KOLEJ PROFESIONAL MARA

GROUP ASSIGNMENT SESSION 1

2023/2024

Course Details
Course Code : ACC 2682
Course Name : PRINCIPLES OF ISLAMIC ACCOUNTING
Program : DIPLOMA IN ACCOUNTANCY
Semester : SESSION 1, 2023/2024
Lecturer’s Name : SIR AZRUL HAFFIZ BIN MOHAMED

Assignment Details
Submission Date : 19TH MAY 2023

Student’s Details

Group Members’ Name Student ID

MOHAMMED IMRAN FARHAN BIN MOHAMMED SUFFIAN MDA21-07-072

HADIF WILDAN BIN MOHD NIZAM MDA21-07-101

EZZRA BINTI NOORAKHIRLUDIN ALAM MDA21-07-029

AISYA AMILI BINTI AZMIR MDA21-07-001

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 RAJA SHAZWINA BINTI RAJA MOHD SHARIFUDDIN MDA21-07-022

Table of Contents

Acknowledgement........................................................................................................................3

Introduction....................................................................................................................................4

Discussion on the topic................................................................................................................5

Topic 1: There is a need for Islamic Accounting Standards............................................5

Topic 2: Ethics can play an important role in Islamic Accounting.................................9

Summary.....................................................................................................................................13

Conclusion...................................................................................................................................14

REFERENCES...........................................................................................................................15

Peer Evaluation...........................................................................................................................16

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Acknowledgement

Alhamdulillah, praises and thanks to Allah, because of His gracious and utmost
blessings, we were able to complete our assignment without a hitch. We would
not have gotten this far without His blessing and strength. The assignment, on the
other hand, cannot be done without the effort and co-operation from our diligent
group members and an excellent group leader. To produce a great assignment,
we work hard as well as give our full devotion and responsibility.

Therefore, we would like to express our special gratitude towards our lecturer
Sir Azrul Haffiz Bin Mohamed for his kind guidance and advice, as well as his
continuous support and effort to keep updates on our progress. We would also like
to thank him for his lecture that also inspired us greatly to keep up with the
splendid work.

Last but not least, we would like to express our thankfulness to Kolej
Profesional MARA, Ayer Molek Melaka for providing us with the opportunity to
complete this assignment and an honourable mention goes to everyone who was
involved, whether directly or indirectly throughout the process in completing this
assignment.

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Introduction

Accounting plays a fundamental role in economic systems worldwide, serving

as a crucial tool for recording, analysing, and communicating financial information.
However, like any human endeavour, accounting faces its fair share of challenges
and complexities. These challenges can stem from various factors, including
evolving business practises, technological advancements, regulatory requirements,
and even diverse cultural and religious perspectives.

The Islamic worldview holds significant influence over the practise of accounting.
Derived from the teachings of the Quran and Prophet Muhammad, Islamic finance
and accounting principles prioritise ethical conduct, justice, and the avoidance of
interest-based transactions (riba) and uncertainty (gharar). Consequently, the Islamic
worldview introduces unique challenges and opportunities when it comes to
accounting practises and the achievement of accounting objectives.

This discussion aims to explore key issues in accounting objectives and their
relationship with the Islamic worldview. We will delve into how accounting principles
can align with Islamic values and ethical guidelines while simultaneously addressing
the contemporary challenges faced by businesses and organisations operating
within an Islamic financial framework. Through this exploration, we can develop a
deeper understanding of the intricate complexities and nuances that emerge at the
intersection of accounting objectives and the Islamic worldview.

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Discussion on the topic

Topic 1: There is a need for Islamic Accounting Standards

WHY THERE IS A NEED FOR ISLAMIC ACCOUNTING?

Islam encourages economic activities that align with Shariah principles,

promoting ethical conduct, fairness, and social welfare. Islamic finance and business
practices provide a moral and ethical framework for conducting economic activities,
ensuring alignment between financial pursuits and values.
Furthermore, there are an institution that established named Islamic Financial
Institutions (IFIs). It was established to fulfil Shariah obligations and provide financial
services compliant with Islamic principles. IFIs operate differently from conventional
banks, altering accounting standards specific to their unique transactions. Shariah
compliance requires IFIs to avoid interest-based transactions (riba) and engage in
ethical financial practices. IFIs prioritize social responsibility and promote equitable
distribution of wealth through initiatives such as Zakat. Thus, the growth of IFIs
globally reflects the demand for Islamic financial services among Muslims and non-
Muslims seeking ethical alternatives.

The current accounting standards may not adequately address the distinct
characteristics of IFIs. Islamic accounting promotes accountability to God and
ensures faithful representation of economic transactions.

In short, Islamic accounting is essential to comply with Shariah principles in

economic activities, considering the unique features of IFIs and the importance of
transparency and public trust. While efforts have been made to develop standards,
the full implementation of Islamic accounting standards is still being further and
widely discussed.

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DISCUSSION OF THE ARTICLE ON THE TOPIC

The article discusses the growth of Islamic Financial Institutions (IFIs) and the
need for a separate set of accounting standards for these institutions. The
establishment of IFIs was a response to the prohibition of paying and receiving
interest according to Shariah. To ensure public confidence and compliance with
Shariah principles, transparent reporting is crucial. The Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) has developed accounting
standards for IFIs, but many countries still apply International Financial Reporting
Standards (IFRS) for reporting. However, there are arguments for a separate set of
accounting standards for IFIs due to differences in objectives and operations. The
objective of the research mentioned is to examine the views of financial statement
preparers on the need for separate Islamic accounting standards. The AAOIFI has
published various standards for IFIs, but their enforcement depends on support from
national regulators. In Malaysia, there has been an absence of approved Islamic
accounting standards despite the existence of IFIs since the 1970s. The paper
focuses on the market needs of reporting IFIs, and the structure of the paper is
outlined.
Relating to the need for Islamic accounting, the source highlights the unique
nature of IFIs and the importance of transparent reporting in ensuring public
confidence. Islamic accounting standards are necessary to regulate and supervise
the operations of IFIs, reflecting their distinct objectives and practices in compliance
with Shariah principles. The paper also mentions the existence of the AAOIFI
accounting standards for IFIs, which emphasizes the need for a separate framework
tailored to Islamic finance. The absence of approved Islamic accounting standards in
Malaysia indicates the ongoing debate and evolving practices in reporting IFIs.
Overall, the paper underscores the significance of Islamic accounting in providing a
standardized and transparent framework for IFIs to operate and maintain
stakeholders' trust.

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 The article discusses the need for Islamic accounting in the context of Islamic
Financial Institutions (IFIs) and the development of Islamic banking. Here are the
further discussions:

 Islam encourages Muslims to participate in economic activities that comply

with Shariah (Islamic law).
 The emergence of IFIs, starting with the first Islamic bank in Pakistan and
Egypt, was a result of Muslims' desire to conduct economic activities in
accordance with Shariah.
 The Malaysian government established the first Islamic bank in Malaysia,
followed by the entry of foreign Islamic banks and the creation of Islamic
subsidiaries by domestic banks.
 IFIs aim to fulfill Shariah obligations, particularly the prohibition of paying and
receiving interest (riba).
 IFIs differ from conventional banks in terms of objectives, operations,
principles, and practices.
 Regulatory supervision and standardization are needed in the IFIs industry to
ensure comparability and compliance.
 The application of International Financial Reporting Standards (IFRS) to IFIs
implies that their products are identical to conventional banks, raising the
need for Islamic accounting standards.
 The development of Islamic accounting standards can address the unique
transactions and challenges faced by IFIs.
 Accountability to God is a fundamental principle of Islamic accounting, and
high-quality financial statements are important for gaining public trust and
confidence.
 The Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) has attempted to develop Islamic accounting standards, but their
adoption is not mandatory.
 Malaysia, despite having established Islamic banks for over three decades,
has not adopted separate Islamic accounting standards.

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  The objective of the research mentioned is to examine the perspective of
AAOIFI accounting standards by IFIs and determine the need for a separate
set of Islamic accounting standards.

Overall, the article highlights the need for Islamic accounting standards to
ensure transparency, compliance with Shariah, and the unique nature of IFIs in the
global financial industry. It questions the reasons behind Malaysia's non-adoption of
separate Islamic accounting standards and aims to contribute to the ongoing debate
on the necessity of such standards.

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Topic 2: Ethics can play an important role in Islamic Accounting

ETHICAL BEHAVIOUR IN ISLAMIC PERSPECTIVE

The concept of ethics entails a set of moral principles that help individuals in
differentiate between right and wrong actions. Although ethics is thought of as a
normative field that guides what should and shouldn't be done in life, but the way
different people and cultures define good and bad or right and wrong, is subjective.

However, in Islam, ethical behaviour is not determined by societal acceptance

but by adherence to religious beliefs. Islamic ethics is absolute and requires Muslims
to follow Islamic requirements and establish a strong relationship with God through
voluntary submission and obedience to Allah's laws. Islam sets high ethical
standards and provides strong motivations for ethical behaviours, including in
accounting and the need for Islamic accountants to always comply with Shari'ah law.
Therefore, accountants often face moral dilemmas when dealing with financial
information, and the role of Islamic ethics is crucial in guiding accountants to fulfil
their professional and ethical duties. Thus, if they neglect their duties, they will not
only be held accountable to the Board of Directors but also in the Hereafter.

THE IMPORTANCE OF ISLAMIC ACCOUNTING

In the Islamic context, Muslims derive their ethics from two primary sources
which are the Qur'an and the Sunnah of the Prophet Muhammad. Qur'an
emphasizes the concept of “khuluq”, which refers to maintaining good character in
personal actions for the sake of Allah or in actions involving others. Developing such
character requires training and practice, and it leads to good human actions. The
word "ethics" originates from the Greek word "ethos," which encompasses the
values, standards, rules, spirit, and attitudes that individuals adopt to guide their
lives. Ethics also involves moral philosophy, which provides a set of values to guide
self-regulated conduct and decision-making beyond external enforcement.
Islam encourages Muslims to demonstrate ethical behaviour towards others.
This includes avoiding harm to others through words or actions, forgiving those who

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have wronged them, forgetting past wrongs, and responding to evil with goodness.
The concept of goodness and morality in Islam is rooted in certain fundamental
beliefs and principles. The Qur'an describes various concepts of goodness, such as:

 “khayr” (goodness)
 “birr” (righteousness)
 “adl” (equilibrium and justice)
 “trust” (Amanah)
 “benevolence” (Ihsaan)

For example, in the context of “khayr” (goodness), Muslims performing good

deeds and holding correct beliefs in the right manner, including values such as
truthfulness, tolerance, and uprightness. Islam encourages Muslims to express the
best behaviour towards others and all of Allah's creations, in accordance with
Sharia’ah principles. Doing good deeds not only builds a good relationship with the
Creator but also promotes harmonious relationships with all of Allah's creations.

APPLICATION OF ISLAMIC ETHICS FOR ACCOUNTANTS

Accounting is a profession that encompasses both economic and moral

dimensions. Economically, the information provided by accountants has a significant
impact on stakeholders' decisions, such as whether to invest in a company. Morally,
accountants are expected to behave ethically and provide accurate financial
information to interested parties, including owners, creditors, and government
authorities. Without ethical considerations, accountants could manipulate accounting
data. Therefore, ethical, and professional behaviour in communicating financial
information is essential for accountants.

In terms of education, Islamic Shari'ah emphasizes the intellectual qualities

necessary for Muslims to achieve. It is crucial to educate Muslims about the values
of being morally upright individuals. Islam also emphasizes the establishment of
justice and the fair treatment of all individuals. Furthermore, Islamic Shari'ah
promotes the concept of maslahah, or the benefit and welfare of others, by providing
guidelines to enhance the moral judgment of Muslims.

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Given these considerations, this article suggests several ways in which Islamic
ethics can contribute to a more ethical accounting practice such as:

 Developing Moral Commitment to the Religion

Accounting practice is influenced by the behaviour of accountants when

presenting financial reports to stakeholders. Adhering to religious principles
and the AAOIFI's code of ethics, which are derived from Shari'ah principles, is
crucial for maintaining high-quality and confidential financial information. The
principles of integrity, viceregency, sincerity, piety, righteousness, Allah-
fearing, and accountability before Allah guide the accounting practice. Islam
emphasizes the importance of being a good person, not only in societal
aspects but also in individual conduct based on Shari'ah principles. Islam
encourages accountants to incorporate Islamic concepts into all aspects of
their work and differentiate between beliefs (iman) and the act of submission
in service (Islam). Achieving a harmonious relationship between beliefs and
actions is essential, requiring the application of a sound mind (‘aql) in
everyday life. This approach ensures that accountants serve God and excel
as both good individuals and good professionals.

 Improvement in Ethics Education System

Ethics education in accounting has gained increasing attention due to

concerns about moral shortcomings among accountants. There is a need to
improve the education system and encourage accounting students to better
address accounting-specific moral dilemmas. Studies have shown that
students often fail to fully utilize their moral capabilities in resolving such
dilemmas. Critiques point out that ethical components in accounting education
are insufficient and lack efforts to humanize accountants. To enhance ethics
in accounting education, the Islamic legal principle of maslahah is proposed
as a filtering mechanism. It provides three levels of judgment: essential,
complementary, and embellishments. Accountants should prioritize protecting
the basic attributes of human life, followed by safeguarding complementary

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 public interests, and considering embellishments in financial reporting, such
as objectivity and reliability, based on need and conditions.

 Enforcement of Code of Ethics

The code of ethics is designed to guide accountants in acting morally, but it
has limited effectiveness in solving moral problems and influencing their
behaviour. Ensuring the uniform enforcement of the code of ethics is
important for promoting ethical accounting practices, which in turn enhances
the quality and integrity of financial reports. However, studies have shown that
the code of ethics has little impact on accountants' behaviour when it comes
to resolving ethical conflicts. Instead, accountants rely more on their
experience, level of responsibility, and education to guide their decision-
making process in such situations.

Overall, the article shows that ethics play an important role in Islamic
Accounting. The understanding and application of Islamic ethics contribute to the
development of a more ethical accounting practice. This can be achieved through
three stages: first, developing a commitment to religious morality; second, improving
the ethics education system; and finally, enforcing a Code of Ethics that aligns with
Islamic principles. By following these stages, accountants can enhance their ethical
conduct and contribute to a profession that upholds moral values while fulfilling its
responsibilities to the society it serves.

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Summary

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Conclusion

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References

Abdul Rahim, A. (2013). Understanding Islamic ethics and its significance on

character building.

Abdul Rahman, A. R. (2010). An introduction Islamic accounting theory and practice.

Kuala Lumpur: Centre for Research and Training.

Deloitte, IAS Plus. (2013). Islamic Accounting.

Dr. Farooq Salman Alani, Dr. Haris Kareem Alani. (2012). The Role of Islamic Ethics
in Accounting Environment, IOSR Journal of Business and Management
(IOSRJBM).

FRF MASB. (2023). Islamic.

January 07, 2019. The need for Islamic accounting standards: the Malaysian Islamic
financial institutions experience, Journal of Islamic Accounting and Business
Research.

June 1, 2023. Accounting and Auditing Organization for Islamic Financial Institutions,
Accounting and Auditing Organization for Islamic Financial Institutions.
Nor Farizal Mohammed, Fadzlina Fahmi. (2018). Journal of Islamic Accounting and
Business Research.

October 16, 2018. Role Of Islamic Ethics Towards Ethical Accounting Practice,
Journal Of Governance And Integrity (JGI).

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 Peer Evaluation

ASSIGNMENT: PEER EVALUATION

PRINCIPLES OF ISLAMIC

5 points Strongly Agree

4 points Very Much Agree
3 points Agree
2 points Somewhat Agree
1 Point Somewhat Disagree
0 Points Disagree

CLASS: DIA 6A GROUP MEMBER NAMES:

HADIF WILDAN BIN

NOORAKHIRLUDIN

BINTI RAJA MOHD

AISYA AMILI BINTI

RAJA SHAZWINA
MOHD NIZAM

SHARIFUDDIN
EZZRA BINTI

MOHAMMED IMRAN FARHAN BIN

AZMIR
ALAM

ASSESSMENT:
MOHAMMED SUFFIAN

He / she attends group meetings regularly

5 5 5 5
and arrives / on‐line on time.

He / she contributes meaningfully to

5 5 5 5
group discussions

He / she completes his / her parts

5 5 5 5
on the assignment on time.

He / she prepares work in a quality

5 5 5 5
manner.

He / she demonstrates a cooperative and

supportive attitude in completing the 5 5 5 5
assignment.

He / she contributes significantly to the

5 5 5 5
success of the assignment.

Total Score
30 30 30 30

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 ASSIGNMENT: PEER EVALUATION
PRINCIPLES OF ISLAMIC

5 points Strongly Agree

4 points Very Much Agree
3 points Agree
2 points Somewhat Agree
1 Point Somewhat Disagree
0 Points Disagree

CLASS: DIA 6A MOHAMMED SUFFIAN GROUP MEMBER NAMES:

MOHAMMED IMRAN

NOORAKHIRLUDIN

BINTI RAJA MOHD

AISYA AMILI BINTI

RAJA SHAZWINA

SHARIFUDDIN
FARHAN BIN

EZZRA BINTI
HADIF WILDAN BIN MOHD NIZAM

AZMIR
ASSESSMENT: ALAM

He / she attends group meetings regularly

5 5 5 5
and arrives / on‐line on time.

He / she contributes meaningfully to

5 5 5 5
group discussions

He / she completes his / her parts

5 5 5 5
on the assignment on time.

He / she prepares work in a quality

5 5 5 5
manner.

He / she demonstrates a cooperative and

supportive attitude in completing the 5 5 5 5
assignment.

He / she contributes significantly to the

5 5 5 5
success of the assignment.

Total Score
30 30 30 30

17 | P a g e
 ASSIGNMENT: PEER EVALUATION
PRINCIPLES OF ISLAMIC

5 points Strongly Agree

4 points Very Much Agree
3 points Agree
2 points Somewhat Agree
1 Point Somewhat Disagree
0 Points Disagree

CLASS: DIA 6A GROUP MEMBER NAMES:

MOHAMMED SUFFIAN
MOHAMMED IMRAN

HADIF WILDAN BIN

BINTI RAJA MOHD

AISYA AMILI BINTI

RAJA SHAZWINA
MOHD NIZAM

SHARIFUDDIN
FARHAN BIN

EZZRA BINTI NOORAKHIRLUDIN

AZMIR
ALAM

ASSESSMENT:

He / she attends group meetings regularly

5 5 5 5
and arrives / on‐line on time.

He / she contributes meaningfully to

5 5 5 5
group discussions

He / she completes his / her parts

5 5 5 5
on the assignment on time.

He / she prepares work in a quality

5 5 5 5
manner.

He / she demonstrates a cooperative and

supportive attitude in completing the 5 5 5 5
assignment.

He / she contributes significantly to the

5 5 5 5
success of the assignment.

Total Score 30 30 30 30

18 | P a g e
 ASSIGNMENT: PEER EVALUATION
PRINCIPLES OF ISLAMIC

5 points Strongly Agree

4 points Very Much Agree
3 points Agree
2 points Somewhat Agree
1 Point Somewhat Disagree
0 Points Disagree

CLASS: DIA 6A GROUP MEMBER NAMES:

MOHAMMED SUFFIAN
MOHAMMED IMRAN

HADIF WILDAN BIN

NOORAKHIRLUDIN

BINTI RAJA MOHD

RAJA SHAZWINA
MOHD NIZAM

SHARIFUDDIN
FARHAN BIN

EZZRA BINTI
AISYA AMILI BINTI AZMIR

ALAM
ASSESSMENT:

He / she attends group meetings regularly

5 5 5 5
and arrives / on‐line on time.

He / she contributes meaningfully to

5 5 5 5
group discussions

He / she completes his / her parts

5 5 5 5
on the assignment on time.

He / she prepares work in a quality

5 5 5 5
manner.

He / she demonstrates a cooperative and

supportive attitude in completing the 5 5 5 5
assignment.

He / she contributes significantly to the

5 5 5 5
success of the assignment.

Total Score 30 30 30 30

19 | P a g e
 ASSIGNMENT: PEER EVALUATION
PRINCIPLES OF ISLAMIC

5 points Strongly Agree

4 points Very Much Agree
3 points Agree
2 points Somewhat Agree
1 Point Somewhat Disagree
0 Points Disagree

CLASS: DIA 6A GROUP MEMBER NAMES:

MOHAMMED SUFFIAN
MOHAMMED IMRAN

HADIF WILDAN BIN

NOORAKHIRLUDIN

AISYA AMILI BINTI

MOHD NIZAM
FARHAN BIN

EZZRA BINTI
RAJA SHAZWINA BINTI RAJA MOHD

AZMIR
ALAM
SHARIFUDDIN

ASSESSMENT:

He / she attends group meetings regularly

5 5 5 5
and arrives / on‐line on time.

He / she contributes meaningfully to

5 5 5 5
group discussions

He / she completes his / her parts

5 5 5 5
on the assignment on time.

He / she prepares work in a quality

5 5 5 5
manner.

He / she demonstrates a cooperative and

supportive attitude in completing the 5 5 5 5
assignment.

He / she contributes significantly to the

5 5 5 5
success of the assignment.

Total Score 30 30 30 30

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