2019 Researchin Accountingand Sustainability

Research in Accounting
and
Sustainability
Research in Accounting
and
Sustainability
editor
Nor Aziah Abu Kasim
Penerbit Universiti Putra Malaysia

Serdang • 2019
© Universiti Putra Malaysia Press 2019
First Print 2019
All rights reserved. No part of this book may be reproduced in any form without
permission in writing from the publisher, except by a reviewer who wishes to
quote brief passages in a review written for inclusion in a magazine or newspaper.
UPM Press is a member of the Malaysian Book Publishers Association (MABOPA)

and a member of Majlis Penerbitan Ilmiah Malaysia (MAPIM).
Perpustakaan Negara Malaysia Cataloguing-in-Publication Data
Research in Accounting and Sustainability / editor: Nor Aziah Abu Kasim.

ISBN 978-967-344-960-6
1. Accounting--Research.
2. Sustainability--Research.
3. Government publications--Malaysia.
4. Electronic books.
I. Nor Aziah Kasim.
657.072
Cover design: Mohd Ghazali Razak

Typesetting: Sahariah Abdol Rahim @ Ibrahim
Type face: Times New Roman PS
Type size: 11/ 14.5

Contents
Preface vii
CHAPTER 1 Introduction 1
Nor Aziah Abu Kasim
CHAPTER 2 Tax Incentives for Waqf Agencies in Malaysia 7

and Singapore
Saleh Hashim, Amalina Abdullah and Siti Alawiyah
Siraj
CHAPTER 3 Corporate Social Responsibility and Firm Value 25

of Government-linked Companies in Malaysia
Maswati Abd. Talib and Siti Mazlinda Mohd Marzuki
CHAPTER 4 Reform Journey of Government-linked Companies 36

in Malaysia
Nor Aziah Abu Kasim, Mazlina Mustapha
and Haslinah Muhammad
CHAPTER 5 A Revisit of the Islamic Financial Institution 52

Value Creation based on Maqasid Al Shariah
Sabarina Mohammed Shah and Mohamat
Sabri Hassan
CHAPTER 6 Accounting Fraud in Libya and the Challenges 65

Waled Y. E. Alazzabi, Hasri Mustafa, Annuar
Md Nassir and Yusuf Khabari
CHAPTER 7 The Relationship between Professional 82
Skepticism among Internal Auditors in Public
Sector and Personality Characters and Socialization
Jalila Johari and Nurnadiah Mangsor
CHAPTER 8 Factors Affecting Accounting Students’ 100

Career Choice
Mohammad Noor Hisham Osman, Wandashirah
Ramali and Siti Zaidah Turmin
CHAPTER 9 Value of Corporations’ Corporate Social 111

Responsibilities Investment in Sports
Lee Wan Nin, Nur Ashikin Mohd Saat and
Siti Manisah Ngalim
Index 121
Preface
This book showcases empirical writings based on research carried out

by members of the Department of Accounting and Finance, Faculty of
Economics and Management UPM. The focus of the research is accounting
and sustainability, befitting the call for greater involvement of accountants
in accounting for sustainability by the International Federation of
Accountants (IFAC). The majority of the authors are from the Department
of Accounting and Finance, Faculty of Economics and Management,
Universiti Putra Malaysia. They specialise in different accounting-related
areas and have brought together their work in this book on Research in
Accounting and Sustainability. The context of research setting covered
in this book includes the public sector, waqf, public university and
Islamic financial institutions. Unlike the normal focus on profitability,
the discussion in this book covers accounting, reform process, social
responsibility, and value creation as a move towards sustainability.
I would like to express my gratitude for the support from Professor
Dr. Azali Mohamed, Dean of the Faculty of Economics and Management,
and Associate Professor Dr. Mazlina Mustapha, Head of the Department
Accounting and Finance, that had made this book a reality. I would also like
to thank all the authors for their cooperation and valuable contributions.
Nor Aziah Abu Kasim

UPM Serdang
July 2019
1
Introduction
Nor Aziah Abu Kasim
RESEARCH IN ACCOUNTING AND SUSTAINABILITY

This book contains research work in important areas of accounting and
sustainability. This first chapter, which introduces the book, aims to
summarise the significant findings and insights from all the chapters.
In the following section, each chapter is summarised and the
important contributions are highlighted. Several insights on the role of
tax incentives for waqf institutions in Malaysia and Singapore are in
Chapter 2; the relationship between corporate social disclosure reporting
and firm value of government-linked companies is studied in Chapter 3;
the journey of reform or transformation for government-linked companies
in Malaysia since independence is discussed in Chapter 4; the importance
of achievement of the Islamic financial institution value creation based
on Maqasid al Shariah is highlighted in Chapter 5; increasing fraud cases
and challenges to mitigate these frauds in Libya are examined in Chapter
6; the relationship between professional skepticism and personality
characteristics and anticipatory socialization among internal auditors
is investigated in Chapter 7; factors affecting career choices among
accounting students in Universiti Putra Malaysia are discussed in Chapter
8 and finally, the different avenues for corporate social responsibilities
through sports are explained in Chapter 9.
Research in Accounting and Sustainability
Sustainability is discussed in various forms through corporate social

responsibility, value creation, fraud mitigation and the implementation of
transformation or reform. Today’s business environment has changed –
increasing technological advancements, competition not just at the local
level but also globally, add greater risks to business sustainability. Besides
profitability, creating value for the different stakeholders has become the
new focus for organisations to survive.
STRUCTURE OF THE BOOK

This section summarises all the chapters in the book. Chapter 2, written by
Saleh Ibrahim, Amalina Abdullah and Siti Alawiyah Siraj, focuses on tax
incentives for Waqf agencies in Malaysia and Singapore. This qualitative
study involves three waqf agencies, namely Yayasan Wakaf Malaysia,
Perbadanan Wakaf Selangor and Waqf Real Estate Investment Pte Ltd
(Singapore). Based on face-to-face interviews, the authors argue for the
need to strengthen the role of tax incentives in enhancing the financial
sustainability of waqf agencies. Tax incentives not only increases the
financial capacity of the waqf agencies but also incentivizes them to
allocate higher capital expenditure for the development and management
of waqf properties. Given the importance of tax incentives to help sustain
waqf agencies, regulatory bodies, in particular the Inland Revenue Board,
should take the lead in considering tax changes for improvements from the
perspective of the waqf agencies.
Maswati Abd. Talib and Siti Mazlinda Mohd Marzuki focus on
corporate social responsibility disclosure, which reports the involvement
of organisations in either voluntary or mandatory corporate social
responsibility. Chapter 3 investigates the relationship between corporate
social responsibility disclosure (CSD) and the firm value (measured by
share price) of government-linked companies (GLCs). In doing so, this
chapter recognises the importance of corporate social responsibility as
one aspect of evaluating performance. Since 2007, CSD has become a
part of Bursa Malaysia’s listing requirements and all listed companies
in Malaysia are required to disclose their activities on corporate social
© Penerbit Universiti Putra Malaysia, 2019 2 URL://www.econ.upm.edu.my.penerbitan

Not to be reproduced or distributed
Introduction
responsibilities. Under the government transformation programme, the

Silverbook was launched in 2006 to enhance and promote CSD among
GLCs. CSD adds firm value through strong reputation, which in turn
attracts quality employees, build goodwill and trust with key stakeholders
and reduce transaction costs. Although the literature has argued for a
positive relationship between CSD and firm value, the results of the study,
using financial statements of 16 GLCs for financial years 2012 to 2014,
do not show a positive relationship. Since sustainability includes the three
areas of economy, environment and social, focusing on only corporate
social responsibility may not have that big an impact on share prices.
Chapter 4 written by Nor Aziah Abu Kasim, Mazlina Mustapha and
Haslinah Muhammad is on the reform journey of government-linked
companies in Malaysia. A similar context of GLCs as in Chapter 3,
but this chapter draws on insights from review of literature on reforms
in the public sector initiated by the government over the period before
independence until 2015. There were a variety of reforms during the
journey with each subsequent reform, in particular the privatisation and
the Government-linked Companies Transformation Programme, focused
on managing performance of GLCs. The authors argue that the reform
journey is a challenging one due to the previous culture of public sector
department, interference of government, the mimicking of the private
sector management technique in a public sector context, and the balancing
between social, political and economic objectives. The challenges are
indicative of the complexity and the slow process of public sector reforms
in the Malaysian context. The reform journey is likely to continue in the
future to continuously improve the financial performance of the GLCs.
Chapter 5, A Revisit of the Islamic Financial Institutions’ Value
Creation based on Maqasid Al Shariah, is written by Sabarina Mohammed
Shah and Mohamat Sabri Hassan. For Islamic financial institutions (IFIs),
their value is created by complying with the 5 dimensions of Maqasid Al
Shariah, which are preservation of self (nafs), faith (din), intellect (aqf),
posterity (nasl) and wealth (mal). This creation of value based on Maqasid
Al Shariah is important for the eternal success of IFIs. Thus, this chapter
suggests the use of Maqasid Al Shariah to evaluate the achievement of

IFIs. This chapter also highlights the difference between shariah-based

and shariah-compliant in the achievement of Maqasid Al Shariah. There
is empirical evidence on conflicting achievements of Maqasid Al Shariah
by the IFIs worldwide due to differences in the context in which the IFIs
operate. Some countries differ in terms of their progress, development and
growth of Islamic finance. Akhlaq of market participants was suggested
to supplement further studies on the achievement Maqasid al Shariah by
IFIs.
The subsequent chapter is on Accounting Fraud and Challenges in
Libya by Waled Y. E.,Alazzabi, Hasri Mustafa, Annuar Md Nassir and
Yusuf Khabari. An understanding of accounting fraud incidents in the
Libyan context and the challenges to mitigate fraud are the purposes of this
chapter. According to Transparency International (2016), Libya stood at
number 170 in 2016 and 171 in 2017 out of the total 176 countries for
the corruption perception index. Besides this poor ranking, fraud is a
concern in Libya because fraud wastes Libya’s resources and widens the
poverty level by depriving many people of their rights to education, health
services and sustainable development, loss of customers’ and investors’
confidence, and contributes to intensify the financial crisis and poor living
conditions. The authors include in their chapter some figures on the fraud
cases in Libya which occurred from 1969 until 2018. They discuss the
reasons for these fraud cases to occur in Libya, which are weak external
and internal controls, operational procedures and ineffective internal audit
function, high level of environmental uncertainty, low level of awareness
and ineffective risk management. Accounting has a role to perform in
mitigating fraud through the implementation of effective management
control system and internal audit.
The purpose of Chapter 7 is to investigate the relationship between
professional skepticism and personality characters and anticipatory
socialization among internal auditors of a government department.
Jalila Johari and Nurnadiah Mangsor’s message in this chapter is the
imperative of professional skepticism for internal auditors to perform
audit that meets a certain quality. Professional skepticism involves a
questioning mind, suspension of judgment, the search for knowledge,
interpersonal understanding, self-determining and self-confidence.

Introduction
Personality characteristics are measured by extraversion, agreeableness,

conscientiousness, neuroticism and emotional stability. Anticipatory
socialization is represented by misstatement, responsibility, cost-benefit
and disclosure. Their findings indicate that there is a strong positive
relationship between personality characteristics and professional
skepticism. In addition, there is a positive relationship between anticipatory
socialization and professional skepticism. Thus, personality characteristics
and anticipatory socialization affect professional skepticism of internal
auditors in the public sector department.
Chapter 8 is on Factors Affecting Accounting Students’ Career
Choice by Mohammad Noor Hisham bin Osman, Wandashirah Ramali
and Siti Zaidah Turmin. Malaysia has 33,000 accountants registered
with the Malaysian Institute of Accountants in 2018. Based on this
number, Malaysia has a long way to go to achieve its target of having
60,000 accountants by 2020. Thus, Malaysia has to work very hard to
reduce the shortage in the number of accountants needed by the country.
This chapter examines factors that affect the accounting students’ career
choice as certified public accountants. Data collection is limited to a total
of 82 final year Bachelor of Accounting students from Universiti Putra
Malaysia (UPM). The results from the logistic regression analysis indicate
that salary and prestige have significant effects on accounting students’
decision to become a CPA while social norm has not. Thus, salary and
prestige or job-related factors influence the accounting students’ career
decision, but the social norm does not influence the career decision. Salary
and prestige of being a CPA are the two important factors that attract the
accounting students to become future CPAs.
In Chapter 9, the reduced budget allocation from the Malaysian
government for sports activity can be interpreted as a blessing in disguise
since it opens opportunity for corporations to implement their corporate
social responsibility (CSR) initiatives. This chapter entitled Value of
Corporations’ Corporate Social Responsibilities Investment in Sports is
contributed by Lee Wan Nin, Nur Ashikin Mohd Saat and Siti Manisah
Ngalim. The authors explain the different types of sports related corporate
social responsibilities’ activities from which the companies can choose to
participate in their CSR contribution to sports in Malaysia. The activities

of CSR through sports can be done in several ways, that is, through sports
sponsorship, sports events, sports development, sports ambassador.
With these different avenues, corporate organisations have the flexibility
to choose any of them which is deemed suitable and relevant to their
organisations.
SUMMARY
The strengths of this book lie in the wide coverage of the chapters in
terms of the variety of areas of accounting, the different research context
and also the different research approach. It offers the readers a variety
of accounting areas situated in the various research setting. Each chapter
contributes different insights, but together the chapters highlight the
importance of organisational sustainability for organisations to be able
to move forward in the future. Research on institutions such as waqf,
Islamic financial institutions, government-linked companies, government
department and public university offers a peculiar research context which
is different from that of profit-motivated companies.

2
Tax Incentives for Waqf Agencies
in Malaysia and Singapore
Saleh Hashim, Amalina Abdullah and Siti Alawiyah Siraj
INTRODUCTION
Waqf agency plays an important role in promoting economic development
and social welfare of a country. Waqf agency refers to a corporate
organisation which is established under the waqf authorities that have legal
capacity to implement the waqf activities. In Malaysia, all waqf agencies
are responsible for development and management of the waqf properties
and also responsible for collecting cash waqf as indicated by the fatwa. In
contrast, the waqf agency in Singapore tends to focus on the development
and management of the waqf properties on top of other waqf initiatives.
Generally, the waqf agencies heavily depend on the voluntary
contribution of the people or corporate organisations in the form of cash or
in-kind benefits. The donors are entitled to the tax incentives (i.e. tax relief)
provided by the government for the waqf contribution. It is subsequently
allocated for various charitable purposes, such as development of waqf
properties (e.g. shop lots for rental, religious institutions, schools etc.). The
returns gained from the development are partially circulated back into the
agency to fund the operating costs. The rest of the income is reciprocated
to the beneficiaries in various forms as entrusted in the waqf deeds.
Tax incentives can be defined as all measures that provide for a more
favorable tax treatment of certain activities or sectors compared to what
is granted to general industry (Klemm, 2009). Tax incentives are very
important for the voluntary sector, especially in supporting their financial
needs to provide services for a long period of time. In some Western

countries, some non-profit organizations can sustain for a long period
of time by fully utilising the tax incentives provided by the government
(Bowman, 2011).
In the absence of tax incentives, the waqf agencies are confronted
with several financial problems. First, income tax imposed on the returns
gained by the agencies shrinks their residual income on top of other taxes
(e.g. assessment tax, quit rent), thereby reducing their budget allocation
for the development and management of the waqf properties. Second,
donors who contribute to certain waqf agency are not entitled to the same
tax privileges (e.g. tax relief), thereby discouraging them to contribute
to the waqf funds in the future. The situation potentially undermines the
financial capacity and deteriorates the financial sustainability of the waqf
agencies. Consequently, it depreciates the relevance of the waqf agency as
an economic and social wellbeing agent.
Previous studies focused on the role of tax incentives for the waqf
donors (e.g. Affandi & Nufus, 2010; Ismail, Salim, & Hanafiah, 2015;
Khairi, Laili, & Sabri, 2015; Mohd Zakaria et al., 2012) and examined the
legal implications of taxation policy in the waqf institution (Tunku Alina,
2011). Nevertheless, the role of tax incentives in promoting the financial
sustainability of the waqf agencies remains unaddressed in the waqf
studies. As waqf agencies are responsible for yielding returns from the
development of waqf properties, the positive impacts of tax incentives on
the financial sustainability of the agencies should not be underestimated.
Based on this deliberation, this study addresses an important gap.
Therefore, this paper aims to examine the need for tax incentives for the
waqf agencies in promoting their financial sustainability.
Our findings reveal that tax incentives are imperatively necessary
in increasing the residual income of the waqf agencies in Malaysia and
Singapore, thereby improving their financial capacity. It also incentivises
the waqf agencies to allocate higher capital expenditure for the development
and management of waqf properties. The improved returns gained are
circulated back into the agencies and redistributed to the beneficiaries.

Tax Incentives for Waqf Agencies in Malaysia and Singapore
The upcoming sections briefly discuss the tax incentives in the waqf
sector, the government policy and importance of tax incentives for the
waqf agencies, followed by the research method, findings, discussions and
recommendation.
WAQF AGENCIES IN MALAYSIA AND SINGAPORE

In Malaysia, the waqf administrative jurisdiction is located under the
jurisdiction of states as stipulated in the Federal Constitution under
Schedule 9, List II: State List (Perlembagaan Persekutuan, 1963). States,
through the Islamic Religious Enactment/Ordinance, have determined
that the State Islamic Religious Council (SIRC) is the sole trustee of
their respective waqf properties (Mohd Afendi & Asmah, 2010). Prior to
the establishment of waqf agencies, waqf management was managed by
the SIRC, a state government entity. Starting in 2001, some SIRCs had
established their own waqf agencies to manage the waqf properties by
maintaining SIRC as the sole trustee of the waqf agencies (e.g. PWS).
Unlike PWS, Yayasan Wakaf Malaysia (YWM) is a unique case compared
to other waqf agencies. It is established in 2008 under the Malaysian
Department of Waqf, Alms and Hajj (Jabatan Waqaf, Zakat dan Haji or
JAWHAR) to assist the SIRC to develop and manage the waqf properties
in Malaysia. The agency has also been granted approval from several
states to collect cash waqf on their behalf (Yayasan Wakaf Malaysia, n.d.).
In Singapore, the ownership of all waqf properties in Singapore is
entitled to Majlis Ugama Islam Singapura (MUIS) according to the Islamic
Law Administration (AMLA), 1968. MUIS had established a privately run
subsidiary, called WAREES Investments Pte. Ltd (WAREES), in 2002 to
take over the commercial functions of managing and developing the waqf
properties. This corporate establishment is indispensable as waqf portfolio
is growing and the complexity of property investment is increasing (Zaini,
2012).

Figure 2.1 Waqf institutions and agencies in Malaysia and Singapore
Currently, several State Islamic Religious Councils (SIRCs) in

Malaysia and Singapore are privatising their waqf management by
establishing waqf agencies as illustrated in Figure 2.1 above. The changes
are made to ensure that the waqf management can be professionally run
as a corporate entity and to ensure that the development of waqf can be
achieved more effectively and efficiently. However, these waqf agencies
are also facing difficulties in receiving the same benefit as SIRCs received
from the tax law. Unlike waqf agencies, the SIRCs is tax exempted and
not taxable because it constitutes as part of the government. However, the
waqf agencies served functionally the same as a corporate entity which
require them to pay taxes. SIRCs are fully government bodies and receive
state funding, therefore no tax incentive for waqf. However, the waqf
agencies need to find their own sources of income and generate the income
for sustainability in future.
Taxation Policies and Practices

Tax policies serve as a fiscal tool to help the government to achieve its
development agenda. Tunku Alina (2011) emphasised that taxation
policies are one of the methods by which Malaysia can incentivise the
formation of future waqf and modernise its governance and management.
This will enable the waqf agencies to realise their significant role as an
economic agent. Mohamad and Kader (2017) stated that the current budget
policy does not provide budget allocation to the State Islamic Religious

Council (SIRC) to develop its own waqf properties in the absence of waqf
agencies. As such, any kind of taxes or financial liabilities is burdensome
to the SIRCs. The current taxation policy involving the waqf properties is
not consistent with the fatwa issued by Muzakarah Jawatankuasa Fatwa
Kebangsaan (Fatwa Committee Meeting) in 2007 which held that waqf
contribution are qualified for tax exemption. The taxation policy with
respect to the function of the waqf agencies is important to promote the
waqf sectoral development in Malaysia and Singapore. Therefore, this
study raises an important concern over the need for tax incentives in
promoting financial sustainability of the waqf agencies.
The previous Islamic philosophy supports the importance of tax policy
for the waqf development. Chapra (2008) highlighted that, in the light
of the development theory by Ibnu Khaldun, taxation plays an important
role in promoting the waqf development. Muhammad Tahir (2010) also
emphasized Ibnu Khaldun’s idea that more income received by a waqf
agency, the more funds can be redistributed to many charitable programs.
According to Shaham (1991), the Ottoman government during the great
Islamic civilisation did not collect tax from the Christian and Jewish waqf.
This situation clearly implies a support by the Islamic government towards
the waqf institution of other religions. The government did not impose taxes
upon the income generated by the non-Muslim waqf agencies. Based on
these deliberations, taxation should serve as an effective fiscal instrument
to assist the waqf agencies in promoting their financial sustainability.
Other countries, including non-Muslim countries, also provide tax
exemption for the income earned by a non-profit organisation (NPO).
According to Tunku Alina (2011), non-profit organisations in the United
States of America are eligible for tax exemption on the sale of property
and organization income. In addition, Kahf (2003) pointed out that family
trusts under different variants in the West, especially in the United States,
are granted with several tax privileges. Bowman (2012) found that several
non-profitable organisations (NPOs) in the United States were able to
sustain their financial performance in the long-term since 1950 just by
capitalising on the tax incentives given by the government. Further,
Bowman (2011) suggested the organisation in various forms, such as

society, cooperation, foundation and public organisation, to explore this

opportunity because every type of organisation has different tax incentives.
Mohammad Tahir (2015) also suggested that waqf agencies to learn from
an effective management of trusts while maximising its revenues in a tax
effective manner and ensuring the protection of given assets. Some best
practices from other countries may serve as a guide in examining the need
for tax incentives for the waqf agencies in Malaysia and Singapore.
Khairi et al. (2015) suggested that the government should provide
several incentive packages including tax incentives to companies that are
directly involved in the practice of corporate waqf as is done to zakat.
Thus, it is believed that larger companies will tend to be more inclined
towards allocating their annual expenses through corporate waqf. The
present corporate waqf funds potentially contribute to the development
and economic prosperity while promoting fair distribution in the society.
Impact of Taxes on the Financial Capacity of Waqf Agencies

The waqf agencies assist the government by providing some infrastructures
for the benefit of society and reducing the government’s burden to incur the
development costs (Mohamad & Kader, 2017). Without necessary support
from the government, the waqf agencies may encounter various challenges
to perform its function with a limited budget. Ismail, Salim, and Hanafiah
(2015) argued that lack of capital and limited financial resources hinder
the development of the waqf land. This is because the revenue gained from
the waqf land will be redistributed to cover a broad range of expenses (e.g.
maintenance, repair, management, and administration of waqf properties)
which sometimes exceed its revenue. On top of the expenses, the waqf
agencies are also required to pay various taxes. Therefore, by providing
tax incentives to the agencies, it will reduce their financial liabilities.
Mohd Zakaria et al. (2012) and Ismail et al. (2015) suggested
the individuals or entities, who contribute to the establishment of the
waqf business, should also be provided with tax reliefs, exemptions or
deductions. The government should provide attractive tax incentives
to encourage venture philanthropists to engage in the waqf business. A
large amount of capital will be invested and a lot of resources, such as

time and expertise, contributed will be an opportunity cost to the venture

philanthropists. Similarly, Mahmud and Shah (2010) also supported the
notion that tax incentives are needed to ensure the sustainability of the
waqf agencies in the long run. They further recommended a new practical
law to be created to provide tax reliefs for the individuals who contribute
to the waqf funds through salary deduction so as to facilitate the society to
contribute to the Waqf funds more conveniently.
In general, waqf agencies do not function like other profit-maximising
companies; they are entrusted to redistribute the returns from the waqf
contributions for the charitable purposes. Reasonably, the waqf agencies
equally deserve the same tax privileges i.e. tax incentives and special
section in the taxation law. These tax incentives pave more possible
ways for the waqf agencies to promote socio-economic development. In
short, there are various tax incentives that the government can provide
to financially support the waqf agencies. The incentives in the case of
Malaysia and Singapore include tax exemption for the agency’s income,
tax relief for the waqf donors, assessment tax and quit rent.
RESEARCH METHOD
This is a qualitative research based on interview and review on the
documents related to waqf dan tax policy in Malaysia and Singapore.
The samples of this study include three selected Waqf agencies which
have successfully performed their roles as a commendable waqf agency in
Malaysia and Singapore. Data collection was conducted through face-to-
face interviews to deepen our understanding on how tax incentives and tax
relief to support the financial sustainability of selected waqf agencies from
April 2017 until November 2017.
An in-depth interview about one hour session was conducted with
the top management staffs from Yayasan Wakaf Malaysia (YWM),
Putrajaya, Perbadanan Wakaf Selangor (PWS) and Waqf Real Estate
Singapore (WAREES). The interview questions were drafted based on
semi-structured approach involving several participants including top
management and managers in the waqf organization. The researcher has
interviewed four management staffs including CEO from YWM, three

managers from PWS and three management staffs from WAREES. Other
documents such as waqf report, brochures and websites information on
waqf practices are also referred to. The interview data were transcribed
and their responses were analysed based on the thematic analysis such as
the tax treatment, tax system, tax incentives and its implications on waqf
asset management.
DISCUSSION OF FINDINGS
Tax Practices in PWS, YWM and WAREES
The findings on tax practices were based on interviews and related
information about tax policy, tax practices and benefits of tax incentives
in PWS, YWM and WAREES. The summary of the findings are presented
based on the following sub-headings:
a. Tax treatment for PWS

Currently, PWS is not entitled to any tax incentive from the government
to support their operation. PWS is still obligated to pay various taxes (e.g.
assessment tax, quit rent and income tax). The only tax incentive received
by the PWS is tax relief which is entitled to the waqf donors. In fact,
PWS uses the official receipt issued by MAIS which enables the donors to
enjoy the tax privilege. Nevertheless, the tax relief provision to the donors
remains an ongoing controversial matter to the tax authorities. In terms of
assessment tax and quit rent, the PWS still enjoys the tax privileges which
require them to pay only at a nominal price subjected to certain regulation.
For the income tax exemption, negotiation is still underway between the
PWS and tax authorities (Mohd Shafiq, personal interview, 15 September
2017).
The financial source of PWS is limited. At present, they only receive
financial assistance from Majlis Agama Islam Selangor (MAIS) to pay
staff salary. In this regard, the PWS has to generate income to cover all
necessary expenses, including the large-cost development expenditure.
With tax exemption, it will reduce the financial liability incurred by
the PWS in which the surplus can be allocated for the development and

maintenance of waqf properties. Currently, there are 1,328 lots of waqf

land estimated at 1,351 acres widely distributed across the State of
Selangor. PWS continues to negotiate with the government regarding
the tax incentives, especially income tax exemption and tax relief for the
donors (Anuar Hamzah, Interview, 18 August 2017).
b. Tax Treatment for YWM

YWM, a waqf institution under the purview of the JAWHAR, is entitled to
various tax incentives from the government; (1) income tax exemption for
the YWM; (2) tax relief for the waqf donors (e.g. people, organizations);
and (3) special tax relief for the organisations that support the Waqf CSR
programs. However, the income tax exemption is not applicable to other
income than waqf, such as income generated from the fixed deposits (Nur
Syaffina, interview, 24 October 2017).
Currently, YWM receives an operating budget allocation from
JAWHAR, except for the development budget. However, YWM
received a special one-off allowance in 2015 from Unit Peneraju Agenda
Bumiputera (TERAJU) amounting to RM50 million under the Bumiputera
development programs. Several projects to improve the Bumiputera’s
economy have been implemented by the YWM. One of the projects includes
the procurement of several shop lots to help entrepreneurs, especially the
Muslim entrepreneurs, to rent the shot lots for their businesses by offering
competitive rental rates. The YWM indirectly generates income via the
rental payment collection (Abdul Halim, personal interview, 18 April
2017). Based on the interviews with the YWM officers, tax incentives
potentially help YWM in many areas. First, the tax exemption increases
residual income generated by the YWM in which the surplus from the tax
expenses can be allocated for other expenses, such as development and
operating expenses. Second, the tax relief entitled to the YWM donors
encourages more people or organisations to contribute to the waqf. Finally,
the special tax relief entitled to companies that work together with YWM
in organising some CSR programs. By having such incentives, many
large companies are motivated to collaborate with YWM in many CSR
programs (Nur Syaffina, interview, 24 October 2017).

c. Tax treatment for WAREES

WAREES, a wholly-owned subsidiary of MUIS, has been granted an
income tax waiver in view of its existence as a charitable organisation. In
Singapore, charitable organisations are eligible for income tax exemption.
All income sources, such as income generated from fixed deposits and
rental payment collection are eligible for the tax exemption. According
to the Inland Revenue Authority of Singapore (IRAS) (n.d.), for the
assessment year 2008, registered charities automatically qualify for the
income tax exemption under the Singapore Income Tax Act (SITA).
They are not required to report the income tax returns to IRAS. Although
Singapore adopts a non-Islamic legal framework across public and private
administrative affairs except religious matters, the country cares for the
welfare of the citizens by offering tax exemption to charitable organisations.
Similarly, the people who contribute to the waqf funds in Singapore are also
entitled to the tax relief. For instance, Waqf Ilmu is introduced by MUIS
allowing the people to contribute to the educational funds. Additionally,
all charitable organisations approved by the Commissioner of Charities
are entitled to receive tax-deductible donations.
However, WAREES is still obligated to pay property tax in which the
amount is considerably high, hence affects its earnings. Property tax refers
to a tax imposed on property value, in which the property tax revenue goes
into a common pool to fund the development of the country for the benefit
of everyone living on it (Inland Revenue Authority of Singapore (IRAS),
n.d.). Property tax for non-residential properties, such as commercial and
industrial buildings, and lands are taxed at 10% of the annual property
value. According to Zaini Osman (2017), WAREES is currently managing
72 property units estimated value at SGD316 million and they are
responsible to pay property tax to the Singapore government. In addition,
WAREES is not exempted from paying the GST for all transactions
Based on the above information, Table 2.1 on the next page summarises
the type of tax incentives in the three waqf agencies in Malaysia and
Singapore.

Table 2.1 Tax System and Tax Incentives in the Waqf Agencies in Malaysia
and Singapore
Type of Tax Incentive Malaysia Singapore

YWM PWS WAREES
Income Tax Exemption √ X √
Donor Tax Relief √ √ √
Assessment Tax X √ NA
Quit Rent X √ NA
Property Tax NA NA X
Goods And Service Tax

NA NA X
(GST)
Note: √ (Yes - receive tax incentive); X (No tax incentive); and NA (Not Applicable-
tax is not imposed on the agency)
Tax incentive structures are generally different across the waqf

agencies. In Malaysia, although YWM is exempted from paying income
tax and tax relief for the donors, but it still has to pay the assessment tax,
quit rent and GST. In another waqf agency, PWS still earns advantages in
terms of tax relief for the donors, assessment tax and quit rent despite the
pending approval for the income tax exemption request and need to pay
GST.
In Singapore, WAREES is entitled to income tax exemption and
tax relief for the donors. However, WAREES is still required to pay the
property tax, which to a certain extent affects the financial performance of
WAREES, on top of the GST.
Benefits of Tax Incentive

Based on the three principles of financial sustainability – Planet, People,
and Profit – it is noteworthy to explain the importance of tax incentives in
promoting financial sustainability of the waqf agencies.

a. Tax Incentives Promote Financial Capacity of the Waqf Agencies

The findings suggest that tax incentives potentially improve the financial
capacity of the waqf agencies. First, tax incentives (e.g. tax exemption
and tax relief) help reduce tax expenses, hence increase their financial
strengths i.e. residual income. Lower tax expenses enable them to increase
their budget allocation for other waqf-related expenses. High allocation of
development and maintenance expenditure for managing the waqf assets
is imperative in the presence of increased costs in the property market. In
addition, waqf agencies are required by law to pay the assessment tax and
quit rent imposed on the waqf properties to the tax authorities. Failure to
comply with the tax regulations may result in a legal action i.e. the property
will be confiscated and the land will be seized. As the waqf agencies
manage thousands of acres of waqf land, a growing amount of quit rent
and assessment tax surely add more pressure to the financially challenged
waqf agencies in the present time. In short, tax incentives prove to be an
important instrument to help the agencies improve their financial capacity.
b. Tax Incentives Support Waqf Asset Management

One of the main factors contributing to the financial capacity of the waqf
agencies is the development and maintenance of waqf properties. According
to Ellsworth (1998), sustainability of capital assets is represented by the
on-going maintenance, reinvestment, so they are not “used up” either
by use, abuse, or inflation and remain available for future generations.
Therefore, there is a need to manage, maintain and develop the waqf
properties. With a large number of underdeveloped waqf properties, the
agencies are unable to generate their income while continuously incurring
expenses in managing the waqf properties. The potential consequences of
underdevelopment of waqf properties clearly suggest an inefficient waqf
asset management.
To develop and maintain the waqf properties, waqf agencies
necessitate a sufficiently huge financial capacity. The support by the
Government in providing tax incentives helps increase the financial
capacity of the waqf institution, which can be further allocated for the

development and maintenance of the waqf properties. In Malaysia and

Singapore, these sustainability principles are critical because an efficient
waqf asset management not only increases the return gained by the waqf
agencies, but also the benefits to the beneficiaries.
The best example can be illustrated by a waqf property development
in Singapore. Known as Red House, the establishment was previously an
outdated property. Upon redevelopment of the property, the property value
has been increasing and incentivises WAREES to improve its earnings up
to 7.72 times. This illustrates a success story of which development and
maintenance of waqf properties are imperative to promote the financial
sustainability of the waqf agency.
In contrast, the PWS in Selangor rather focuses on the potential land
for development. With the huge acreage of waqf land, PWS has planned
and implemented several competitive projects to gain higher returns to
the agencies and society. Among the planned developments include the
development of housing projects and petrol pump kiosks in the profitable
areas. All in all, tax incentives potentially increase residual income of
the waqf agencies, thereby enhancing their financial capacity. Improved
financial capacity indirectly promotes more efficient management of waqf
properties.
c. Tax Incentives Support Social Agenda

By providing tax incentives to the waqf agencies and the donors, numerous
benefits can be extended to the society to support the social agenda, among
others, as listed below:
a) Encourage the people to contribute to the waqf funds – tax
incentives motivate more people to contribute to the waqf funds.
In return, people most likely benefit from the returns gained by
the waqf agencies based on their contributions, hence improving
social welfare for instance, waqf schools, waqf healthcare
facilities, orphanages, facilities for the elderly people etc.

b) Encourage the corporate entities to organise corporate welfare

activities – corporate entities contribute to the waqf funds are
entitled to the special tax relief. Apart from promoting the corporate
reputation, this platform also serves as a bridge that connects
between the entities and the society at large via Corporate Social
Responsibility collaboration with the waqf agencies. For example,
endowment of horses to the YWM for the autistic society.
c) Narrowing societal wellbeing gap between the rich and the poor
– tax incentives open doors to the rich to channel their wealth
to the needy by nominating the waqf agency as a trustee. The
trustee accordingly translates the wealth into various benefits to
be distributed to the beneficiaries as listed in the waqf deed.
Summary of the differences between Malaysia and Singapore

Table 2.2 below shows briefly the differences of tax practices between
Malaysia and Singapore in relation to waqf.
Table 2.2 Differences in Tax Practices between Malaysia and Singapore
Tax practices Malaysia Singapore

1. Tax Under the Malaysian tax law, Under the Singapore tax
Exemption the waqf agencies are not law, the Waqf donations
for Waqf entitled for tax incentive due are treated as the donation
Donation to the waqf characteristic for the charity and the
which is the need to maintain donors can receive tax
the principal and only the deduction.
dividend or benefit from the
principal can be distributed to
the beneficiaries.

However, under the Malaysian

Tax Law, maintaining the
principal was not allowed.
The guideline of section
44(6), Malaysian Income
Tax Act 1967, indicates that
“The charitable institution/
organisation must spend at
least 50% (or such percentage
as may be determined by
the Director General) of its
income including donation
received in the previous
year for the activities which
were approved to achieve its
objectives for the basis period
for a year of assessment.”
This clause is against the waqf

practices and has resulted
in the waqf agencies unable
to comply with this law and
consequently, were not able
to receive tax incentive for
the donor.
Some of the waqf agencies

such as YWM received tax
exemption because it was
specially given by the Ministry
of Finance.
2. Tax Under the Malaysian tax law, H oweve r u n d e r t h e

Exemption the waqf agencies are not Singapore tax law, waqf
for waqf exempted to pay the tax, and organisations are treated
agencies waqf agencies are treated the as charitable organisations
same as the profit-oriented and their income was not
company, where their income subjected to tax.
is obliged or entitled to pay
the tax.

CONCLUSION
This paper presents the role of tax incentives in promoting the
sustainability of the waqf agencies. Based on documentation reviews and
in-depth interviews with three prominent waqf agencies in Malaysia and
Singapore, it is recommended that tax incentives and tax relief should
have some impact to the waqf agencies. Any surplus from the income
generated from waqf activities can be redistributed for the development
and maintenance while promoting the waqf culture in the society. In view
of the growing operating costs of the waqf agencies, it is recommended
that the government re-examine at the feasibility of providing tax
incentives to the waqf agencies and the donors. Reasonably, the tax
incentives encourage the waqf agencies to perform their functions more
efficiently while continuously reciprocating more benefits to the society at
large. Further study can explore the potential impact of other taxes on the
financial capacity of the waqf agencies and to ensure the sustainability of
waqf practices in the future.
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3
Corporate Social Responsibility Disclosure
and Firm Value of Government-Linked
Companies in Malaysia
Maswati Abd. Talib and Siti Mazlinda Mohd Marzuki
INTRODUCTION
Corporate social responsibility (CSR) is defined as responsibilities
undertaken by corporations to satisfy organisational goals as well as
societal needs in a balanced way that serves the interests of businesses and
community (Quazi & Richardson, 2012). Corporate social responsibility
disclosure (CSD) refers to the disclosure of CSR activities and information.
Contradict to financial investment, CSR investment might or might not
receive a return in a monetary form. However, investing in CSR might
provide financial benefits to firms and is associated with better long-run
growth prospects (Gregory, Tharyan & Whittaker, 2014).
Prior studies claimed that CSR is much related to company’s
sustainability. For instance, companies that implement CSR have a low
risk of bankruptcy in which they might not have the issue regarding
sustainability and going concern (Hsu & Chen, 2015). Furthermore,
companies that reuse and recycle their waste production can save
the environment. Moreover, socially responsible companies may not
only attract high-quality employees, but also increase their morale and
motivation, which in turn increases productivity and profitability (Akisik
& Gal, 2017).
Additionally, CSR can lead to positive and negative impact. Due
to CSR activities, hotel and restaurant industry shows a positive impact
while airline industry shows a negative impact on their firm value (Kang,
Lee & Huh, 2010). These findings on different industries explain that CSR
activities can eventually lead to either positive or negative impact on firm
value.
CSR reporting or as CSD in this study, is reporting involvement in
CSR, both voluntary and mandatory. Globally, due to pressures from
different stakeholders especially government, international organisation
and community, CSD becomes an important aspect of reporting. Over the
years, Malaysian companies CSD increases and considered to be the best
in ASEAN countries.
Stakeholders are increasingly interested in understanding the
approaches of organisations in managing their economic, environment and
social risks and opportunities (Bursa Malaysia Sustainability Reporting
Guide, 2015). Effective communication and meaningful reports assist
Malaysian companies in gaining public recognition, help attracting the
interest of socially responsible investment funds and more effectively
manage different stakeholder expectations other than delivering financial
and operational results (Atan & Razali, 2013).
Government-linked companies (GLCs) are among the pioneers in
exercising CSR in Malaysia. GLCs are companies in which the government
has a direct controlling stake and in general, GLCs make up the backbone
of the country’s economy (Atan & Razali, 2013). A profitable GLC
contributes additional income to the government that can be used to serve
the citizens. In fact, in 2006, Putrajaya Committee launched a guideline on
CSR activities called the Silver Book that encourages GLCs in Malaysia
to carry out CSR activities. However, very few studies have been carried
out to study the effects of CSD on GLCs’ firm value.
However, CSR activities and practices require more spending and
increase company’s expenditure without sufficient offsetting benefits, hurt
performance and compete with value-maximising activities (Sun, 2012).
The conflict of interest between managers and shareholders happens when
shareholders are reluctant to support CSR practices since doing so may
distract the firm from its core mission of maximising shareholders’ wealth
(Hsu & Chen, 2015). Meanwhile, managers will find their way to invest
in CSR and somehow, they may over-invest. At the same time, managers
also intend to keep their reputation by exercising more CSR activities.

Corporate Social Responsibility Disclosure and Firm Value of Government
Therefore, the main objective of this study is to examine whether or not

corporate social responsibility disclosure (CSD) affects the firm value of
Malaysian government-linked companies (GLCs). The remainder of this
study is organised as follows. Next section provides the literature review.
Then, the following section explains the data collection and research
methodology. The subsequent section discusses the research findings and
results of this study. The final section concludes this study.
LITERATURE REVIEW
Corporate Social Responsibility Disclosure (CSD)
Over the past two decades, CSR has emerged as an increasingly important
topic and corporations are increasingly under pressure to behave
responsibly (Hsu & Chen, 2015; Palmer, 2012). The significance of
corporate responsibility and environmental sustainability is accelerating
in its importance as a long-run adjustment factor to investors within
the current growing global uncertainty (DiSegni, Huly & Akron, 2015;
Akdogu & Birkan, 2016).
CSR focuses on the social aspect of business, whereas sustainability
is more forward-looking and focuses on managing the organisation’s
impacts on the economy, environment and society while securing its own
future (Bursa Malaysia, 2018). Malaysian Institute of Integrity (IIM)
promotes CSR practices in public and private companies and is responsible
to promote the practice of ethical principles, good values and integrity
(Nasir, Halim, Sallem, Jasni, & Aziz, 2014). Since 2007, CSR disclosure
(CSD) becomes a part of Bursa Malaysia’s Listing Requirement (KPMG,
2016) and listed companies are required to disclose their CSR activities
(Ahmed Haji, 2013).
In addition, the Silver Book was issued in 2006 to enhance and promote
CSD among government-linked companies (GLCs) under the GLC
Transformation Program launched in 2005. The Silver Book discusses
positive reporting and communication that act as a tool to effectively
manage and ensure optimal results from the contributions to society (Atan
& Razali, 2013). GLCs defined by the Putrajaya Committee for GLC High

Performance comprise companies with primary commercial objective and

in which there is a major ownership and direct controlling stake by the
Malaysian Government (Esa & Anum Mohd Ghazali, 2012).
CSD communicates accountability by presenting future vision and
past performances (Grahovar, 2010). Companies that communicate with
stakeholders about their CSR activities gain advantages such as having a
good image, reputation and gaining creditors’ trust.
CSD and Firm Value

“Stakeholder theory emphasises the importance of building and
maintaining good relationships with diverse stakeholders” (Feng, Wang &
Kreuze, 2017, p. 107). The increase in sustainability reporting may be an
indication that the companies regard CSD as a part of their strategy to build
value in creating trust among their stakeholders’ groups (Grahovar, 2010).
Palmer (2012) suggests that customers are willing to pay a high price for
products and/or services of companies with effective CSR programs.
Prior studies claimed that there is a positive significant relationship
between CSD and firm value of listed companies (Qiu, Shaukat & Tharyan,
2016; Cormier & Magnan, 2007). However, the results differ between
different countries. For instance, Cormier & Magnan (2007) found a
positive significant relationship between CSD and firm value of Germany
companies, but not in French and Canadian companies. Moreover,
employees-oriented CSR can benefit a firm not only in recruiting and
retaining employees, but also in creating value (Feng et al., 2017). Satisfied
and loyal employees may generate more productivity, which benefits the
business. Extensive and objective CSD grant competitive advantages
to a firm inclusive of strong reputation (Qiu et al., 2016). Additionally,
investors are also increasingly interested in CSD of the investee companies
due to increasing societal and regulatory pressures.
Cormier and Magnan (2007) mentioned that environmental disclosure
has a moderating impact on the stock market valuation of a German firm’s
earnings under institutional settings, but does not significantly influence
the stock market valuation of Canadian and French firms’ earnings. These
findings indicate that firms that produce more objective and extensive

CSD are likely to be viewed favourably by the investors and benefitted

from higher share prices. Moreover, prior studies demonstrated a positive
link between social and human capital disclosures (part of CSD) and firm
value (Clarkson, Li, Richardson & Vasvari, 2011; Cormier, Aerts, Ledoux
& Magnan, 2009).
Furthermore, it is argued that a strong reputation in social aspect as
reflected by the extensive and objective social disclosure ( CSD) can assist
a firm in attracting and retaining quality employees (Cormier et al., 2011),
enhancing employee morale and hence productivity, building goodwill
and trust with its key stakeholders, as well as helping to reduce the firm’s
transaction costs (lower employee turnover) and distributional conflicts
(employees’ diversity, equality of pay, fair trade terms). Therefore,
consistent with prior studies, this study has formulated the following
hypothesis as follows:
H1: Corporate social responsibility disclosure (CSD) is positively
related to firm value (FV)
METHODOLOGY
Sample Selection and Design
The population of this study included 64 Malaysian government-linked
companies (GLCs). GLCs were selected due to their important role to
the government in serving the society at large. A convenience sampling
method was applied in selecting a sample from the G20 companies (20
highest rank of GLCs) listed under Putrajaya Committee on GLC High
Performance Program. Eventually, those 20 companies were reduced to
only 16 GLCs due to various mergers, demergers and other corporate
exercises over the years (including Malaysia Airlines Berhad (MAS),
which has been delisted in 2014). Data were collected from these 16
GLCs’ (refer Table 3.1 for full list of selected GLCs) annual reports for
financial year 2012 to 2014 (data for three years). This was due to the fact
that in 2015, Bursa Malaysia replaced its CSR framework 2006 with a
new guideline, Bursa Malaysia Sustainability Reporting Guide. This new
CSR guideline comprises different elements of CSR activities and only a

few companies have implemented it. Thus, in this study, the financial year
2015 data was not included.
Table 3.1 List of Selected GLCs
1. Affin Bank Berhad

2. Axiata Group Berhad
3. BIMB Holdings Berhad
4. Boustead Holdings Berhad
5. Chemical Company of Malaysia Berhad (CCM)
6. CIMB Group Holdings Berhad
7. Malayan Banking Berhad
8. Malaysia Airports Holdings Berhad (MAHB)
9. Malaysia Building Society Berhad (MBSB)
10. Malaysian Resources Corporation Berhad (MRCB)
11. Sime Darby Berhad
12. Telekom Malaysia Berhad (TM)
13. Tenaga Nasional Berhad (TNB)
14. TH Plantations Berhad
15. UEM Sunrise Berhad
16. UMW Holdings Berhad
CSD Measurement
Bursa Malaysia provides the share market price of listed companies
and CSD is measured based on CSR framework 2006. Bursa Malaysia
CSR Framework 2006 outlines the key elements and areas of CSR in
four categories, which are environment, community, workplace and
marketplace. These four categories are classified into 26 subcategories
(Shirley, Suan, Leng, Okoth & Fei, 2009). Each company will get one
mark for each subunit they disclosed for CSR activities and the total mark
is 26 based on the total subunits. The total mark is then given rating from 1
to 5. Table 3.2 displays the rating for CSD marks scored by each company.

Table 3.2 Rating for CSD measurement
CSD Marks Rating

0–5 1
6 – 10 2
11 – 15 3
16 – 20 4
21 – 26 5
FINDINGS AND DISCUSSION

Firm value (FV) is measured by share price of those 16 selected GLCs
for three years (2012 to 2014). Therefore, this study was based on 48
observations. ANOVA analysis was used to show whether or not the CSD
influences the firm value (FV), which is measured by the share price of the
GLCs. Table 3.3 presents the results of relationship between CSD and FV.
Table 3.3 The ANOVA on CSD and Firm Value (FV)
ANOVAa
Model Sum of df Mean F Sig.
Squares Square
1 Regression 40.454 1 40.454 3.406 .086b
Residual 166.308 14 11.879
Total 206.762 15
a. Dependent Variable: FV
b. Predictors: (Constant), CSD
Base on the results in the above table, there was a weak relationship
between CSD and FV. The p value was 0.086, which is higher than the
significant value of 0.05 but still lower than 0.10. Hence, it shows that
CSR activities have a quite weak relationship with share price of GLCs.

Table 3.4 The Correlation between CSD and Firm Value (FV)
CSD FV
CSD 1 0.442
FV 0.442 1
N = 16
The correlation test in Table 3.4 resulted in a positive value of 0.442.

This study finding is inconsistent with that by Qiu et al. (2016). The
difference of these results may be due to the sample size of this study,
which only specifically focuses on the selected 16 GLCs. As a result, the
hypothesis (H1) was accepted at 90% confidence level and rejected at 95%
confidence level.
CONCLUSION
This study has examined the relationship between CSD and firm value of
16 selected GLCs in Malaysia. Its purpose is to find out whether or not
CSD affects the GLCs’ firm value. Share price has been used to measure
the firm value of GLCs in which share price is believed to reflect the
market value of the company based on the shareholders’ view. Findings
from this study showed a very weak interaction between CSD and firm
value of GLCs. Thus, this study proposed that CSD has a very weak effect
or influence on shareholders in determining the GLCs’ firm value.
The Malaysian government is serious and has been encouraging
companies to exercise CSR activities since Bursa Malaysia launched the
CSR Framework in 2006. In 2015, Bursa Malaysia has replaced CSR
Framework 2006 with the new Sustainability Reporting Guide 2015.
Future researchers may use the new Sustainability Reporting Guide
2015. The new framework focuses on three aspects, which are economy,
environment and social. The additional aspect on economy might give an
impact towards GLCs’ firm value.

To conclude, this study found that CSD has a very weak interaction
and relationship on firm value of GLCs. This indicates that CSD attracts
shareholders at a very minimum interest since firm value was not much
affected by CSD activities. Future studies can apply panel regression
analysis because in this study, variables that may or can affect firm
value were not controlled. Hopefully, the findings in this study can assist
policy makers on the related strategy and implementation of CSD related
activities in Malaysia.
REFERENCES
Ahmed Haji, A. (2013). Corporate social responsibility disclosures over time:
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138.
Akdogu, S. K., & Birkan, A. O. (2016). Interaction between stock prices and
exchange rate in emerging market economies. Research in World Economy,
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Akisik, O., & Gal, G. (2017). The impact of corporate social responsibility and
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4
Reform Journey of Government - Linked
Companies in Malaysia
Nor Aziah Abu Kasim, Mazlina Mustapha and Haslinah Muhammad
INTRODUCTION
Over several decades, rationalised by the need to further strengthen the
economic performance, public sector reform in Malaysia continues to
be an important government agenda. Nonetheless, the governance of the
public sector in general is besieged with concerns of balancing multiple
objectives, interference from the government in decision-making, and
lack of transparency and accountability (Xavier & Ahmad, 2012). What
seems to be the never-ending reform within the public sector landscape
suggests that the implementation of reform in the public sector context is
complicated with the interlinked between economic, social and political
factors shaping performance.
This study focuses on the government-linked companies (GLCs) in
terms of the series of reforms, the changes in their role over time and the
challenges they faced. The focus on GLCs is justified for they perform
a dominant role in Malaysia’s economy. GLCs employed 5% of total
workforce in the country and account for about 36% and 54% or Bursa’s
market capitalisation and Kuala Lumpur Composite index respectively
(Khazanah, 2015).
The term GLCs is explained in the first section to highlight the
peculiarities of GLCs. Next, this chapter discusses the critiques of GLCs,
then it traces the origin of GLCs through the journey of government
reforms over time since independence. The final section is on the
Reform Journey of Government-Linked Companies in Malaysia
reflections of reform. This journey of reform employs several sources of

literature, in particular those that are based on primary data. These sources
ranged from newspaper articles, books, websites, thesis, journal articles to
policy papers. Thus, this paper is primarily based on secondary sources of
information and it combines both the descriptive and explanatory analysis.
This chapter is important for its contribution to shed light on explaining
the complexity in implementing changes. Several qualitative PhD thesis
on the process of reform in GLCs highlight issues of resistance to change
(Siti-Nabiha & Scapens, 2005), ceremonial change or loose coupling
(Nor-Aziah & Scapens, 2007), complex interrelated chain of stakeholders
(Julia, 2012) and unfair performance evaluation (Abu Bakar, 2018).
These issues are evidences to indicate that implementation of the reform
is not only a challenge but also the reform creates limitations. In addition,
these empirical work placed importance not only on technical change such
as the private sector accounting technique, but also relate to the social,
political and economic aspects the reform process.
DEFINITION OF GLCS
In Malaysia, the GLCs are companies in which the government, either
at the federal or state level, owns at least 20% of the issued and paid-up
capital. GLCs also include subsidiaries and affiliates of GLCs. As a
result of the ownership, the government has a controlling stake in major
decisions, such as appointment of management positions, contract awards,
strategy, restructuring and financing, acquisition and divestments. In other
words, GLCs are companies with commercial objectives but unlike the
private companies, GLCs are owned and controlled by the Malaysian
government. GLCs are also called state-owned enterprises (SOEs) or
non-financial public enterprises.
The funds that the GLCs received from the government are allocated
through the government-linked investment companies (GLICs). The
seven GLICs are the Minister of Finance Inc, Permodalan Nasional
Bhd, Khazanah Nasional Bhd, Kumpulan Wang Persaraan (KWAP), the
Employees Provident Fund (EPF), Lembaga Tabung Haji and Lembaga
Tabung Angkatan Tentera. In 2013, these GLICs have majority ownership

in 35 public-listed companies, which in terms of market capitalisation,

they control about 42% of the entire Bursa Malaysia (Wan Jan, 2017).
In addition, the government has connections with more than 68,000
other companies through these 35 public-listed GLCs. Based on these
impressive figures, Menon (2017, p. 2) described the important economic
role of GLCs as both “widespread and pervasive”.
In spite of the prominent role of the GLCs, the PCG (2015, p. 27)
identified in its Graduation Report three common critiques leveled against
GLCs, which are (1) “Crowding-out” of the private sector, (2) Political
influences in decision-making and (3) Underperformance of GLCs. Each
of these critiques will be explained in the next section and the emphasis of
the explanation is on the context or the peculiarities of the GLCs.
CRITIQUES OF GLCS
Although GLCs operate in many sectors, they are most dominant in
utilities (93%) and transportation and warehousing (80%) (Menon, 2017).
In terms of services, the GLCs are main providers of strategic utilities
such as public transportation, water, telecommunications, air travel and
banking. The pervasive and widespread role of GLCs as mentioned
earlier reflects the strong influence and presence of the government’s role
in business. Due to this increased role of the government, the GLCs are
pushing the private investors away or ‘crowding-out’ the private sector
(PCG, 2015).
GLCs’ operations is linked with the government through the ownership
of shares by the GLICs. This shareholding link allows the government to
interfere with the major decisions within the GLCs. As the government
has the majority control, the government is actively involved in the
business decisions of GLCs. These decisions can include the appointment
of members of the Board and senior managers, contract awards, strategy
formulation, re-structuring and financing, acquisition and divestments.
Consequently, although the GLCs are established business entities with
commercial objectives, their business decisions are not entirely free from

political interference. The decision-making of management in the GLCs

is sometimes subjected to balancing the economy, social and political
motives.
While on one hand, the GLCs are controlled by the government, they
also received preferential treatment from the government on the other.
They have access to government contracts and benefits from favourable
government regulations. They are able to reap other benefits including
government procurement direct subsidies, concessionary financing,
state-backed guarantees, and exemptions from antitrust enforcement or
bankruptcy rules (Menon, 2017). These preferential treatments have
resulted in an uneven playing field that has kept private sector at the
sideline and has exposed the GLCs to face less competition (Xavier &
Ahmad, 2012).
Another preferential treatment enjoyed by the GLCs is the financial
bailout given by government to rescue GLCs which are financially
distressed. For example, a bailout of RM1.5 billion for Proton occurred
in 2016, and RM6 billion for Malaysia Airlines in 2014. One estimate
suggests that around RM85.51 billion have been used to bail out financially
distressed GLCs over the past 36 years (Menon, 2017). The government
could not allow the strategic GLCs to fail but these bailouts have resulted
in fiscal burden on the country. The poor economic performance of GLCs
is a concern to the nation especially when the GLCs continue to experience
worsened financial health after the government’s rescue. For example,
Malaysian Airlines Berhad1 reported losses in three consecutive years –
RM812 million in 2017, RM439 million in 2016 and RM1.13 billion in
2015.
Several studies on GLCs’ performance (Najid and Rahman,
2011; Hisyam, Razak, Ahmad & Joher, 2011; Lye, 2011; Mohamad &
Said, 2013) reported that the GLCs performed worse than the non-GLCs.
However, Bhatt (2016) found no difference between the performance of
GLCs and non-GLCs. Other studies by Lau & Tong (2008) and Mohd
Noh (2009) reported better performance of GLCs. The recent study by
1
Malaysian Airline System (MAS) changed its name to Malaysia Airline Berhad (or Malaysia
Airlines) effective from 24 July 2017 when it was taken over by Khazanah.

Khoo (2018) which examined the impact of the GLC transformation

programme (GLCTP), using time-series data from 1999 to 2017 of 40
GLCs and 33 comparable non-GLCs, showed that GLCTP has no impact
on the performance of GLCs in terms of financial measures of return on
equity and return on assets. Overall, these studies tend to report GLCs
performed worse compare to the non-GLCs on financial terms. Unclear
social objective and their lack of focus on creating value and on attaining
a strong culture of performance management contributed to the poor
performance of GLCs (PCG, 2015).
The above studies on performance of GLCs tend to employ the easily
available, quantitative and financial measures of performance. This raise
the issue with whether these measures alone are adequate and appropriate
to represent the wider concerns of GLCs not only with economic but social
and political objectives. In addition, these studies assume that the GLCs
are similar and comparable with the private sector companies, which can
solely focus on making money.
JOURNEY OF REFORM
Prior to 1956, during the colonial period, the public sector was expanded
to provide infrastructure and services. The expansion was modest since
Malaysia’s first Prime Minister, Tunku Abdul Rahman, adopted the laissez
faire approach with minimal government interference. From mid-1960s,
many state governments set up state economic development corporations
to foster development in agriculture and industry. After independence,
SOEs grew rapidly and venture into commercial and industrial enterprises.
The racial riot which occurred in 1969 triggered the government, under
the second Prime Minister, Tun Abdul Razak, to introduce the National
Economic Policy in 1970 which aimed to eradicate poverty and eliminate
the identification of race with economic function.
During the early 1970s and 1980s, the public sector grew substantially
as it was entrusted to take care of national priorities and public interest
including achieving national unity. During the 1970s also the government,
through nationalisation, acquired the national assets which were then listed

in the London stock market. This period was equated with rapid public
sector growth through SOE expansion. However, it brought problems of
bloated bureaucracy, inferior services, inefficiency, low productivity, high
costs and limited innovation (Hisham, 2011).
From 1981-1985, the fourth Prime Minister, Tun Mahathir, adopted the
Look East Policy to modernise and industrialise the Malaysia’s economy
by emulating the success of Koreans and Japanese. Relative to other
developing countries, Malaysia was one of the first to start privatisation
programme (Mohamed, 1995), which was officially launched in 1983.
The concept of “Malaysian Incorporated” also introduced in 1983 was
to increase the role of the private sector to help the country to grow and
expand its economy. Privatisation is viewed by the Malaysian government
as essentially a transfer of ownership and management of government
services and enterprises to the private sector (Muhd-Salleh & Osman-
Rani, 1991). Privatisation paved the way for the government to introduce
market-based reform in the public sector and to reduce the involvement of
government in economic development of the nation.
The worldwide trend towards privatisation appears to favour increased
private sector ownership as a way to economically transform public sector
organisations (Hodge, 2000). Under privatisation, the public sector should
improve their delivery of public goods and services through emulating
the private sector way of management. In Malaysia, privatisation was
implemented to increase growth, improve efficiency and productivity, trim
the public sector, reduce the government’s financial and administrative
role and redistribute wealth to the Bumiputeras (Hisham, 2011).
During the period from 1986 to 1990, still related to privatisation but
this time, there was a reversal of the previous public-sector expansion
approach. Some selected government departments in sectors of
telecommunications, airlines, railway, electricity, port and postal services
were privatised. These efforts reduced public spending, relieved the
government’s fiscal burden and strengthened the market forces. Another
reason for this increased role of the private sector is to assist the government
to realise its 30-year plan called Vision 2020 to transform Malaysia into a
developed country status.

While privatisation reduced the financial and administrative burden

of the government, its adverse effect is the priority placed on profit
maximisation in the delivery of public services to the citizens. The
reform approach assumed that the private sector way of reform is superior
and effective to improve the public sectors’ performance (Nor-Aziah &
Scapens, 2007). Other concerns with privatisation is the lack of clear and
transparent administrative processes that emphasised on accountability
and good governance (Menon, 2017) and the limited influence of market
or competitive forces.
The “Asian Financial Crisis” in 1997-1999 triggered the process
of renationalisation, whereby some of the privatised entities were
recapitalised and restructured. This economic crisis caused some public-
listed GLCs to be delisted. The government including PETRONAS had
to nationalise the previously privatised assets or bought back the privatised
entities which were MAS, UEM, STAR, PROTON and IWK (PCG, 2015).
In 2004, the fifth Prime Minister, Datuk Seri Abdullah Badawi,
launched the government-linked companies transformation programme
(GLCTP). It is a ten-year plan from 2004 until 2015 which set the
ambitions for the 20 GLCs or G202 to “continue to aspire to greater heights,
whether in terms of being best in class or emerging as future regional, if
not global, champions” (PCG, 2015, p. 7). It intends to transform GLCs
into at least regional market players if not global market players. Briefly,
the transformation is based on three underlying principles, five policy
trusts and ten initiatives (ibid, p. 17).
The 3 principles are focus on performance, support the government
in nation building and management of stakeholders’ interests. As for the
5 policy trusts which laid the stages for implementation, they are: (1)
clarification of mandate for change by government (2) improvement in
governance of Board of Directors of GLCs (3) enhancement of capabilities
of GLICs (4) acceptance of best practices by GLCs (5) implementation of
GLCTP by GLCs. Finally, the 10 initiatives are listed in Table 4.1.
2
Examples of these GLCs are Telekom Malaysia Bhd, Tenaga Nasional Berhad, Malaysia Airport
Holdings Bhd, TH Plantations Bhd, Sime Darby Bhd, Malayan Banking Bhd, CIMB Group Bhd,
Boustead Holdings Bhd and BIMB Holdings Bhd. For the complete list please refer to Table 1 in the
Appendix.

Table 4.1 Ten Initiatives of GLCTP
1. Enhance board’s effectiveness 6. Enhance operational efficiency

and effectiveness
2. Strengthen directors’ capabilities 7. Achieve value through social
responsibility
3. Monitor management framework 8. Strengthen leadership
of GLICs development
4. Intensify performance 9. Optimise capital management
management practices practices
5. Improve procurement guidelines 10. Create value through regulatory
and practices management
GLCTP was the most recent and thorough reform and “It is presented
as a mechanism to promote a more performance-oriented, accountable and
responsive system of government” (Siddiquee, 2014, p 15)
The implementation of GLCTP covered four phases. The first phase,
Phase 1 Mobilisation, Diagnosis and Planning (2004-2005), involved the
revamp of Khazanah and corporate boards, and the adoption of leadership
changes and key performance indicators for GLCs. During this phase, the
“2004 Measures” were introduced to inculcate high performance culture
within GLCs. The second phase, Phase 2 Generate Momentum (2006),
set policy guidelines and launched the GLC Transformation Manual.
The reforms in the first two phases were expected to produce results by
the third phase, Phase 3 Tangible Results (2007-2010). The final phase,
Phase 4 Full National Benefit (2010-2015), should produce regional
champions and place GLCs at par with its competitors by 2015. In the
GLCTP Graduation Report (2015, p 124), PCG reported: “As a result of
strong financial performance, G20 has been able to contribute RM108.6
billion in dividends and RM62.7 billion in taxes from FY2004 to FY2014,
providing returns to the investing public (including contributors to trust
agencies such as Employees Provident Fund and Permodalan Nasional
Berhad) and the rakyat and country.” On the contrary, Khoo (2018) argued
that the GLCTP lacked impact on the performance of the G20.

As with previous initiatives, the importance of enhancing and

sustaining performance remains. Thus, the aim of GLCTP was to create
and nurture a performance culture within GLCs by institutionalising key
performance indicators and performance-based compensation. Although
GLCTP was declared a success when it was concluded in 2015, the
controversies of Lembaga Tabung Haji and poor financial health of MAB
in 2018 seem to suggest that there is an uneven achievement amongst
the GLCs in the G20. Although the GLCs are grouped as G20, each has
their own strengths, weaknesses and challenges such that the effects of
reform may not be the same. Notwithstanding the lack of effectiveness
of reform for some GLCs, on the whole, the GLCTP has reinforced the
greater role of the government in business and need to instill a culture of
high performance. A summary of the above reforms in the public sector,
arranged chronologically is in Table 4.2 below:
Table 4.2 Public Sector Reforms
Year Reform
Prior to 1956 Public sector expanded primarily to provide infrastructure and
services to the public.
Mid 1960s State economic development corporations were created as
state level.
1970 New Economic Policy was initiated on rationales of poverty
reduction, ethnic affirmative action and national unity.
1970s - 1980s Government purchased national assets listed in London stock
market. There was also rapid public sector growth through
state-owned enterprises.
1981-1985 Look East Policy for Malaysians to emulate the success of the
Koreans and Japanese.
1983 Malaysian Incorporated to foster greater involvement of the
private sector in nation building.
1986 -1990 Corporatisation and privatisation of government departments
to reduce the financial and administrative burdens of the
government.

1997- 1999 Recapitalisation and restructuring of some privatised entities

which experienced financial distress.
2004 - 2015 Government-linked companies transformation programme
which aspires GLCs to become regional and global market
players. It aims to inculcate high performance culture within
G20 GLCs.
There were a variety of changes made to reform the public sector in

Malaysia and they seemed to coincide with the prevailing government’s
concerns at the time of reform. A common thread underpinning these
reforms was that they were mandated externally by the government rather
than initiated internally by the GLCs themselves. In addition, the reforms
were seldom only about the economic performance because the GLCs
were also expected to pursue public interest and the political agenda of
the government. Over time, the reform has resulted in the strengthened
the role of the government in business through the business activities of
the GLCs.
Based on the above discussion, the journey of reform has been a long
one but a journey with the consistent intention to improve the financial
performance of the GLCs. It was a difficult journey due to the previous
culture of public sector department, interference of government, the
mimicking the private sector management technique in a public sector
context, and the balancing between social, political and economic
objectives.
REFLECTION ON REFORMS
GLCs had their origin as government departments which later converted to
become corporatised or privatised business entities. Within these entities,
changes brought about by corporatisation or privatisation were sometimes
confronted with resistance from employees due to lack of compatibility
with the previous government culture of thinking and working (Nor-
Aziah & Scapens, 2007). Consequently, the old routinised way of working
perpetuated and change became ceremonial.

Notwithstanding the privatisation exercise, the government retains

its controlling stake through its substantial ownership. This ownership
enables the government to control the major decision-making within
GLCs. As a result, the GLCs are not always free from political/government
interference and are sometimes burdened with the political, social and
national objectives. For example, the GLCs are expected to perform an
important role in achieving the objectives of the affirmative New Economic
Policy (NEP) which aims to increase the Bumiputera participation in the
economy. GLCs are being challenged to focus on its commercial demands
and compete against the global business pressures while at the same
time meet the national aspirations and social concerns as mandated by
the government (Dahlan, 2010). Therefore, the government, as a major
or strategic shareholder in the GLCs, has imposed a broader political or
social agenda beyond maximising profits (Gomez, 2009).
With the government’s interference and the challenge to achieve
both economic and social objectives, GLCs are at a disadvantaged when
compare with the private sector companies. They are also answerable to a
wider group of stakeholders beyond the shareholders and investors. In other
words, they had to manage multiple stakeholders – the public, regulatory
bodies, Ministers, customers, shareholders - with different interests.
Efforts to reform GLCs by focusing only on economic performance are not
only difficult but also inadequate because of the need to include political,
social and national agenda.
Discussions on public sector reform appear to be dominated by the
economic-oriented managerial approach which takes for granted the
technical superiority of private sector management practices for solving
inefficiencies in the public sector. The pressure to imitate private sector
accounting in the public sector stems from the government’s belief in the
potential of the system to control and enhance organisational performance.
In other words, when public sector reform is biased in favour of the use
of the private sector approach, the peculiarities of the public sector have
been ignored. GLCs are peculiar as they are owned by the government
and their objectives cover not only economy but also political and social.
These peculiarities made the GLCs unique and thus, they are not directly

comparable with the private sector. While mimicking the private sector
approach might focus the attention of reform on generating profits, it might
undermine the importance of the political and social agenda.
In general, the reforms are imposed externally by the government
using similar templates. It was rare for the GLCs themselves to initiate
reforms. Since the government has the controlling stake in the GLCs,
any government reform is considered a coercive or mandatory reform.
These reforms in various forms – nationalisation, privatisation, capital
restructuring and transformation programme – represent the ongoing
quest to enhance the performance of GLCs. The latest ten-year GLC
Transformation Programme for the 20 GLCs assume that all the GLCs
are alike in their problems. Each of these GCLs need to be transformed
into high-performing and regionally critical competitive entities. In this
transformation process, the government institutionalised the use of KPIs
and Bell-shaped curve in the performance evaluation of the employees.
Accountability is via performance-baed reward.
Reforms, in particular privatisation and GLCTP, have affected the role
of GLCs. What started as the role to primarily provide infrastructure and
services, GLCs have enhanced its role and size. In Malaysia, GLCs continue
to perform a prominent role in the evolution of Malaysia’s economy ever
since its post-independence industrialisation. From a political economy
point of view, there is a concern that the pervasive role of the government
in business will interfere with the GLCs’ good governance. For enhancing
good corporate governance especially on accountability, Gomez (2018)
calls for more transparency of government reforms. Sharing the details on
reforms can benefit the public sector as it can promote engagement from
the public.
CONCLUSION
This chapter reflects on the journey of reform to shed on insights of
reforms in the public sector covering the period from pre-independence
until 2015. The reforms highlight the important role of government in
initiating the reform and its business role that it performed in the Malaysia’s
economy. The GLCs, as companies which are owned and controlled by

the government, are unique as they have also to fulfill several objectives
including social, economical to political objectives. As they have to fulfill
the different objectives, their reform process is complicated since they are
accountable performance to many different stakeholders.
The reforms are mandated through the coercive pressure from
the government and are made to change using the private sector or
managerialism approach. Such change is to instill a new culture of
performance and managerial orientation in the context the public sector.
Performance of GLCs are of a concern and that by adopting the private
sector approach, they should be more efficient and effective in their
performance. However, implementation of reform has been uneven
and its impact on performance is mixed and uncertain. This outcome
of reform warrants the initiation of next future reform. Future study on
public sector reform can focus on assessing the reform and comparing
their effectiveness with the more renowned reforms in countries like New
Zealand and Australia.
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APPENDIX
Table 1 List of GLCs in G20*
No. Government-Linked Government-Linked Investment

Companies (GLC) Company (GLiC) parent of the GLC
1. Affin Holdings Bhd Lembaga Tabung Angkatan Tentera
(LTAT)
2. Axiata Group Berhad Khazanah Nasional Berhad
(Khazanah)
3. BIMB Holdings Bhd Lembaga Tabung Haji (LTH)
4. Boustead Holdings Bhd Lembaga Tabung Angkatan Tentera
(LTAT)
5. Chemical Company of Permodalan Nasional Berhad (PNB)
Malaysia Bhd
6. CIMB Group Bhd Khazanah Nasional Berhad
(Khazanah)
7. Malayan Banking Bhd Permodalan Nasional Berhad (PNB)
8. Malaysia Airports Holdings Bhd Khazanah Nasional Berhad
(Khazanah)
9. Malaysia Building Society Bhd Kumpulan Wang Simpanan Pekerja
(KWSP)
10. Malaysian Airline System Bhd Khazanah Nasional Berhad
(Khazanah)
11. Malaysian Resources Corp Bhd Kumpulan Wang Simpanan Pekerja
(KWSP)
12. Sime Darby Bhd Permodalan Nasional Berhad (PNB)
13. Telekom Malaysia Bhd Khazanah Nasional Berhad
(Khazanah)
14. Tenaga Nasional Bhd Khazanah Nasional Berhad
(Khazanah)
15. TH Plantations Bhd Lembaga Tabung Haji (LTH)
16. UEM Group Bhd (unlisted) Khazanah Nasional Berhad
(Khazanah)
17. UMW Holdings Bhd Permodalan Nasional Berhad (PNB)
(Source: PCG, 2015)
*On 28 February 2013, there were only 17 GLCs rather than 20 GLCs due to mergers, demergers,
divestments and other corporate exercises

5
A Revisit of The Islamic Financial Institution
Value Creation Based on Maqasid al Shariah
Sabarina Mohammed Shah and Mohamat Sabri Hassan
INTRODUCTION
This paper examines the theoretical aspect on the achievement of the
Islamic Financial Institution (IFI) value creation based on Maqasid al
Shariah1. This paper begins by presenting the literature review of the
financial performance measurement of Islamic Financial Institution from
the mainstream theoretical lens. This is then followed by the discussion
on Maqasid al Shariah as the alternative performance measurement for
the Islamic Financial Institution. Subsequently, the paper put forward
the notion of the akhlaq2 of the market participants in which this paper
concludes that this is an important aspect in which the achievement of the
Maqasid al Shariah would be more attainable.
LITERATURE REVIEW
Earlier literature focused on the financial performance of IFI which
eventually had shifted to the corporate social responsibility aspects.
Performance measurements are mainly adopted from the mainstream
literature based on the agency and the stakeholders’ theories. The Islamic
perspective of the stakeholder theory differs on the grounds that Islam
does not view all stakeholders as having equal claims (Beekun & Badawi
2005; Dusuki 2008; Iqbal & Mirakhor 2004). The consensus is that
Islam firmly upholds the principles of property rights, commitment to
A Revisit of the Islamic Financial Institution Value Creation Based on Maqasid al Shariah
explicit and implicit contractual agreements, and implementation of an

effective incentive system (Beekun & Badawi, 2005; Iqbal & Mirakhor,
2004). However, the concept of property rights should be understood
as a non-absolute right and should not violate the interests and rights of
others (Abusulayman, 1998; Beekun & Badawi, 2005). Apparently, the
stakeholder theory is favored over the agency theory by contemporary
Islamic scholars (Beekun & Badawi, 2005; Dusuki, 2008; Hasan, 2011;
Iqbal & Mirakhor, 2004). Nevertheless, Chapra (2004) criticised the
theory as not viable as an enabling environment3 during the glorified
period of Islam, which is virtually absent currently. Meanwhile, Dusuki
(2008) suggested that the pyramid of maslahah4 be applied in mitigating
the conflict that arises in deciding which interest of the stakeholders to
protect in the case of implicit contracts. Thus, both the stakeholder theory
and the concept of maslahah (Jensen, 2001; Laldin, 2010) are vulnerable
in the absence of a proper control mechanism (Chapra, 2008). According
to Laldin (2010), maslahah is as follows:
“Maslahah refers to human benefit and interest in both the worldly life
and the hereafter. Therefore, to deduce without guidance from the shariah5
is generally beyond the capacity of human intellect. Human intellect may
be able to deduce certain masalih. However, these will not be accepted
unless they conform to the shariah. The misuse of maslahah to satisfy
human desires is also feared” (p.76).
Maqasid al Shariah
Essentially, IFI raison d’etre is to achieve the maqasid al-shariah and the
scope of maqasid is wide because it encompasses the whole spectrum of
on the act of worship inclusive of the specific worship to God and ones’
akhlaq in his or her worldly affairs with mankind. Umar ibn Khattab
explicitly presents this distinction during his occupation as the second
caliph as he performed his ijtihad (effort made in deriving to careful
reasoning or decision making) by his acknowledgment of the wisdom
behind the scriptures, namely, the Quran and the Prophetic tradition.
Bukhari narrates that Umar was asked: “Why do we still jog around the

ka’bah with our shoulders uncovered even after Islam had prevailed in
Makkah? Umar answered: We do not cease doing anything we used to do
during the time of the Prophet Muhammad peace be upon him (PBUH).
Meanwhile, “Umar decision to include horses in the types of wealth
included in the obligatory charity of zakah (purification of wealth), despite
the Prophet’s clear instruction to exclude them. This is because Umar’s
rationale was that horses at his time were becoming significantly more
valuable than camels. Umar had understood that the purpose of zakah in
terms of a form of social assistance that is paid by the wealthy for the sake
of the poor regardless of the exact types of wealth that were mentioned in
the Prophetic tradition and understood via its literal implication”
This distinction was later endorsed by all schools of usul al-fiqh6
(Auda, 2010). According to Imam Al-Shatibi as recorded in Auda (2010),
“literal compliance is the default methodology in the area of acts of specific
worship, while the consideration of purposes is the default methodology
in the area of worldly dealings” (p.11). During these early stages, the
maqasid al-shariah was not a science on its own. The maqasid al-shariah
has been in existence since the period of Prophet Muhammad PBUH.
Essentially, maqasid is achieved by blocking the means to mafsadah
(avoidance of mischief) and opening the means to maslahah (goodness
for public interest) according to Al Qarafi d. 684 AH/1285 CE (Auda,
2010). Therefore, the main objective is the maqasid al-shariah, and that
the maslahah should be considered to achieve this objective.
As a result, the maqasid al-shariah reemerged as an independent
discipline of knowledge developed from “a juristic theory” (El-Mesawi,
2012). Auda (2010) acknowledged the Al-Qaradhawi views that the
proposal of a theory in universal maqasid should only be conducted after
developing a level of experience with detailed scripts. Moreover, the
current discussion on maqasid al-shariah should be carefully positioned
in a more meaningful perspective for this reemerging knowledge to move
forward as an independent new science (El-Mesawi, 2012). Applying
the maqasid al-shariah means that it should be based on “wisdom and
people’s welfare,” (p. 5) which was summarised by Ibn al-Qayyim in

his juridical methodology (748 AH/1347 CE) as by cited Auda (2010).

Accordingly, Auda (2010) indicated that Ibn al-Qayyim (748/1347 CE)
interpreted shariah as follows:
“Shariah is about wisdom and achieving people’s welfare in this
life and the afterlife. Shariah is all about justice, mercy, wisdom, and
good. Thus, any ruling that replaces justice with injustice, mercy with
its opposite, common good with mischief, or wisdom with nonsense is
a ruling that does not belong to the shariah, even if it is claimed to be so
according to some interpretations” (p. 20)
The maqasid al-shariah has five main dimensions, namely, the
preservation of self (nafs), faith (din), intellect (aql), posterity (nasl),
and wealth (mal). Each of these dimensions comprises three main levels
of necessities, namely, necessities (daruriyyah), needs (hajiyah), and
luxuries (tahsiniyyah). The Islamic scholars are in consensus regarding
these dimensions and levels (Chapra, 2008; Auda, 2010). Thus, shariah
is meant for a human being, and in terms of the economic activities in
Islam through shariah, Chapra (2008) argued that the objective should
be directed toward the achievement of falah (success in the world and in
hereafter). These achievements should be manifested in the preservation
of the five dimensions of the maqasid al-shariah. Similarly, the ultimate
objective of an Islamic firm is to attain eternal success (Rahman, 2010;
Yusof & Amin, 2007), which applies to IFIs as part of the economic system.
Ideally, the values system of these institutions should be derived from
the Islamic precept because it forms part of the Islamic economic system.
IFIs are established to “rebuild the Islamic society and the realization of
Islamic cooperation while adhering to the fundamentals of the shariah”
(Al Zuhayli, 2003, p. 349). Hence, the performance measurement must be
able to capture all the indicators of these five dimensions, which eventually
lead to eternal success with the blessings of Allah SWT.
The value creation based on the dimensions of the maqasid al shariah
has been conceptualised widely in the literature. The current research
has documented the achievement of the higher objective of the shariah
in the field of politics, economics and finance. However, the empirical
evidences pertaining to the IFI achievements in the light of maqasid al

shariah presented conflicting results. Some respondents provided positive

feedback on the IFI achievements, while others offered negative criticisms
(Khan, 2010; Mansour, Jedidia & Majdoub, 2015). Notably, an increasing
number of literature is observed, which measures the IFI achievement in
terms of the preservation of wealth. Al-Mubarak and Osmani (2010) and
Dusuki and Abozaid (2007) examined the financial instruments offered
based on the underlying contracts. Mixed results were generally derived
by Dusuki and Abozaid (2007) who argued that several of the Islamic
financial instruments have yet to achieve the maqasid al-shariah as they
are deemed shariah-compliant but not shariah-based. Furthermore, they
highlighted that a trade-off at the macro and micro levels of maqasid al-
shariah existed.
The practice of hilah (permissible tricks) has been considered
widespread with the application of debt based contracts namely bai al-
inah7 and tawaruq8 as the underlying contract of financial instruments (Al
Mubarak & Osmani, 2010). Thus, they concluded that certain financial
contracts offered by the IFI create greater mafsadah than maslahah.
Subsequently, the achievement of maqasid at the aggregate level of
the IFI was examined (Mohammed & Taib, 2011; Ngalim, Ismail &
Yaa’kub, 2012). Mohammed and Taib (2011) found that according to the
performance measures based on maqasid al-shariah (PMMS), Malaysian
Islamic banks perform much better than Malaysian conventional banks.
This means that the IFI achieved the maqasid al-shariah at the aggregate
level. However, Ngalim et al. (2012) conducted a comparative study
between Malaysia, Indonesia, and the Gulf Cooperation Council (GCC)
countries found that the value-creation of Malaysian Islamic banks are
trailing behind Indonesia and the GCC countries based on their indicators
named Islamic Vision Development-Based (IVDB).
Studies were also conducted to examine the IFI vision and mission
statement to determine whether they are aligned to the maqasid al-shariah
(Mohammad & Shahwan, 2013). They proposed that the values should be
embedded in the IFI vision and mission statement in order to measure the IFI
achievement based on the maqasid al shariah. In this regards, lesson from
the mainstream literature could be used in order to ensure that the maqasid

al-shariah does not end as rhetoric or perceived as a mere revision of codes

of conducts. These revisions are clearly a miscalculated outcome because
“it is not the rules and regulations; it is the way people work together”
(Sonnenfeld, 2002, p. 106). This desire is caused by the possibility that the
revision and newly developed rules, regulations, standards, and codes in
the aftermath of financial crises and corporate failures will be maneuvered
a few years in the future. Therefore, tightening the prescription by
introducing standards and practices is ineffective because the essential
foundation of effective corporate governance remains dependent on the
personal integrity and business acumen of executives and directors. This
is because these values could not be merely regulated for religion, and
personnel ethics play a crucial role in shaping one’s ethical conscience in
shaping a civilized business society (Parker, 2014; Fishkoff, 2010).
Akhlaq in accordance with Islamic Teaching

Literature on the achivement of the maqasid al shariah presents
conflicting results as discussed earlier may stemmed from the differences
in the contexts studied. Warde (2010) in his book “Islamic Finance in the
Global Economy” viewed that several of the literature pertaining to IFI
inadvertently misinterpreted the contextual concern in which the institution
operates. There exists divergence in the development, progress and growth
of Islamic finance from one country to another country. In addition,
there are phases in the Islamic finance throughout its development in the
global economy (Hanifa & Hudaib, 2010; Warde, 2010). Hence, it is only
fair to measure the achievement of the maqasid al shariah based on the
place, phases (time) and context of which the Islamic Financial Institution
operates. Nonetheless, he further viewed that in most cases, the application
of Islamic principles and jurisprudence was not from a careful thought,
rather from an ad hoc manner based on the situational context. The reasons
may be attributable to the prevalent information asymmetry which causes
the ex ante and ex post problems namely the adverse selection and the
Islamic moral hazard behaviour respectively (Lewis, 2005; Warde 2010).
Apparently, a large number of Muslim countries face moral issues and
are perceived to be corrupt, as revealed by the Transparency International

Corruption Perception Index which indicates poor control of corruption by

the government of the day (Lewis, 2005). Consequently, the risk transfer
model is most preferred to over the risk-sharing model by the IFI of which
the latter could only be successfully applicable within a society with high
level of ethical behaviour. One of the examples that could be cite, is the
early establishment period of Bank Islam Malaysia (2006) where the
institution reported losses of RM 2.2 billion due to high non-performance
loans.
Warde’s (2010) critique is important because it indicates the
importance of the comprehension of the ethical behavior or akhlaq
of market participants, which are considered relatively few (Syed &
Metcalfe, 2015) in order to evaluate the achievement of the Islamic
Finance, generally and Islamic Financial Institution specifically. Similar
to the study of Primeaux (1997), Primeaux and Stieber (1994) pointed
out that ethics and profit are intrinsically connected. This is also true from
the Islamic perspective, as supported by the abundant texts and examples
provided by Quran, the Prophetic traditions and the text from the earlier
scholarly Muslim authorities (Ali, Al-Aali & Al Owaihan, 2013; Sidani &
Al Ariss, 2015).
Apparently, there appears to be divergence between the text and the
ethical behaviour of Muslims in general, specifically, in the Middle East
(Rice, 1999) and in Malaysia (Abidin, 2010) of which is being intertwined
by cultural aspect, the Arab culture and the Malay culture. This resulted
in a negative image towards Islam and is also further exaggerated due
to the negative publicity by the mainstream mass media specifically in
the west (Morey & Yaqin, 2010; Said 1997). The infamous event of 9/11
and the caricatures that belittled Prophet Muhammad PBUH not only had
sparked terror on Islam, but also had painted an ugly picture of Muslims.
These acts have caused uneasiness to Muslims and Non-Muslims alike,
especially those who live and work in the west. As a result, Islam has been
dubbed as the most misunderstood religion. Nonetheless, the shootout
that had happened at Christchurch mosques, New Zealand on 15 March
2019 had created a wind of change in the perception of the west towards
Islam.

Meanwhile, Sidani and Thornberry (2013), in their study on nepotism

within the family businesses and entrepreneurship in the Arab setting
amidst the political and economic changes as witnessed in the Arab
Spring revolutions, discussed how nepotism, which is the current practice
within the Arab world, should be revived in order to be realigned with
the Islamic teachings. With the practice of nepotism, they would not be
able to compete within the global market. Sidani and Thornberry (2013)
perceived that changes will only be in years to come as more generation
is needed to make the changes while letting the “nepotistic practices to
largely die out” (p. 87). Nonetheless, to make the changes possible, they
proposed that the management scholars to further explore facilitating these
changes through the notion of Islamic Economics.
According to Al Qaradhawi (2010), “morality circulates like blood
in the whole Islamic system and in the Islamic teachings” (p.106) which
permeates its belief, its acts of worship, dealings, politics, economics, and
even its rules for peace and war. Islam is a religion that promotes business
as an important aspect of economic activities, of which through business
activities Islam has spread across the world. It should be acknowledged
that the fact is that all of this wealth belongs to Allah SWT as stated under
these verses in the Quran – 2:107, 3:189, 3:26, 5:1-18, 5:40, 5:120, 67:1,
36:71. There are also a number of documented Prophetic traditions which
caution human kind in their dealings with wealth. Imam Al Ghazali (cited
in Sidani & Al Ariss, 2015) emphasises that there is more to life than
just making money. Similarly, Al Attas (1977) defined adab, which is
another term for akhlaq, as the all-inclusive sense as it encompasses the
spiritual and material life of a man that instills the quality of goodness that
is sought. Thus, the role model in Islam has been and will always be the
Prophet Muhammad PBUH whose very purpose was to perfect the akhlaq.
Currently, the disarray happening in the Muslim society raises concerns
over the compartmentalisation of religion into selective and specific
aspects only as opposed to the idea of being consistent in upholding the
akhlaq through each and every form of the worldly affairs as set by the
Prophet Muhammad PBUH.

Therefore, the discussion of the IFI’s achievement of the maqasid al

shariah should not be alienated from the discussion of the akhlaq of the
market participants as currently it is considered relatively unexplored in
the IFI literature. Future study, should embark in this line of research as
this enables a more holistic view of the achievement of the maqasid al
shariah in IFI.
CONCLUSION
This paper concludes that there appears to be a consensus that the IFI
should be measured by using the value creation derived from Maqasid al
Shariah. However, there are conflicting results in terms of the achievement
of the value creation based on Maqasid al Shariah by the IFI. Akhlaq is
an inevitable important aspect of the religion of Islam. Hence, the IFI’s
achievement of the maqasid al shariah should be discussed together
with the akhlaq of its market participants. Hence, this would enable a
more holistic view of IFI performance and distinguished IFI from the
conventional counterpart.
NOTES
1. Maqasid al shariah is is a term that comprises two words. The first
word is maqasid, which is the plural of maqsad and means “purpose”.
Meanwhile, the second word is shariah, which means “Islamic law.”
Hence it is literally defined as the intent of the higher objective of
Islamic law including the wisdom behind the Islamic law or ruling.
2. Akhlaq is a term that is literally used to explain character which is

inclusive of spiritual and material aspects.
3. Enabling environment refers to the strength of internalisation of

Islamic values within the market operators and public were considered
to be at best during those period of time (Chapra, 2004).

4. The concept of maslahah is literally defined as a benefit or interest,

and mean unrestricted public interest. An alternative expressions are
masalih (people interest is the singular form) or al-masalih al-ammah
(public interest is the plural form) by Al Juwayni or al-masalih al-
mursalah (unrestricted interests) by Al Ghazali (Auda, 2010).
5. Shariah literally means the road to the watering place, the straight
path to be followed. It stems from the spirit of compassion and mercy
from Allah SWT.
6. Tawhid is a term that is literally used to represent Islam monotheism.
7. Fiqh is a science that deduces rules of law from the shariah.

Accordingly, shariah is known through fiqh. Usul al fiqh is the formal
science in which muslim jurists have dealt with legal theories, the
principles of interpretations of the legal texts, methods of reasoning
and of deduction or rules and other such matters (Masud, 2005).
8. Bai al inah is an Islamic financial product of which is actually a sale

and buy back contract involving two parties and there is a fixed mark
up fees.
9. Tawaruq is an extension of bai al inah which involves a three parties’

transaction.
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6
Accounting Fraud in Libya and The
Challenges
Waled Y. E. Alazzabi, Hasri Mustafa, Annuar Md Nassir
and Yusuf Khabari
INTRODUCTION
The estimated cost of fraud to the global economy according to the Association
of Certified Fraud Examiners (ACFE) was estimated to be US$4 trillion in
20171. Most scholars attribute poor controls as the leading cause for fraud
incidents (Dzomira, 2014; Jokiipi, 2010; Kapardis & Papastergiou, 2016; Said,
Alam, Ramli, & Rafidi, 2017; Zakaria, Nawawi, & Salin, 2016). Attempting
to eradicate fraud to them is very challenging. As long as money has
existed, so has fraud (Hammond, 2015).
International surveys and studies found that fraud incidences are a
serious universal problem (Seda & Kramer, 2014; Ibex & Grippo, 2011).
Fraud is morally repugnant, eradicates trust and causes public distress and
resent (Harvey, Kerr, Keeble & Nicholls, 2014). From accounting perspective,
fraud leads to loss of jobs2, pensions and retirement savings (Andon, Free &
Scard, 2015; Richards, Melancon & Ratley, 2009). Fraud also undermines
the growth, reputations, and the prosperity of societies and the global
economy.
In recent years, the volume and frequency of fraudulent activities
in those countries affected by the war of armed militias such as Libya
1
The median losses caused by fraud in MENA region was the highest among other regions. See:
ACFE’s report to the nations on accounting fraud and abuse (2018).
2
In Enron Case, 5,000 out of 21,000 employees lost their jobs while in UBS more than 10,000
employees faced the same destiny because of fraud.
has increased. The growing scale and scope of fraud in Libya makes the
country as one of the corrupt nations worldwide. Although several studies
emphasised the significance of corporate governance mechanism and
particular internal controls, fraud remains a serious threat to Libya. Very
little research focuses on fraud in emerging economies (see Van Driel,
2018) and the after-war countries like Libya.
It is important therefore to develop our understanding on accounting
fraud incidents in the Libyan context and the challenges to mitigate fraud.
What are the common types of frauds in Libya? Are they serious? and what
are the challenges? This study attempts to fill the existing gaps in the fraud
literature and provide insights to regulators and professionals of those of
non-stable countries caused by war like Libya. The study is organised as
follows. The ensuing section briefly introduces fraud and its definitions.
Next, the study details fraud cases in Libya, followed by challenges faced
by Libyan authority. The final section contains conclusion and potential
ways forward.
DEFINING FRAUD
The concept of fraud is used in ancient and modern history but in an
ongoing and complicated terms. Originated from the Latin fraus, fraudis or,
fraudem which means “harm done to someone” (Becker et al., 2010; Brock
& Boutin, 2012), the word “fraud” is a legal concept (Gangolly, 2016) that
violates norms, rules and trust for private benefit (Becker et al., 2010;
Dzomira, 2014). In Arabic, which is the official language in Libya, fraud
means a planned trick and ingenious used to reach the object (Almaany
Dictionary, 2010). The Turkish History Institute (1998) describes fraud
as a deceiving trick, swindle, game and gimmick to cheat, mislead and
gain a private advantage(s) (Özkul & Pamukçu, 2012). El-Naggar (2017)
defines fraud as “any act or omission, including a misrepresentation, that
knowingly or recklessly misleads, or attempts to mislead, a party to obtain
a financial or other benefit or to avoid an obligation”. According to the
Association of Certified Fraud Examiners (ACFE), (2014) corruption,
assets misappropriation and financial statements are the three types of

Accounting Fraud in Libya and The Challenges
accounting fraud. Accordingly, the concept of fraud is more comprehensive

than corruption. Any deceptions aimed to make a personal gain for oneself
and/or to create a loss for another is considered fraud (Charted Institute of
Management Accountants, 2009).
FRAUD IN LIBYA
Libya is located in North Africa. Libya has been witnessing fraud and
corrupt practices for years. Libya is blessed with natural resources like oil
and gas. The wars from armed militias and the corruptions were prevalent.
The wealth of Libya caused temptations to many individuals, firms and
groups of politicians. Charted Institute of Management Accountants,
(2009) and Pramod, Li & Gao (2012) stated that most of the fraudulent
activities happen through banking, insurance, energy, and other sectors.
Similarly, fraud was recorded in highly regulated industries, e.g. the
financial sector and the banking industry in Libya.
According to Gan Integrity (2016), fraud in Libya has become public
and worsened, especially, when after the Arab Spring in 17, February
2011 which ended with the death of a number of Libyan leaders. Table
6.1 shows the country’s rank on the corruption index. According to
Transparency International (2016), Libya’s ranking has remained static
in its global Corruption Perceptions Index (CPI). From a total of 176
countries, Libya came in at number 170 in 2016. In 2017, the country had
made to get only at number 171, showing a very little positive movement
to its rank on (CPI). Libya needs to work on various issues to improve its
position including the media, the education (see Issa & Al-Azzabi, 2018),
the internal controls, and cooperate with international agencies.

Table 6.1 Libya’s Ranking based on Corruption Perception Index
Year Score International Rank Integrity

Points/100
2008 2.6 126/180 26
2009 2.5 130/180 25
2010 2.2 146/178 22
2011 2.0 168/183 20
2012 2.1 160/176 21
2013 1.5 172/177 15
2014 1.8 166/177 18
2015 1.6 161/167 16
2016 1.4 170/176 14
2017 1.7 171/180 17
Source: Transparency International-Corruption Perceptions Index
Shariha (2014) states that media and civil associations have offered
more access to various sensitive issues. Such access resulted in the
emergence of fraudulent activities3. Prior to 2011, discussing sensitive
issues such as fraud in the media was limited for unknown reasons.
Abed (2009) in a press interview with the Libyan Secretary of Control
“Financial Audit Authority” in 2009, argues that the reason for not going
public regarding the investigation of fraud cases in Libya (Leenders &
Sfakianakis, 2003) was because doing so would have a negative impact
to many parties. Ahmed & Gao (2004) and Agnaia (1997) show that
Libya’s social environment is featured by tribe, clan, village, and familial
relationships, hence revealing serious issues like fraud to the public will
impact the society’s way of living, interactions, and trust. Leenders &
Sfakianakis (2003) find that there were no prosecutions for the investigated
cases.
3
This emergence makes managers to be more responsible toward all the stakeholders where managers
have to look at stakeholders’ interests and not shareholders’ interests only. Managers in dire need to
receive education and training on what and how to do to be more ethically and socially responsible
toward stakeholders. For more details, see Freeman (2004).

Libya was a victim of different corrupt actions and financial scandals

by those who wanted to have lucrative business contracts no matter how
much it costs or how much it takes to do the business (Transparency
International, 2014). The country was internationally known for fraudulent
activities involving foreign banks, investment institutions, and energy
companies. Among the most popular fraud cases that have been either
taken to court or discussed in the media are Goldman Sachs Group, Société
Générale, Yara International Company, SNC Lavalin and Swiss Brokers
(Transparency International, 2014). Overall, Libya has been seen as
country with various tricks, deeply rooted in many sectors (Transparency
International, 2014). Fraud has put the future of the country at stake,
caused a loss of customers’ and investors’ confidence, and contributes to
intensifying the financial crisis and the living conditions. Fraud wastes
Libya’s resources and widens the poverty level by depriving many people
of their rights to education, health services, and sustainable development
(Alhadaad, 2010).
FACTS AND FIGURES ON FRAUD CASES

Table 6.2 highlights the development of fraud in Libya with details of
periods, cases, types and costs. As seen, the number of cases has been
increasing since the end of 1970. Although the year 2000 recorded 473
cases, and the year 2008 recorded 263 cases, the decline was temporary.
The decline was related to removal of the international sanctions and the
Libyan government reforms. The number of fraud cases had increased
from 451 to 492 in 2009 and 2010. Such an increase might be influenced
by government spending on many projects coupled with outdated or non-
updated internal control procedures. In 2012 and 2014, the number of
fraud cases almost doubled, compared to the year of 2010. This dramatic
increase was related to the high level of uncertainty and the country
instability caused by the political and economic changes. A slight decrease
in the number of cases in 2014 compared to the number of cases in 2012
happened due to restructuring of the work and responsibilities of the Audit
Bureau and Anti-Corruption Authority. Generally, the number of fraud

cases has increased more than triple since the first discovery in 1970s. This
fact can be gleaned in Figure 6.1.
Figure 6.1 Number of Fraud Cases

Table 6.2 Fraud: Facts and Figures from 1953-2018
Period/Year Changes in Law and Challenges
During that period, the country was ruled by King Idris Alsonosi. If corruption existed, it would be small
1951-1969
because the country was still poor at the time. 1953, First Accounting & Auditing legislation. 1955, law (31),
1953-1955
establishing the State Accounting Bureau (SAB) under the Ministry of Finance.

The country during this period was ruled under a different system was known as Libyan Arab Jamahiriya where
1969-2010 the public or the mass is expected to rule their country. 1973, Law (116) organising Accounting& Auditing
© Penerbit Universiti Putra Malaysia, 2019

1973-1975 Profession leading to the Establishment of Libyan Auditors associations. 1974, the State Accounting Bureau
replaced by General People’s (GPCC) Committee of Control. In 1975, GPCC became under the Revolutionary
Command Council for more Independence.
71
Enactment of Law (2) for Economic Crime and its types. The country started witnessing problems with the
1979-1990
Western countries because of political and other issues. International sanctions were imposed on the country.
1991-1998 GPCC became divided into GPCC for Financial Audit and GPCC for Managerial Audit.
2000 The Libyan government started working on removing the international embargo imposed by the UN.
The country succeeded in removing the sanctions and became more open toward the world. The government
started huge reforms and the regulator issued Law (10) regarding an agreement with the UN competing for
2005
corruption. The financial sector and, specifically, the banking industry were one of the sectors that received
significant changes as parts of those reforms.
URL://www.econ.upm.edu.my.penerbitan
2011-Now This period was labelled by the Arab Springs, and the country started witnessing political, economic, and
2012 social change. The environmental uncertainty is high. The Libyan Audit Bureau Submitted the first report
after the end of the Arab Spring event in 2011.
2013 The Libyan National Congress issued law (9) organising Audit Bureau work.
2014 Law No 19, 2013 was issued regarding the work of the Administrative & Financial Supervisory Authority.

2015 Law (11) was issued regarding the foundation of the Anti- Corruption Authority.

The country has been facing financial problems since 2015. This issue is related to the high uncertainty as the
future of the country is still not clear. Anti-corruption Authority launched a new strategy to fight corruption
2016
72
through (1) Internal procedures and (2) other procedures in relation to authority substantive work as the
country’s foreign reserves declined 66% to around $ 35 billion.
The Libyan Audit Bureau had issued letters to freeze the companies accounts and pay back the defrauded
money. Furthermore, the Governor of the Libyan Central Bank announced new procedures for fighting money
2017
laundering and recommended more cooperation between all the ministries and sectors to reduce wrongdoing
incidents.
Anti-corruption Authority referred the Minister of Economy with other Fraud cases officials to General
2018
Attorney for corrupt acts suspicions.
During that period, the country was ruled by King Idris Alsonosi. If corruption existed, it would be small
1951-1969
because the country was still poor at the time. 1953, First Accounting & Auditing legislation. 1955, law (31),
1953-1955
establishing the State Accounting Bureau (SAB) under the Ministry of Finance.
The country during this period was ruled under a different system was known as Libyan Arab Jamahiriya where
the public or the mass is expected to rule their country. 1973, Law (116) organising Accounting& Auditing
1969-2010
Profession leading to the Establishment of Libyan Auditors associations. 1974, the State Accounting Bureau

1973-1975
replaced by General People’s (GPCC) Committee of Control. In 1975, GPCC became under the Revolutionary
Command Council for more Independence.

Enactment of Law (2) for Economic Crime and its types. The country started witnessing problems with the
Western countries because of political and other issues. International sanctions were imposed on the country.
73
1979-1990
GPCC became divided into GPCC for Financial Audit and GPCC for Managerial Audit.
The Libyan government started working on removing the international embargo imposed by the UN.
The country succeeded in removing the sanctions and became more open toward the world. The government
started huge reforms and the regulator issued Law (10) regarding an agreement with the UN competing for
1991-1998
corruption. The financial sector and, specifically, the banking industry were one of the sectors that received
significant changes as parts of those reforms.
This period was labelled by the Arab Springs, and the country started witnessing political, economic, and
2000
social change. The environmental uncertainty is high. The Libyan Audit Bureau Submitted the first report
after the end of the Arab Spring event in 2011.
The Libyan National Congress issued law (9) organising Audit Bureau work.
2005 Law No 19, 2013 was issued regarding the work of the Administrative & Financial Supervisory Authority.
Law (11) was issued regarding the foundation of the Anti- Corruption Authority.
The country has been facing financial problems since 2015. This issue is related to the high uncertainty as

2011-Now the future of the country is still not clear.
2012 Anti-corruption Authority launched a new strategy to fight corruption through (1) Internal procedures and

(2) other procedures in relation to authority substantive work as the country’s foreign reserves declined 66%
to around $ 35 billion.
74
The Libyan Audit Bureau had issued letters to freeze the companies accounts and pay back the defrauded
money. Furthermore, the Governor of the Libyan Central Bank announced new procedures for fighting money
2013
laundering and recommended more cooperation between all the ministries and sectors to reduce wrongdoing
incidents.
Anti-corruption Authority referred the Minister of Economy with other Fraud cases officials to General
2014
Attorney for corrupt acts suspicions.
THE CHALLENGES
The period during 2000s has been labelled with corruption and fraud,
which cost the economy around LYD 654 million. This is attributed to
the economic condition of the country as Libya, until now, is still under
international sanction. In 2012, it was reported that LYD 2,785 billion
was missing soon after the end of the Arab Spring. Nevertheless, the
embezzled funds through letters of credit have decreased from LYD 787
million to LYD 61 million in 2016 and 2018 respectively. Such a decrease
is influenced by strict procedures, imposed by the central bank and the
Libyan Audit Bureau, and as a result of the increased cooperation between
the ministries and other sectors. Table 6.3 details the challenges faced by
various Libyan authorities.
Table 6.3 The Challenges from 1953-2018

1953-1969 During that period, the country was ruled by King Idris
1953 Alsonosi. If corruption existed, it would be small because
the country was still poor at the time. 1953, First Accounting
1955 & Auditing legislation. 1955, law (31), establishing the State
Accounting Bureau (SAB) under the Ministry of Finance.
The country during this period was ruled under a different

1969-2010 system was known as Libyan Arab Jamahiriya where the
1973-1975 public or the mass is expected to rule their country. 1973,
Law (116) organising Accounting& Auditing Profession
leading to the Establishment of Libyan Auditors associations.
1979-1990 1974, the State Accounting Bureau replaced by General
People’s (GPCC) Committee of Control. In 1975, GPCC
became under the Revolutionary Command Council for
more Independence.
Enactment of Law (2) for Economic Crime and its types.

1991-1998 The country started witnessing problems with the Western
countries because of political and other issues. International
sanctions were imposed on the country.
2000 GPCC became divided into GPCC for Financial Audit and
GPCC for Managerial Audit.

2005 The Libyan government started working on removing the

international embargo imposed by the UN.
The country succeeded in removing the sanctions and

became more open toward the world. The government started
huge reforms and the regulator issued Law (10) regarding
2011-Now an agreement with the UN competing for corruption. The
financial sector and specifically the banking industry was
one of the sectors that received significant changes as parts
of those reforms.
This period was labelled by the Arab Springs, and the country
2012 started witnessing political, economic, and social change.
The environmental uncertainty is high. The Libyan Audit
Bureau Submitted the first report after the end of the Arab
2013 Spring event in 2011.
The Libyan National Congress issued law (9) organising

Audit Bureau work.
2014
Law No 19, 2013 was issued regarding the work of the
Administrative & Financial Supervisory Authority.
Law (11) was issued regarding the foundation of the Anti-

2015
Corruption Authority.
The country has been facing financial problems since 2015.

2016 This issue is related to the high uncertainty as the future of
the country is still not clear.

Anti-corruption Authority launched a new strategy to fight

corruption through (1) Internal procedures and (2) other
procedures in relation to authority substantive work as the
country’s foreign reserves declined 66% to around $ 35
billion.
2017 -
The Libyan Audit Bureau had issued letters to freeze the
companies accounts and pay back the defrauded money.
Furthermore, the Governor of the Libyan Central Bank
2018
announced new procedures for fighting money laundering
and recommended more cooperation between all the
ministries and sectors to reduce wrongdoing incidents.
Anti-corruption Authority referred the Minister of Economy
with other Fraud cases officials to General Attorney for
corrupt acts suspicions.
As shown in the table above, major changes in laws and regulation were
mainly about external controls while no laws or regulations were issued
regarding the quality of internal controls and managers’ responsibilities
in the fight against fraud. Weak external and internal controls, operational
procedures (Bierstaker, Brody & Pacini, 2006) and ineffective internal
audit function might be among the causes behind the failure of the Libyan
financial institutions to prevent and detect fraud. Furthermore, inadequate
application of internal controls and procedures (Alfteisi, 2014), high level
of environmental uncertainty, low level of awareness and ineffective risk
management are among the factors that give higher opportunity and motive
for fraud to occur in Libya. Being lenient toward fraud incidents in the
past by Libyan authorities was also the reason for the increased number of
fraud cases. Recent article by Tekala, Iriantoand & Widya (2017) found
that a sound internal control is not implemented in the major Libyan banks
(Al-Jumhouria and Sahara Banks).

CONCLUDING REMARKS
The paper discussed the development of accounting fraud and the
challenges faced by Libyan authorities. As Libya is now not in a stable
state, tackling fraud demands serious precautionary procedures, changes
in laws, roles, and programs. Managing fraud incidences has been a
concern of regulators, academics, and professionals. As corruption and
asset misappropriation are common fraud types in the Libyan context,
implementing effective internal controls and revising the current controls
are necessary to limit fraud activities. Once the right mechanisms in
place, there will be higher chances to prevent the risk of fraud and detect
ongoing activities. However, since fraud is a serious and deeply rooted
problem in different sectors, various challenges arise where reforming
the country’s education system, especially, teaching business ethics and
introducing forensic accounting education becomes crucial (see Issa &
Al-Azzabi, 2018) in order to limit the prevealnce of misconducts, restore
public confidence, and serve the stakeholders interests. This study offers
good future research opportunities in relation to fraud and how to manage
its incidences. Researchers, especially from the region of MENA (Middle
East and North Africa), might further investigate the external and internal
causes of fraud in Libya through specific case studies relying on interviews,
case studies, and observations.
Acknowledgement: An earlier version of this paper was presented
as a sundry paper at the Global Conference on Business and Economics
Research’ (GCBER), 14-15 August 2017. The authors wish to thank the
conference reviewer for suggesting improvements. However, any errors
remain the authors’ responsibility.

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7
The Relationship Between Professional
Scepticism Among Internal Auditors
in Public Sector and Personality Characters
and Socialization
Jalila Johari and Nurnadiah Mangsor
INTRODUCTION
Internal audit in the Malaysian public and private sector organisations
experienced strong organic growth since it gained ground in management
processes in the 1970s. Malaysia’s public sphere management is
progressing to facilitate foreign inputs in national development,
aligned with the developments on internal audit units of private sector
organisations. The public sector can be defined as entity that is owned
and operated by the government on behalf of the public. The public sector
was established with the power to direct, detain and control the people’s
activism to enable them to live together in harmony and growth, and to
address their problems more actively and effectively. Thus, it operates
under the government’s constitution, the government, the procedures and
budgets they need to mobilise their traditional goals and at the same time
achieve the ultimate goal of fulfilling their legitimacy and fulfilling their
obligations. The government can be classified according to their economic
system, their ability to provide free services (Yusuf, Haron & Ismail,
2016).
Internal auditors play a role in ensuring that public money is spent
in accordance with the procedures set out by the Treasury Ministry
1Pekeliling Perbendaharaan (1PP) which has been prescribed on 3 July
2014 and the absence of the internal auditor role may affect the efficiency
and effectiveness of the public sector in Malaysia. The main purpose of
The Relationship Between Professional Scepticism Among Internal Auditors in Public Sector
the audit is to enhance the users’ confidence that the financial statements
in the public sector have complied with the guidelines in 1PP. Internal
auditors need to have a professional attitude to obtain the effectiveness
of accountability in the financial statements; complete with adequate
supporting documents, appropriate evidence and authoritative evidence.
Therefore, professional skepticisms are essential in internal auditing to
ensure transparency, integrity, caliber and better service delivery.
The internal auditor is required by the professional master standards
to take professional skepticism position during the audit (MIA, 2009).
The importance of professional skepticism in the audit profession is
elaborated in Paragraph 15 of the ISA Principles and Principles 200
Conducting the Financial Statement Audit. This standard requires auditors
to plan and perform audits with professional level of skepticism resulting
in circumstances which may avoid major mistakes (MIA, 2009). The
Securities and Exchange Commission acknowledges the importance
of professional skepticisms while being also aware of the difficulties to
effectively incorporate professional skepticism into audit practice (Hussin
& Iskandar, 2013).
A better understanding of the personality and professionalism can help
auditors acquire and maintain sufficient levels of professional judgment
that will improve the quality of auditing. Socialisation is a learning process
experienced by a person to gain knowledge and experience of high ethics
and regulations so that he can participate as a member of society. Auditors
should also have socialisation in the course of their work with their peers
to ensure the professional level of skepticism is equal to the value of
each individual to produce the truth obtained through the work that has
been entrusted. This choice takes into account the exact measurement
of professional doubt of nature, rather than state skepticism. This study
examines personality traits and documented benefits of personality
excellence to workplace success. It expects positive personality traits to
be positive in relation to professional skepticism among internal audit.
The characteristics of personality and professional effects use the
personality characteristics of Big Five (Oliver & Srivastava, 1999) which
are deemed to be the “excellent sides” of personality. The attributes

- neuroticism, extroversion, amenity, and conscientiousness were

significantly related to self-efficacy for participating in self-managed
employment groups.
The auditor should obtain paperwork and take a physical visit to
the selected sample based on the criteria and professional auditor’s
own skepticism. Additionally, socialisation between auditors in jointly
conducting audits is based on the titles and subjects to be audited. Personal
professional skepticism of the auditors in evaluating important documents
is to ensure that the parties are jointly responsible in accordance with
the standards set out in 1PP. Being skeptical and having certain level of
socialisation can strengthen the internal auditors’ role as required by the
regulators. Thus, there is a need to investigate the professional doubts with
skepticisms personality and the degree of socialisation of expectations
amongst internal auditors in the Malaysian public sector to ensure public
accountability is carried out efficiently and effectively. This study discusses
professional skepticism among internal auditors referring to attitudes that
require continuous thought and evaluation of audit policies.
LITERATURE REVIEW
Professional Skepticism
There is no universally accepted definition of professional skepticism
(Quadackers, 2016). Professional skepticism in auditing refers to an attitude
that includes a questioning creative thinker and a critical assessment of
audit evidence and is at the base of the profession. Professional doubt can
be viewed as a lens through which listeners evaluate evidence and hazard
throughout the audit process. This questioning attitude and behaviour is
necessary to perform effective audit and required by every auditor working
on the audit (Baumann 2012).
Two questions on what exactly comprises professional skepticism and
how to measure it still remains unanswered. The lack of clear understanding
what constitutes professional skepticism leads to inconclusive results on
addressing professional skepticism. Various studies attempted to measure
professional skepticism by creating scales designed for other professional
property such as independence (Kadous, 2000).

Professional skepticism can be related to both intelligence and status.

Emotional stability set cause cognitive processing, and the mentality
factor captures the critical thinking that is an important constituent of
professional skepticism and is required by standards. Skepticism involves
critical analysis of evidence, and not just incertitude. Posture includes
affective and cognitive components to predict intent and behaviour,
and position recognises the influence of social factors on evaluation of
legal opinion. The attitude component expands the evaluation to include
listeners’ intuitive feeling, as well as their impression about risk, and it
improves the predictive power of “skepticism” for auditors’ evidence
accumulation. We expect that our skeptical mindset and skeptical attitude
theoretically navigate the movement of the literature forward, especially
in full term of form standards, developing intervention to improve audit
character, and acting (Nolder, 2018) on internal auditor in public sector.
Personality Characteristics and Professional Impact

Consensus appears that the five-agent personality model (often called
Big Five) can be used to describe the most important personality aspects.
The first research to imitate the five-factor body structure was (Norman,
1967) and (Tupes, 1992), which are generally credited with establishing
a five-factor model. The five-factor structure has been recaptured through
dimension adjective analysis in multiple languages, analytical factor
analysis of existing personality invention, and results on the suitability
dimension of the steps brand by the expert judge (McCrae, 1992).
Hybridising - cultural evolution from a five-factor structure was
established through research in Malaysia and in many other countries.
The five-factor models are neuroticism, extraversion, conscientiousness,
agreeableness and receptivity to experience. Neuroticism represents the
leaning to exhibit poor emotional adjustment and experience negative
effect, such as anxiety, insecurity, and hostility. Extraversion represents
the tendency to be social, decisive, active, and experiencing positive
impression, such as energy and passion. Conscientiousness comprises
two related aspect achievement and dependability. Agreeableness is
the tendency to be trusting, compliant, caring, and gentle. Openness

to experience is the disposition to be imaginative, nonconforming,

unconventional, and autonomous.
Neuroticism is intended according to Lord et al. (1986) revealed
correlation coefficients corrected from two columns between the
adjustment and perception measures of leaders based on some relatively
small studies formulated in their analysis. However, these estimates are
indistinguishable from zero. In his study, shows that almost all studies
on self-confidence relationships-show low psycho psychotic leadership
is a positive uniform direction of their findings Another indicator of
David Low Neurosis (Eysenck, 1997) - leadership coordination: There
seems to be convincing evidence to incorporate self-importance as the
importance of both the administrator and the hypothesis in analyzing
leadership qualities, that neurotic individuals are less likely to be seen
as leaders. Given this evidence and this line of reasoning, we will expect
that neuroticism is negative in relation to the emergence of leadership and
leadership effectiveness. (Oliver & Srivastava, 1999)
The attitude of doubt involves the brain and the circumstances,
in which we rely on the views and hypotheses. Critical thinking is an
important incentive for a professional impairment, and is required by
standards, including thought that reflects the idea, that doubt involves the
idea of evidence. Attitudes include affective and cognitive components
to predict intentions and behaviours, and replace the influence of social
factors in persuasion of judicial judgments. Understanding the assessment
includes the intuitive feelings of the audience, its effect, the dangers, and
increasing the power of “doubt” for collection of audit evidence (Junaid,
2017).
Extroversion refers to in the Freshwater Bass (1990) review, the result
of extraversion linking to drawing card not consistent. In early subject,
extraversion has a positive relationship with two senses of leadership in
five discipline and negatively related in three, and none relationship in
four. Yet other follow up, however, suggest that extra version should be
more likely to appear as a leader in the mathematical group. Extraversion
very related to social leading (Costa, 1995) and, according to (Watson,
1997), to the egress of leaders in Malaysia group. Hogan (1997) states

that extraversion is related to is considered a leader like. Extraverts tend

to be energetic, a lively person. Kirkpatrick and Locke (1991) commented
that loss leader is more likely than energy not to have high energy levels
and stamina and generally active, lively, and often anxious. Adjective
used to describe mortal that appear as leaders in group discussions without
leaders including active, decisive, energetic, and not silent or withdrawn
(Gough, 1988). Gough (1990) found that both extraversion-mastery and
sociolinguistics relate to the evaluation of self-leaders and peers.
Extraversion is characterised by hospitality, reading, soundness
and placidity. Extroverts will more likely take leadership part when
employment in with others. Research also display that extroverts are less
likely to have business organisation over negative feedback.
Extraversion is a relatively stable and unpretentious personality
associated with various psychosocial styles, lifestyles and health.
Extraversion is a complicated feature that displays that extraversion is a
very polygenic personality trait; with computer architecture may differ
from complex human quality, including other personality trait. Hereafter
studies are needed to further determine which genetic edition, which action
mechanism is a severe extreme nature (Johnson & Duzel, 2016).
Conscientiousness meaning awareness distinguishes diligent mortal,
diligent, organized, and responsible from those who are impulsive,
irresponsible, unreliable, and lazy. Feature personality categorized under
this dimension including fearlessness and ambition, to achieve achievement
requirements, dependence piece of work. “The efficiency conclusion in a
campaign to tip is more likely to lead to success for drawing card s, the
effectiveness of the group, and the strengthening of tendencies we know
that beliefs are related to overall work performance, and this shows that
Faith is related to the effectiveness of the drawing card. In addition, first
step and persistence are related to leadership (John, 1999).
Conscientiousness is a personality that influences public presentation
through smartness employment lean and smart work. There are three
traits of personality, including precision, valines, and receptiveness to
experience, empirically shown to influence execution work through
hard work. Furthermore, the extension, loyalty, birth charge per unit and

openness of emotions for experience are likely to influence performance

work despite smart work, as stated in the possibility. This impingement
each attributes on performance, and discusses academician and practical
implications (Hung, 2018).
Agreeableness predicts well-being on a subjective basis, but in
hypothesis it State Department that the personality which highlighted the
possible substrate -related emotions. According to the law, these survey
focus on the point of choice of situations of emotional order sequences
and found that the propensity to look at negative exposure for a longer
period of prison term than positive degree photos is clearly low level of
compatibility and absence at high levels. These individuals choose to
expose themselves to positive or negative stimuli across various media
reservoir. The antecedence for positive media is more pronounced and the
results have systematic deduction for understanding the emotional life of
an unpleasant person than a pleasant person. (Robinson, 2014)
This study examines the characteristics of personality attributed to
the nature of professional skepticism. Based on previous studies on the
characteristics of the Five Great Personality and the benefits documented
from the personality of “excellence” to workplace success, the study
expects positive personality traits to be positive with respect to professional
skepticism about the internal nature of internal auditors.
H1 (a): There is a positive relationship between the personality traits
of renewal, legitimacy, trust and reasoning and professional skepticism of
nature.
H1 (b): There is a negative relationship between neuroticism and
professional skepticism of nature amongst internal auditors in the public
sector.
Anticipatory Socialization of Internal Auditors

Anticipatory acculturation is the summons of adopting the attitudes
and belief of a chemical group before one becomes role of the group.
Free weight states that the anticipatory enculturation is a longitudinal
process which began from secondary school tier to senior level in the

organisation. Therefore, anticipatory socialization has long-term effects

(Elias, 2008). Although they are already working, accounting students
with the anticipatory socialization still has an opinion of the profession
and committed to the organisation. Socialization process begins when
accounting students learn to shuffle priority to the users of financial
statements (Clikeman & Henning, 2000).
Socialization through education and training is fundamental in the
development of roles and professional commitment to professional
careers Institutional accounting and learning institutions that provide
opportunities for accounting to take a more active role in value creation
(Ahmad, Anantharaman & Ismail, 2012)
Ahmad et. al, (2012) stressed that effective anticipatory socialization
that brought qualified professionals found that antisocial socialization
among professional promoting sustainable organisational obligations.
Antisocial socialization of the professional affects how professional view
social obligations. In the accounting extension, some studies archived
useful corporation results for anticipatory socialization. Elias (2006)
found a solid relationship between antitrust socialization of accounting
students and their moral impact on revenue management income. Elias
(2008) found that higher education students with socialization might be
tiring the tortoise in unethical practices.
Professional commitment to accounting profession is developed during
higher education or in the antitrust education phase of higher education.
Socialization of students occurs through formal and informal ways through
organized activities, relationships between students and lecturers, and
between students and their lecturers. Longitudinal studies by Olsen (2012)
confirm these findings within 15 years. Due to the positive quality of the
personality discussed previously, we expect a constructive relationship
between “identity and antithetical socialization” (Olsen, 2012).
H2 (c): There is a positive relationship between internal auditor’s
professional skepticism and their level of anticipatory socialization.

RESEARCH METHOD
This quantitative research used data collected from government officials
attached to the Internal Audit Division of the Ministry of Education
Malaysia. Data was collected from the internal auditors’ response using
an online questionnaire. This study provides an opportunity to investigate
the professional skepticism amongst internal auditors in the public sector
with their personality characters and the level of antisocial socialization.
The research population consists of auditors appointed by the
National Audit Department and is currently in charge of the Internal Audit
Division of the Ministry of Education Malaysia. The total number of
residents according to the designated assignment warrants and permanent
employees of the Internal Audit Division of the Ministry of Education
Malaysia is 189 employees. A total of 100 auditors participated in the
survey. The questionnaires were sent to the respondents by online surveys
by goggle form. This gives them time to answer the questions based on
their logical view and the collected data were checked for duplications
and error before generating it in SPSS.
QUESTIONNAIRE DESIGN
The questionnaire has been divided into four sections which were as
follows:
Section A:
Focus on the respondent demographic data. This can include about the
respondent responses toward the experience as internal auditors to confirm
that he/she has exposed to anticipatory socialization.
Section B:
This section contains questionnaire from (Hurtt, 2010) professional
skepticism scale consists of thirty items but only take eighteen (18) items
that measure the degree of professional skepticism of a person. The
points are established upon the characteristics of individuals gained from
auditing standards and psychological inquiry. Lay up along the eighteen

(18) items, it identifies six traits of professional skepticism: questioning

mind, suspension of judgment, searching for knowledge, interpersonal
savvy, self-determining and self-confidence. Each respondent recorded
his / her agreement with each statement on a six-point scale ranging from
1 (strongly disagree) to 6 (strongly agree).
Section C:
To measure the Big Five personality characteristics, a few studies utilised
the International Personality Item Pool (IPIP). Be that as it may, because
of the requests of such a long overview, (Donnellan, Osward, Baird,
& Lucas, (2006), decreased it to a 20-thing review they termed ‘mini-
IPIP scales’ of Big five factors of personality: Extraversion, Agreeable
Conscientiousness, Neuroticism and Emotional Stability. Each respondent
recorded his / her agreement with each statement on a six-point scale
ranging from 1 (strongly disagree) to 6 (strongly agree).
Section D:
To measure anticipatory socialization, perception of the importance of
financial reporting to users is utilized as a proxy. (Clikeman & Henning,
2000) developed an 10-item questionnaire that yielded four factors:
“misstate” measured the internal auditor’s willingness to intentionally
misstate the financial statements, “disclosure” measured the internal
auditors’s belief that public sector should be required to disclose more
financial information to users as a sign of transparency, “cost benefit”
indicates the student’s belief that the benefits of financial reporting
outweigh the cost, and “responsibility” indicate the belief in management’s
responsibility for accurate reporting. Each respondent recorded his /
her agreement with each statement on a six-point scale ranging from 1
(strongly disagree) to 6 (strongly agree).
The variables in the questionnaire are shown in Table 7.1.

Table 7.1 Measurement of Variables
Type of Variables Issues Measures

Dependent Variables Professional Scepticism
6 Factors
Questioning Mind
Suspension of Judgment
Search for Knowledge
Interpersonal Understanding
Self-Determining
Self-Confidence
Likert Scale
Independent Variables 1.Personality Characteristics 1 = Strongly Disagree
5 Factors: 2 = Disagree
Extraversion 3 = Slightly Disagree
Agreeableness 4 = Slightly Agree
Conscientiousness 5 = Agree
Neuroticism 6 = Strongly Agree
Emotional Stability
2.Anticipatory Socialization
4 factors
Misstatement
Disclosure
Cost-Benefit
Responsibility.
RESULTS AND DISCUSSION

Based on Table 7.2, majority of the respondents are 66% of the total
respondents are female, 50% respondents belong to the age group 36 and
above years old, 87% are Malays, 73% held the assistant auditor’s post,
52% has diploma qualification and 68% has worked for more than 7 years.

Table 7.2 Demographic Profile
Gender Frequency/% Age Frequency/%

Female 66 20-25 10
Male 34 26-30 16
31-35 24
36 and above 50
Ethnicity Frequency/% Position Frequency/%
Bumiputera Sabah Assistant 73
1
Auditor
Chinese 6 Auditor 14
Indian 5 Senior Auditor 13
Malay 87
Siamese 1
Academic Years as Frequency/%
Qualifications Frequency/% Auditor
Diploma 52 0-2 15
Bachelor 35 2-5 10
Master 8 5-7 7
Professional Above 7 68
Qualification 5
CIMA/ACCA)
The reliability test shows an acceptable Cronbach Alpha of 0.90 as in

Table 7.3
Table 7.3 Reliability Statistics
Cronbach’s Alpha Based

Cronbach’s Alpha
on Standardized Items
.894 .903

Validity is the extent to which a concept, (Brains, Willnat, Manheim

& Rich, 2011) conclusion or measurement is well-founded and likely
corresponds accurately to the real world based on probability. This should
not be confused with notions of certainty nor necessity. The validity of
a measurement tool (for example, a test in education) is considered to
be the degree of probability to which the tool measures what it claims
to measure; in this case, the validity is an equivalent to a percent of how
accurately the claim corresponds to reality. Validity data for this study is
shown in Table 7.4 for mean and standard deviation.
Table 7.4 Descriptive Statistics
Mean Std. Deviation

Professional Skepticism 0.86 9.33563
Personality 0.68 9.05971
Socialization 0.47 6.89074
CORRELATION ANALYSIS
Pearson correlation coefficient measures the comparability between
the two expression shapes and to figure out if having issues among
independent variables. On the off chance that the outcome is under 0.8,
show that there are no genuine relationships among the variables (Ismail,
2013) The estimation of the Pearson Correlation coefficient is amongst
+1 and negative connection, then it implies the negative relationship
between variables which one variable is increment generally the other
variable is diminished. It demonstrates the other way between variables.
If the outcomes show positive connection, it demonstrates the positive
relationship between variables. It implies both variables are sure and same
course between variables - 1. The results of the five factors of personality
characteristics (IDVI) and anticipatory socialization (IDV2) show they
correlate substantially with trait professional skepticism (DV) among
Internal Auditor. Table 7.5 below shows the results of the correlation
between dependent variables (DV) and independent variables which

is IDV1 and IDV2. The correlation between DV and IDV1 is (0.266, p

<0.01), while the correlation between DV and IDV2 is (0.573, p<0.01).
Table 7.5 Correlation Analysis
Dependent
Personality Socialization
Variable
Professional
1.000
Skepticism -DV
Personality .266** 1.000
Socialization .573** .012 1.000
**. Correlation is significant at the 0.05 level (2-tailed).
MULTIPLE REGRESSION ANALYSIS

Table 7.6 below shows the result of the regression and indicate that this
model is significant with adjusted R2 0.129 (p <0.00l), this model supports
the hypothesis HI, H2 and H3. To define the relationship between the
professional skepticism and the personality characteristics and the
anticipatory socialization, a multiple regression analysis was conducted
by using the professional skepticism as the dependent variable and the
personality characteristics and anticipatory socialization as independent
variables. The results indicate that the two factors, personality
characteristics and anticipatory socialization had significant effects on
professional skepticism in accounting areas (0.001), P <0.05.
Table 7.6 Model Summary
R Adjusted R Std. Error of

Model R
Square Square the Estimate
1 .643c .413 .395 7.26175

Table 7.7 shows that coefficient of determining value of significant

is 0.000. That means the result shows that variation of the professional
skepticism among Internal Auditor can be explained by two (2)
independent variables which are the factor of personality characteristics
and the level of anticipator socialization. All the independent variables
which are personality characteristics and anticipatory socialization have
a positive relationship with the dependent variable which is professional
skepticism. The IV for Personality characteristic is divided into
Neuroticism Personality decreases 0.481 and other personality increases
0.398 in professional skepticism. Also, for anticipatory socialization, an
increase of one unit of anticipatory socialization will cause an increase of
0.573 in professional skepticism.
Table 7.7 Coefficient
Standardised
Model Coefficients T Sig
Beta
DV (Constant) 11.788 0.00
Neuroticism Personality -0.481 -5.379 0.00***
IV1
Other Personality 0.398 4.457 0.00***
IV2 Anticipatory Socialization 0.573 6.929 0.00***
Notes: significance at: *10, **5, ***1 percent level
CONCLUSION
In conclusion the results show that all variables have positive correlation
between all the dependent and independent variables. There is a strong
relationship between personality characteristics and professional
skepticism especially the neuroticism and other personality. Due to the
importance of positive personality characteristics to workplace success,
this study shows their specific importance to an auditing career as they relate
to professional skepticism, an essential aspect of every audit. In addition,
the study confirmed the relationship between professional skepticism and

anticipatory socialization. This finding adds to the importance of the trait

professional skepticism among future auditors and that internal auditors
with positive personality characteristics are better socialized than those
with negative characteristics. Such internal auditors may be better suited
for the socialization in work. Finally, the results indicate that personality
characteristics and socialization among the internal auditors in public
sector increase the professionalism skepticisms and thus, increase the
efficacy of the judgment made by the internal auditors.
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8
Factors Affecting Accounting Students’
Career Choice
Mohammad Noor Hisham Osman, Wandashirah Ramali
and Siti Zaidah Turmin
INTRODUCTION
Malaysia needs 60,000 accountants by the year 2020 (Sharifah Norfaezah,
2013). However, this country is in a serious shortage as it is reported
that in 2018 there are only just over 33,000 accountants registered
with Malaysian Institute of Accountants (ACCA, 2018). It is almost
impossible to achieve that 2020 target, thus the good thing to do is
to find ways to minimize the current shortage. The need for more
accountants also have been stated in the U.S.A (Johnson, 2014; Knese,
2014), U.K (Hambly, 2007), Ireland (Accountancy Ireland, 2008) and
neighbouring country Thailand (Akathaporn et al., 1993).
Universities are the main providers of Malaysian accountants as shown
in the statistic released by Malaysian Institute of Accountants (MIA)
(Ahmad et al., 2015). At least three Malaysian studies have examined
Malaysian accounting students’ career decision process. Jamaliah et
al. (2004) examined accounting students’ career preference. This matter
has been examined again by Yusliena et al. (2011) and Ahmad et al.
(2015) attempted to understand the effect of the students’ intentions on
the decision to become an accountant. This shows that Malaysian-based
studies on factors affecting career choice among accounting students to
become CPA are still lacking. Consequently, this study will test the effect
of three factors namely salary, prestige and social norm on the career
choice among accounting students towards CPA.
Factors Affecting Accounting Students’ Career Choice
LITERATURE REVIEW
Theories of Career Choice
Career choice is a decision made for a lifelong process to seek major
satisfactions from one’s work. Researchers, interested in career choices
in accounting, have used the theory of reasoned action (TRA) to examine
the factors that impact on students’ career decisions (e.g., Felton, Dimnik,
& Northey, 1995; Jackling & Keneley, 2009). According to the TRA, an
individual’s career decision is determined by his intention to pursue a
particular career which in turn, is influenced by his attitude and perception
towards that career. Previous studies found factors such as salary, prestige
and social norms, among others, can be related to career choice.
Salary
The salary is a specific amount of cash or compensation paid by an
employer to an employee for work performed by the later. Salary is always
a factor in career choice decision, sometime it ranked very high, for
instance Byrne, Willis & Burke (2012) mentioned that potential income
is often classified as the first or second most important factor. However,
sometimes it is ranked very low, as according to Bundy and Norris (1992),
their research found that starting salary tied for number 22 on a list of 35
items. Studies prior to Bundy and Norris like Director and Doctors (1973),
and Catalanello, Wegener, and Zikmund (1978), had also found that
accounting students ranked other job characteristics higher than salary.
Felton et al. (1994) found that accounting students were less interested in
initial salaries than non-accounting students, given the starting salaries of
accounting.
Even though salary is ranked low in several studies, it is still a
determinant of accounting student career choice. Accordingly, it is
postulated that:
H1 : The level of salary has a positive effect on accounting student’s
decision to become a CPA.

Prestige
Another factor that could determine accounting students career choice
is prestige. Prestige can be defined as the reputation or influence of
success, achievement, rank or other favourable characteristics. In general,
prestige probably includes the level of aspiration, the level of training, the
preference for public acknowledgement and appreciation, the desire for
high income, the level of employment, obligation and socio - economic
status (Carden, 2007). From the previous study, job-related characteristics
and career prospects like prestige/social status were shown to be highly
influential when selecting a career or majoring in accounting (Felton et al.,
1995; Tan & Laswad, 2006). It is expected that prestige has an effect on
accounting students’ career decision:
H2 : Prestige has a positive effect on an accounting student’s decision
to become a CPA.
Norm
Extrinsic factor like social norm can also influence career choice decision
(Venable, 2011). Norm can be defined as the amount that is usual or a
situation or type of behaviour that is typical. According to Ajzen (1991),
peers, family members, relatives and teachers are a referent group that
creates the social pressures for or against one’s intentions and behaviours.
One’s perception of this social pressure is dubbed as subjective norms.
Based on prior research, norm taps the normative influence on respondents’
intent to choose CPA as a career (Wen et al., 2018). Other than that,
existing literatures have extensively reported the influence of subjective
norms on students’ intentions to take accounting as their major (Tan &
Laswad, 2006).
H3 : Social norm has a positive effect on an accounting student’s
decision to become a CPA.

RESEARCH METHOD
Population and Sampling
The population for this study is Bachelor of Accountancy students.
The sampling frame is 100 final year students from the Bachelor of
Accountancy in Universiti Putra Malaysia. Final year students are chosen
because they are more likely to have planned about their future career and
therefore they can provide more credible evidence about career choice
decision compared to students at the earlier year of study.
Instrument
The data collection is carried out using a set of questionnaires which is an
approach that allows efficient data collection. The questionnaire consisted
of 3 main sections. The first section contains demography questions
(gender, race, age and etc) and the second section contains a question asking
the respondent about his or her career choice. Specifically, the question in
the second section asks “What kind of sector do you want to work for
in the future?” and the respondent has to tick A (Accountant with CPA
credential) or B (Accountant without CPA credential [including industry,
government, or other institutions]). This question was adapted from Wen,
Yang, Bu, Diers and Wang (2018). Section 3 of the questionnaire contains
questions with multiple items related to independent variable salary,
prestige and social norm. All three variables are measure on a six-point
Likert scale i.e. strongly disagree (1), disagree (2), slightly disagree (3),
slightly agree (4), agree (5) and strongly agree (6).
Data Analysis
Logistic regression is the main statistic used to test the hypotheses of this
study because it is the appropriate analysis to conduct when the dependent
variable is dichotomous (binary). The dependent variable of the study is
the accounting student’s career decision to become a CPA or Non-CPA,
the independent variables are salary, prestige and social norms. Gender
and age are the control variable. This study also reports the result of
independent sample t-test to support the findings of the main statistic.

FINDINGS AND DISCUSSION

Only 82 questionnaires were returned i.e. response rate of 82%. Female
responses are the highest which is 69 respondents (84.1%) while male
responses returned with only 13 respondents (15.9%). It is not surprising
that female students are willing to help rather than male students as shown
in most surveys involving college students. It can also be explained by the
fact that accounting students in UPM were dominated by female students.
Table 8.1 shows the detail:
Table 8.1 Demography
Frequency Percentage (%)
Gender Male 13 15.9

Female 69 84.1
Race Malay 65 79.3

Chinese 9 11.0
Indian 5 6.1
Other 3 3.7
Marital Status Married 7 8.5

Single 75 91.5
CGPA 1.99 and below 1 1.2

2.00-2.49 1 1.2
2.50-2.99 27 32.9
3.00-3.49 41 50.0
3.50 and above 12 14.6
Age 18-20 - -
21-23 29 35.4
24-26 53 64.6
26 and above - -

The minimum, maximum, mean and standard deviation of each

variable are as follows:
Table 8.2 Descriptive Analysis
Std.
N Minimum Maximum Mean
Deviation
CAREER CHOICE 82 .00 1.00 .817 .3890
SALARY 82 1.00 6.00 4.6951 1.2038
PRESTIGE 82 1.00 6.00 4.6159 1.1230
SOCIAL NORM 82 2.00 6.00 5.1098 .9197
GENDER 82 .00 1.00 .1585 .3675
AGE 82 2.00 3.00 2.6463 .4811
Correlation Analysis
Pearson Correlation Analysis was used to identify the bivariate relationship
between dependent variable (career choice decision), independent variables
(salary, prestige, and social norm) and control variables (gender and age).
No correlation between variables that is above 0.70 can be detected so no
issue of multi-collinearity is expected (Anderson et al., 1996).
Table 8.3 Pearson Correlation (N = 82)
Career Social
Salary Prestige Gender Age
Choice Norm
Career Choice 1
Salary .459** 1
Prestige .431** .574 1
Social Norm .212 .248** .460** 1
Gender .033 .222** .060 .057 1
Age -.218** -.082 -.015 -.065 -.028 1
Note: ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05
level (2-tailed).

Logistic Regression Analysis – Main Analysis

The logistic regression model with all predictors was statistically
significant [x2 (7, N = 82) = 28.913, p < 0.01] in distinguishing between
students that choose CPA as future career and non-CPA. The model as
a whole explained between 29.7% (Cox and Snell R square) and 48.4%
(Nagelkerke R square) of the variance in the career choice.
Table 8.4 Logistic Regression
B S.E. z Sig.
Salary .776 .358 4.698 .030
Prestige 1.003 .477 4.422 .035
Norm .334 .452 .546 .460
Gender .166 1.094 .023 .879
Age -2.509 1.134 4.895 .027
Constant -.729 2.944 .061 .804
As shown in Table 8.4, independent variables SALARY and

PRESTIGE have a significant relationship with career choice decision
with p = 0.030 and p = 0.035 respectively. This support hypothesis 1 and
2 of the study which had expected salary and prestige to have a positive
relationship with career choice. This is consistent with Ticoi and Albu
(2018) who found that financial incentive is a predictor of students’ CPA
career choice. However, social norm is not a significant predictor of career
choice based on the p = 0.460. Therefore, hypothesis 3 is not supported.
This is not consistent with a study conducted by Dibabe, Wubie, and
Wondmagegn (2015) who reported that a social factor can influence an
accounting student’s career decision. For control variables, AGE shows a
significant value (p = 0.027) with the CAREER CHOICE while gender is
not (p = 0.879).

Independent Sample T-test – Additional Analysis
Table 8.5 Univariate Test
Total Sample CPA NON CPA

t-test
(N = 82) (N = 67) (N = 15)
Variables Mean Std. Mean Std. Mean Std. t-stat p-value
SALARY 4.695 Dev 4.955 Dev 3.533 Dev 4.627 .000
PRESTIGE 4.616 1.204 4.843 1.107 3.600 .915 4.268 .000
NORM 5.110 1.123 5.202 1.012 4.700 1.056 1.941 .056
GENDER .159 .920 .164 .901 .1333 .922 .292 .771
AGE 2.646 .367 2.597 .373 2.867 .352 -2.472 .020
.481 .494 .352
Table 8.5 shows that both salary and prestige are significant (p <
0.01). It means that students who choose CPA and non-CPA as their
career are different in terms of both salary and prestige. This supports
the main findings of the study that show that both salary and prestige can
predict the possibility of accounting students choosing CPA as their future
career. However, these students are not different in terms of social norm
as indicated by the p-value for the independent variable (p > 0.05). For
control variables, gender shows no statistical significant difference (p =
0.771) while age shows there is a statistically significant difference (p =
.020).
CONCLUSION
This study examines the effect of salary, prestige, and social norm on
accounting students’ career choice as CPA. It is found that most or 81.7%
of the students choose the accountant with CPA credential as their future
career as compared to as non-CPA in industry, government, or other
institutions. The results of logistic regression show that salary and prestige
have a positive relationship with an accounting student’s career choice as a
CPA while social norm is not. In addition, this study found that age is also a
factor that can affect an accounting student’s career decision. The findings

are also supported by the results of a t-test for two independent sample. In
conclusion, the findings of this study shows that the career choice decision
of accounting students are determined by the characteristics of the career
rather than social or extrinsic factors.
The findings of this study enhance our understanding about the career
decision process among accounting students and open ways for MIA and
employers to increase their effort in attracting more new accountants. The
main limitation of this study is the sample comes from only one Malaysian
public higher institution. The validity of the findings can be enhanced if
the sample could include students from other public as well as private
higher institutions in this country. One opportunity for future studies is to
explore this concept using qualitative method in order to acquire deeper
understanding about it. Also, future studies should explore the effect of
other job related characteristics like job security and job benefits on the
Malaysian accounting students’ career choice.
Acknowledgement: The first author is supported by a research grant of
the Universiti Putra Malaysia no. GP/2017/9563000.
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9
Value of Corporations’ Corporate Social
Responsibilities Investment in Sports
Lee Wan Nin, Nur Ashikin Mohd Saat and Siti Manisah Ngalim
INTRODUCTION
With the remarkable achievement in the South East Asia (SEA) Games
2017 and the recent growing support for E-Sports in Malaysia, sports
have been yet again the talk of the country. However, with the government
running low on budget, the sports industry funding has become an issue.
th
Recent news posted in The Star Online, dated 24 October 2018, has
highlighted that the cash rewards received by the Podium athletes are to
be reviewed. Further, according to the Budget 2019 tabled by the Finance
Minister in Parliament on 2nd of November 2018, only RM100 million will
be allocated for Tokyo Olympics 2020 preparation and RM10 million for
E-sports participation development. Others, such as FitMalaysia, National
Sports Day, training for athletes, grassroots and development programmes
as well as facilities and complexes that were included in 2018 Budget
have been put aside. This will leave a huge impact on the funding for
sport that has been keeping Malaysians, in general, healthy and united.
Nevertheless, this may also means wider opportunity for corporations to
lead the advancement in sports through their corporate social responsibility
(CSR) initiatives.
Nelson Mandela once has highlighted, in his statement during the
Laureus Lifetime Achievement Award 2000, that “…Sport has the power
to change the world. It has the power to inspire. It has the power to unite
people in a way that little else does. It speaks to youth in a language
they understand. Sport can create hope where there was only despair”
(Ein, 2018). Based on Mandela’s statement, the most important point is
sport has a unique way to unite people and give hopes to better life. By
sponsoring athletes and sports teams to endorse the companies’ brands,
the profits they made from the product sales can be used to sponsor sport
programmes for the young talent.
Companies and organisations have been involving in sports
development, giving sports sponsorship, hosting sports events as well
as having sports ambassadors in their company to enhance their CSR.
However, how many of them would be willing to invest in developing
mass sports and building sports infrastructure? This brings in the question
of how companies could engage in CSR programmes through sports.
Therefore, the purpose of this paper is to discuss the different types of
sports related corporate social responsibilities’ activities companies have
been involved with. Involvement in sponsorship of sport related activities
has been reported to enabling companies to contribute towards peace-
building, crime reduction, education and training enhancement, promotion
of healthy lifestyle, providing gender empowerment and community
building as well as helping people with disabilities (Giulianotti (2015,
p. 243) citing from Coalter (2007)). For instance Justine (2015) study
has examined companies’ motivations for sponsoring disabled athletes to
improve their social responsibilities image.
CORPORATE SOCIAL RESPONSIBILITY THROUGH SPORTS

Djaballah, Hautboisa and Desbordes (2017, p. 211), citing from Van
Marrewijk (2003, p. 102), refer CSR as “company activities – voluntary
by definition – demonstrating the inclusion of social and environmental
concerns in business operations and in interactions with stakeholders”.
According to Matten (2006), discussing Carroll’s (1991) Four Part Model
of CSR, CSR can be divided into four components which are economic,
legal, ethical and philanthropic responsibilities. The economic and
legal responsibilities are required by the society, whilst the ethical and
philanthropic responsibilities are expected and desired, respectively, by

Value of Corporations’ Corporate Social Responsibilities Investment in Sports
the society. CSR is known to keep organisations as well as companies

accountable and ethical (Chan, Watson & Woodliff, 2014). CSR
through sport is a philanthropic responsibility of companies (Matten,
2006, p. 8) because it involves charitable donations and voluntarily
chosen commitment to help the community the corporations operate within
(Masaka, 2008, p. 16).
Stakeholder theory provides the basis for the needs for companies to
look after the interest of parties (other than their investors) that are affected
by their business activities, which include employees, communities and
environment (Smith & Westerbeek, 2007). In terms of companies’ CSR
investment in sport, they are crucial because without the financial support
from corporations the function of sports as a tool to improve the social
well-being will not be able to be achieved. Citing from Welford (2005),
Smith & Westerbeek (2007, p. 47) presented the unique features of sports’
social responsibility to include (a) offers rules of fair play, equality, access
and diversity (b) provide pathway for development and activity in sport
programmes (c) enhance opportunities for health and physical activity (d)
providing employment for former players.

SPONSORSHIP
Palmer, Plewa and Quester (2017) performed a qualitative study on
the Community Sport Organization Sponsorship as a Corporate Social
Responsibility Strategy. They noted that Corporate Sports Organization
(CSO) sponsorship is a vehicle through which companies are able to
demonstrate CSR. Sponsors view this sponsorship as an opportunity that
allow them to interact with and support the local community. This supports
the proposal to engage sport sponsorship as a vehicle to achieve CSR.
Outcomes of the sponsorship were also identified. External outcomes
include multiple stakeholder groups; namely CSO members and the
broader community. These included image improvement and positioning
within the community as companies motivation for undertaking CSR-
sport related sponsorship (d’Astous & Bitz, 1995).

Internal outcomes included employee benefits (human resource-

related) and networking opportunities, attributed to the strong business
connections in existence between CSO sponsors. There are two types of
sports sponsorship; sponsorship for high competitive level and sponsorship
for grassroots development level. Sponsorship for high competitive level
has proven to enhance CSR image as it offers high visibility and name
recognition. Whereas sponsors of a grassroots development level do not
provide such added benefits. Rather, it offers proactive engagement in the
community due to the inherent community association. The next section
will further deliberate sport sponsorship for high competitive level and
sponsorship for grassroots development level.

EVENTS
CSR investment in sports event is one of the examples of companies’
sports sponsorship for high competitive level. Duffy (2012) states that the
growing importance of major sports events in the world from engagement
perspective is a reality. Corporate value will automatically be enhanced
if companies fulfil their responsibilities in economic, social, environmental
and other areas (Rexhepi, Kurtishi & Bexheti, 2013). Sport events which
promote team spirit and healthy lifestyles bringing individuals and
communities closer together. According to a study done by Filo, Funk
& O’Brien (2007), the result demonstrates that participatory sport events
provide stakeholders, such as event sponsors, with an attractive audience.
Sponsorship of sport events is one form of cause-related marketing, which
is a way for corporations to demonstrate social responsibility (Brown &
Dacin, 1997). With this sample, CSR mediates the relationship between
purchase intent of the sponsors’ products and recreation motivation,
charity motivation and event attachment. This indicates that while these
motives drive event participation (Beard & Ragheb, 1983; Filo, Funk &
O’Brien, 2007), they will not influence purchase intention towards the
event sponsors’ products unless participants perceive the sponsors have
demonstrated their social responsibilities. The emotional, symbolic and

functional meaning an individual has for a sport event (Funk & James,
2006) contributes to purchase intent individually but also collectively
contributes with CSR to increase the likelihood of purchasing sponsor
products. This is an added value for corporations to be involved in CSR
sport related events.

DEVELOPMENT
CSR activities related to sports development is an example of companies’
sports sponsorship for grassroots development. Sport for development
as a working field and communication platform is an area that have been
discovered more and more by business entities as CSR initiatives (Geoff,
2009; Levermore, 2010).
Sports form an interdisciplinary cooperation where social, political and
commercial interest clash or complement each other. Government, non-
government, transnational and private sectors are brought together through
the collaboration of CSR and Sports Development. However, threats or
limitations of this collaboration are also discussed, which include the lack
of evaluation, prejudice of social parties towards companies and tarnished
reputation of sports. Further research on influence of sports on social
change or through evaluations of projects in Sports for Development and
CSR should be performed in order to strengthen the resources of sports
actors in networks.
Locally, examples of CSR through Sports development are the CIMB
Foundation by CIMB Group and collaboration with the Badminton
Association of Malaysia by Malayan Banking Berhad or Maybank. The
CIMB Foundation is established as a non-profit organisation set up to
implement CIMB Group’s CSR and philanthropic initiatives. It aims to
reach out to communities to improve their quality of life by promoting
good health, unity and value through sports development, as well as
providing community-based learning opportunities. Similarly, Maybank,
collaborating with the Badminton Association of Malaysia, organizes
training and tournaments for young badminton players, enabling national

players to inspire and share their expertise with the new generation
(Maybank Group Annual Report 2011). They also foster talented young
golfers through Maybank Malaysia Open Golf Tournament. At the
international level, Copa Coca Cola, a youth soccer tournament, is the
biggest grassroots football programme. Coca Cola Company, through this
tournament, has given opportunities to many less fortunate children to
showcase their skills as well as talents in football with the opportunity
to join the Copa Coca Cola Camp. This Camp allows them to train with
top coaches from all over the world, participates in matches and makes
new friends from all over the world. Copa Coca Cola has been a huge
success and in 2015, 80,000 schools from across the globe took part in the
tournament. Another notable example is by Canon Inc. in Singapore. The
company has engaged in CSR through sports, where they have collaborated
with the Bowling Federation and the National Olympic Council Official
Partnership Programme to promote sports in the community, and
support athletes to reach their full potential.

AMBASSADOR
CSR initiatives may also be considered as a marketing and promoting
strategy that may improve the business of the company. Andersson
and Ekman (2009, p. 42) studied the employment of ambassador
networks as a place marketing and place development tool. They argued
the employment of the ambassadors can enhance the distinctive character
of the place/product and its attractiveness. The ambassadors that represent
certain social and occupational roles will enable the companies to
influence target buyers. Further, ambassador network that is fame focus
will attract famous and well-known personalities like athletes to create
awareness and to promote the image of the company. On the other hand, the
employment of sport ambassador is also part of CSR initiative to promote
well-balanced life, healthy and active lifestyle. Such is the case of the
world famous women’s golfer, Annika Sörenstam for personal sport brand

ANNIKA (Cortsen, 2013). A similar initiative in Malaysia is the Laureus

Sport for Good Foundation by Mercedes-Benz Malaysia (MBM), where
they have appointed the eight-time World Champion, Datuk Nicol David
to be one of the ambassadors. According to Datuk Nicol, the initiative
has harnessed her passion for squash, sport and healthy living as a means
to reach out to disadvantaged communities and nurture positive change.
At the same time, PricewaterhouseCoopers (PwC) Malaysia has also
appointed Datuk Nicol David as their strategic advisor to establish the
Nicol David Foundation. This is the first of its kind in Malaysia. This
Foundation aims to promote sports as a vehicle to empower disadvantaged
children. It also seeks to increase the participation of children in sports. By
engaging the very well-known Datuk Nicol David in their CSR initiatives,
MBM and PwC are using sports to empower the underprivileged children
in the society. Subconsciously, this will lead to a positive impact from
society towards these two companies.
CONCLUSION
This chapter has discussed the avenue where companies could contribute
to communities through sports via their CSR initiatives and activities. It is
evident that CSR through sports, whether it is through sports sponsorship,
sports events, sports development and sports ambassador, have important
and significant impacts to various stakeholders. With greater access to
resources, through their CSR initiatives, companies can invest in sport
activities to help underprivileged community to improve their standards
of living, to support government initiatives to promote involvement in
sports activities among the young people and to promote a well-balanced
lifestyle, healthy living and an active life in society.

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Index
accounting and sustainability 1 norm 102
anticipatory acculturation 88
Perbadanan Wakaf Selangor (PWS) 13
benefits of tax incentive 17 personality characteristics 85
prestige 102
career choice 101 professional impact 85
challenges 75 skepticism 88, 90, 97
conscientiousness 87 PWS 14, 17, 19
corporate sports organization 113
correlation analysis 105 regression analysis 106
critical thinking 85, 86
critiques of GLCS, 36, 38 salary 101, 103
CSD measurement 30 social agenda 19
socialization 89, 95
E-sports 111 sports 112
extraversion 85, 87, 91 ambassador 116
extroversion 86 development 115
events 114
financial capacity 18, 22 sponsorship 113
firm value 26, 28, 32 stakeholders 2
fraud 65
cases 69 tax
incidences 65 incentives 9, 13, 18, 16, 22
practices 14, 20
government-linked companies (GLCs) treatment 7, 14, 16
36
waqf
internal audit 77, 82, 90 administrative jurisdiction 9
internal auditors 84, 90, 97 agencies 13
Islamic philosophy 11 agency 7, 11, 13, 17, 20
asset management 18
Libya 67 WAREES 13, 16, 19
Maqasid al Shariah 1, 3, 53 Yayasan Wakaf Malaysia (YWM) 13

YWM 9, 15, 17, 20
neuroticism 85, 88, 91, 96
121

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Research in Accounting

Penerbit Universiti Putra Malaysia

UPM Press is a member of the Malaysian Book Publishers Association (MABOPA)

Perpustakaan Negara Malaysia Cataloguing-in-Publication Data

Research in Accounting and Sustainability / editor: Nor Aziah Abu Kasim.

Cover design: Mohd Ghazali Razak

CHAPTER 2 Tax Incentives for Waqf Agencies in Malaysia 7

CHAPTER 3 Corporate Social Responsibility and Firm Value 25

CHAPTER 4 Reform Journey of Government-linked Companies 36

CHAPTER 5 A Revisit of the Islamic Financial Institution 52

CHAPTER 6 Accounting Fraud in Libya and the Challenges 65

CHAPTER 8 Factors Affecting Accounting Students’ 100

CHAPTER 9 Value of Corporations’ Corporate Social 111

This book showcases empirical writings based on research carried out

Nor Aziah Abu Kasim

RESEARCH IN ACCOUNTING AND SUSTAINABILITY

Sustainability is discussed in various forms through corporate social

STRUCTURE OF THE BOOK

© Penerbit Universiti Putra Malaysia, 2019 2 URL://www.econ.upm.edu.my.penerbitan

responsibilities. Under the government transformation programme, the

© Penerbit Universiti Putra Malaysia, 2019 3 URL://www.econ.upm.edu.my.penerbitan

IFIs. This chapter also highlights the difference between shariah-based

© Penerbit Universiti Putra Malaysia, 2019 4 URL://www.econ.upm.edu.my.penerbitan

Personality characteristics are measured by extraversion, agreeableness,

© Penerbit Universiti Putra Malaysia, 2019 5 URL://www.econ.upm.edu.my.penerbitan

© Penerbit Universiti Putra Malaysia, 2019 6 URL://www.econ.upm.edu.my.penerbitan

needs to provide services for a long period of time. In some Western

© Penerbit Universiti Putra Malaysia, 2019 8 URL://www.econ.upm.edu.my.penerbitan

WAQF AGENCIES IN MALAYSIA AND SINGAPORE

© Penerbit Universiti Putra Malaysia, 2019 9 URL://www.econ.upm.edu.my.penerbitan

Figure 2.1 Waqf institutions and agencies in Malaysia and Singapore

Currently, several State Islamic Religious Councils (SIRCs) in

Taxation Policies and Practices

© Penerbit Universiti Putra Malaysia, 2019 10 URL://www.econ.upm.edu.my.penerbitan

© Penerbit Universiti Putra Malaysia, 2019 11 URL://www.econ.upm.edu.my.penerbitan

society, cooperation, foundation and public organisation, to explore this

Impact of Taxes on the Financial Capacity of Waqf Agencies

© Penerbit Universiti Putra Malaysia, 2019 12 URL://www.econ.upm.edu.my.penerbitan

time and expertise, contributed will be an opportunity cost to the venture

© Penerbit Universiti Putra Malaysia, 2019 13 URL://www.econ.upm.edu.my.penerbitan

a. Tax treatment for PWS

© Penerbit Universiti Putra Malaysia, 2019 14 URL://www.econ.upm.edu.my.penerbitan

maintenance of waqf properties. Currently, there are 1,328 lots of waqf

b. Tax Treatment for YWM

© Penerbit Universiti Putra Malaysia, 2019 15 URL://www.econ.upm.edu.my.penerbitan

c. Tax treatment for WAREES

© Penerbit Universiti Putra Malaysia, 2019 16 URL://www.econ.upm.edu.my.penerbitan

Type of Tax Incentive Malaysia Singapore

Goods And Service Tax

Tax incentive structures are generally different across the waqf

Benefits of Tax Incentive

© Penerbit Universiti Putra Malaysia, 2019 17 URL://www.econ.upm.edu.my.penerbitan

a. Tax Incentives Promote Financial Capacity of the Waqf Agencies

b. Tax Incentives Support Waqf Asset Management

© Penerbit Universiti Putra Malaysia, 2019 18 URL://www.econ.upm.edu.my.penerbitan

development and maintenance of the waqf properties. In Malaysia and

c. Tax Incentives Support Social Agenda

© Penerbit Universiti Putra Malaysia, 2019 19 URL://www.econ.upm.edu.my.penerbitan

b) Encourage the corporate entities to organise corporate welfare

Summary of the differences between Malaysia and Singapore

Table 2.2 Differences in Tax Practices between Malaysia and Singapore

Tax practices Malaysia Singapore

© Penerbit Universiti Putra Malaysia, 2019 20 URL://www.econ.upm.edu.my.penerbitan