may be defined as an nature and need of Islamic Accounting contrasting it with the
Shari’ah. Islam, M.Z. (2000), Accounting: Philosophy, Ethics and Principles-The Islamic Perspective, +3 40 50 +3 16 20
industry on 26th February, 1990 to attain the following objectives traditional or conventional accounting. The issues raised on
4. Zakat Calculation: agreement whereby the lessor conveys the right to use a specified Bangladesh Institute of Islamic Thought (BIIT), Dhaka, p. 64. +2 24 30 +2 36 45
13.Conservatism Most favorable to Most favorable impact on (1) to develop accounting and auditing thoughts relevant to Islamic principles and practices of Islamic Accounting here will work as
society (justice). owners and least favorable to asset to the lessee for an agreed period of time in return of a fair rent. Kahf, M. (1978), The Islamic Economy: Analytical Study of the Functioning of the Islamic +1 8 10 +1 4 05
financial institutions; (2) to disseminate accounting and auditing The word Zakat literally means purification. One of the five pillars of stepping stones for further research and analysis in this emerging Economic System (Plainfield, Indiana: Muslim Students Association of the United States
society. In Ijara financing bank purchases fixed assets and allows the and Canada. 1978), p. 71. 0 0 - +2.05 0 0 - +1.00
thoughts relevant to Islamic financial institutions and its applications Islam is Zakat. A rich Muslim or a solvent business is compulsorily and essential field of knowledge for the Muslim owners and
clients/businesses to use in return for rental income. There are two Khan, M.M. (1995), Advanced Accounting, Eighth Edition, Ideal Library, Dhaka, 1995, p.23 and -1 4 05 -1 4 05
through training, seminars, publication of periodical newsletters, required to pay Zakat once a year basically to the poor to diminish proprietors of profit and not-for-profit organizations. r
14. Accounting One lunar year for Zakat Periodical measurement of types of lease arrangements; finance lease (A long-time lease where p.31. -2 4 05 -2 20 25
Period calculation. performance. carrying out and commissioning of research and other means; (3) to poverty and minimize the financial gap between them. Zakat has the lessee gets the ownership of the asset) and operating lease (A Lewis, M.K. (2006), Accountability and Islam, Fourth International Conference on Accounting -3 0 - -3 0 -
prepare, promulgate and interpret accounting and auditing been described as the cornerstone of the financial structure in an short-time lease where the lessor retains the ownership of the asset). References: and Finance in Transition, Adelaide, April 10-12, 2006. Total 80 100 Total 80 100
14. Unit of Quantity based and Monetary value based. standards for Islamic financial institutions; and (4) to review and Islamic State (Siddiqi, 1982). Muslim sole proprietors and partners are Ahmed, E. A. (1994), Accounting Postulates and Principles from an Islamic Perspective, Review Mirza, M. and Baydoun, N. (2000), Accounting policy in a Riba Free Environment, Accounting,
There is no Shari’ah restriction with regards to income recognition, or of Islamic Economics, Vol-3, No. 2. Commerce, and Finance: The Islamic Perspective Journal, No. 4 (1), pp.30-40.
Measurement monetary based (Zakat amend accounting and auditing standards for Islamic financial obliged to pay Zakat on both personal wealth and on business (Faris, 3. ‘Entity Concept’ may be taken as a concept of Islamic Accounting: 6. ‘Conservatism concept’ may be taken as a concept of Islamic Accounting.
presentation. But, if the profit margin is tied to the interest rate, this is Abdul-Rahman, A. (1996), Legal Systems for Islamic Banks, Cairo: The International Institute of Napier, C. (2007), Other Cultures, other accountings? Islamic Accounting from past to present,
calculation). institutions. 1966). For payment of Zakat the assets must possess the not permitted as it creates uncertainties. The lessees' total rental Islamic Thought. th
5 Accounting History International Conference, Banff, Canada, August 9-11. Coding Frequency Percent Mean Coding Frequency Percent Mean
15.Accounta- Public accountability Personal accountability characteristics which are (a) Perfect ownership on assets, (b) assets is
2. Accounting Cycle: payable or the banks' total rental income varies according to changes AAOIFI (1999), Accounting, Auditing and Governance Standards for Islamic Financial Shahul H. (2001), “Islamic Accounting—Accounting for the New Millennium?” Paper presented +3 28 35 +3 28 35
bility focusing on the focusing on individuals who Institutions, Manama, p. 58.
growing or productive, (c) assets above the basic requirement or in the rate of return of the bank. In case of finance lease, lease at the Asia Pacific Conference 1, Kota Bahru, Kelantan, October 10-12, 2001. +2 24 30 +2 16 20
community who control resources. The order or sequence in which accounting procedures are Adnan, M. and Gaffikin, M. (1997), The Shari’ah, Islamic Banks and Accounting Concepts and Shahul H. and Yaya, R. (2003), “The Future of Islamic Corporate Reporting: Lessons from
participate in exploiting surplus assets (d) assets owned for a full year. For calculation of Zakat, receivable, less the profit margin which is not received, should be +1 16 20 +1 12 15
performed is known as Accounting Cycle (Khan, 1995) or it is a Practices, Paper presented at Accounting, Commerce and Finance: The Islamic Alternative Western Accounting Reports”, The International Conference on Quality
resources. valuation of assets should be according to the current market price recorded as fixed assets in the balance sheet, and In the case of Perspective International Conference, University of Western Sydney, Macarthur. Financial Reporting and Corporate Governance, 28-29 July, 2003.
0 4 05 0 4 05
process by which accountants produce an entity’s financial
or net realizable value. Inventories valuation should not be the lower operating lease, the lease, assets should be recorded as fixed assets in Ahmed, E. (1990), Islamic Banking: Distribution of Profit, Unpublished Ph.D. Thesis, University of Siddiqi, S. (1982). Public Finance in Islam. Delhi: Adam Publishers, p.8.
-1 0 - +1.55 -1 4 05
16. Equity Recognize each party Survival of the fittest. statements for a specific period of time (Horngren and Harrison, -2 0 -
equally. amount of cost or market price or there should not be maintained the balance sheet of the lessor and depreciation for these assets is Hull. Triyuwono, I. (2000), Shari’ah Accounting: Implementation of Justice in a form of trust - 2 8 10
1992). Accounting cycle is an organized way to reach the destination Al-Obji, K. (1996), Measurement and Distribution of Profit in Islamic Banks, Cairo: The -3 8 10
any allowance for doubtful accounts receivable (Clarke et al., 1996). provided periodically (Hamat, 1994b). metaphor, Journal of Accountancy and Auditing, Indonesia, No. 4(1), pp.1-34. - 3 8 10
of accounting objectives and which basically consists five steps- International Institute of Islamic Thought, p. 35. Web Address: Total 80 100 Total 80 100
17. Profit Determine Tries to maximize profit. Recording (through journal), Classifying (through ledger), 5. Dealing with Interest: 6. Islamic Accounting Model: Attiah, M. (1989), Financial Accounting Theory in Islamic Thought, Islamic Banks International (1) Hameed, Islamic Accounting—A Premier, http://www.iiu.edu.my/iaw/Articles.
accurate and Union. 7. ‘Materiality concept’ may be taken as a concept of Islamic Accounting. 9. Accrual concept’ may be taken as a concept of Islamic Accounting.
reasonable profit. Summarizing (through Trial Balance), Preparation of financial (2) Shahul, H.--The Need for Fundamental Research in Islamic Accounting,
Interest is the predetermined fixed charge on borrowing or investing At this stage Islamic Accounting model is pertained below. The Baydoun, N. and Willett, R. (2000), Islamic Corporate Reports, Abacus, Vol. 36, No. 1, pp. 71-90.
statements and Interpretation and Analysis of financial statements. In http://www.iiu.edu.my/iaw/Articles. Coding Frequency Percent Mean CodingFrequency Percent Mean
18. Ownership It recognizes relative It recognizes absolute money but any transactions relating to interest (in any form) is model indicates that Islamic Accounting works under the peripheries Belkaoui, A. (2000), Accounting Theory, London: International Thomson Business Press. (3) AAOIFI web site: www.aaoifi.com
Islamic accounting this accounting cycle may be applied fully for the +3 16 20 +3 12 15
ownership on assets ownership on assets and strictly prohibited by Islamic Shari’ah. Hence, Islamic organizations Appendix-1 +2 40 50 +2 44 55
financial transactions only but not for non-financial transactions. The Rules of Islamic Shari’ah Appendix-2
firm. (banks) use alternative modes of borrowings/investments to meet
Islamic accounting records and prepares reports relating to some Islamic Suciety Conventional Income Statement versus Value Added Statement (Shahul and Yaya, 2003). Questionnaire of Opinion Survey
+1 4 05 +1 12 15
19. Reports Reports socio-economic Reports only economic their needs of financing. The alternatives are discussed below: 0 12 15 +1.50 0 0 - +1.40
transactions which may not be possible to measure in terms of Firms/Organizations Conventional Income Statement Amount Value Added Statement Amount -1 4 05 -1 4 05
and religious events events and transactions. a) Mudarabah (trust financing): The bank acts as a partner, Findings and Analysis
and transactions.
money (for example, environmental damages/ degradation by the Contracts/Transactions
Sales Revenue…………………… 2,000,000 Sales Revenue………….……….. 2,000,000 -2 4 05 -2 4 05
firm) and double entry accounting system may not be appropriately providing cash to the borrower and sharing in the net profits and net A study has been conducted on the experts in accounting to justify
Accounting and Reporting Standards Less: Material used…….. 200,000 Less: Bought in materials 200,000 -3 0 - -3 4 05
Source: Developed through literature review and research. followed for these types of transactions because the firm generally is losses of the business (Haqiqi & Pomeranz, 1987). The loan is for an their opinion regarding the acceptance of principles of Islamic Total 80 100 Total 80 100
Accounting Policies Wages……………...400,000 Services purchase...600,000
not compensating anything to the community. In interpretation and undetermined period, although the contract may be rescinded by accounting. The educational qualifications of the respondents are
Islamic Accounting Systems and Practices: Accounting Cycle Services purchase….600,000 Depreciation ….…...80,000 880,000 8. ‘Money Measurement concept’ may be taken as a concept of Islamic Accounting.
analysis the accountants should justify the performance of the either party. Kahf (1978) defines Mudarabah as: An Islamic Interest……...……..120,000 Value Added to distribute………. 1,120,000 100% Masters in Business Studies and all of the respondents are
Recording Classifying Summarizing Preparation of Interpretation 10. Do you think that there would be any problem(s) in implementing
Islamic accounting does not avoid all methods and techniques organization calculating new ratios regarding contribution to mechanism for introducing monetary assets into production activity Depreciation……….. 80,000 1,400,000 Distributions: Muslim. As per their profession, the position of the respondents is Coding Frequency Percent Mean
(Journal) (Ledger) (Trial Balance) Financial Statements and Analysis Islamic accounting in your organization? If yes, Please mention the
applied in conventional accounting saying illegal but it justifies all employees, and employees’ development, contribution to society by transforming them into real factors of production as a result of a Profit before tax………………... 600,000 To employees ………………… 400,000 given below: +3 16 20
problems below.
these things through the testing stone of Qur’an and Sunnah. Islamic a) Income Statement/Value Added Statement +2 52 65
and also to the environment in relation to value added (Mirza and joint action between the owner of the assets and the entrepreneur. b) Owners’ Equity Statement Less: Income tax (Assume 20%)... 120,000 To capital providers:
c) Balance Sheet Explanation University High level Mid - level Junior Total +1 0 - 11. What accounting principles & practices do you observe now to be
accounting accepts a conventional method if it is not conflicting with Baydoun, 2000). As this method, the lender supplies capital to an agent for trading d) Cash flow Statement Profit after tax …………………. 480,000 Interests……….120,000
e) Reports of Funds for Zakat and Their Uses Teachers Executives Executives Officials 0 0 - +1.70 contradictory to Islamic Shari’ah? Please mention, if any.
the values and principles of Shari’ah and rejects if it conflicts and it purposes and the borrower would contribute only his work and f) Reports about prohibited Income & Expenses Less: Dividend payable…………. 200,000 Dividends……. 200,000 320,000 -1 8 10
also incorporates some other norms and values not practiced by 3. Preparation of Financial Statements: g) Social Responsibility Reports
28 24 20 08 80
experience. Afterwards, the net profit is divided between the two h) Human Resources Development Reports Retained earning for the year..... 280,000 To Government……………….. 120,000 No. of Respondents -2 4 05
conventional accounting for establishment of justice. The basic Each entity prepares different financial statements as per the parties according to the ratios agreed in advance in the contract. In Retained earnings..……………. 280,000 -3 0 -
Percentage 35 30 25 10 100
principles governing summarization of financial transactions are as directions of law and of the requirements of the information of the case of loss from normal business causes or natural causes, however, Figure-1: Modified from Mirza and Baydoun (2000). 1,120,000 Total 80 100
The Cost and Management, November-December, 2009 13 14 The Cost and Management, November-December, 2009 The Cost and Management, November-December, 2009 15 16 The Cost and Management, November-December, 2009