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CHAPTER 9: HYPOTHESES TESTING OF THE ISLAMIC ACCOUNTING QUESTIONNAIRE
In this chapter, the hypotheses set out in chapter 7 will be tested and the findings reported and interpreted. The object of this chapter is to present evidence of the perception of Malaysian Muslim Academics and Accountants on the nature of Islamic businesses, the objective and characteristics of Islamic accounting and whether conventional accounting is inappropriate for Islamic organisations and users. Consensus of scholars (‘ulema) is considered as a method by which Islamic law can be derived when interpretations of principles of the Qur’an to practical life are varied (Kamali, 1991). The survey research is thus seen as a means of evidencing consensus among Muslim academics and Accountants (who constitute, at least partially, the relevant ‘ulema) on the objective and characteristics of Islamic accounting. As this is an exploratory study of the subject, it is considered adequate by the researcher to conduct a univariate analysis on the data without attempting to study relationship among different variables. The general conclusion from the analysis is that respondents believe that Islamic and Muslim organisations should follow Shari’ah/ethical principles and promote social welfare rather than concentrate on profits. However, the respondents do not perceive the need to forgo the profit maximisation objective as long as the Shari’ah constraints are fulfilled. There also seems to be a favourable response to the need for Islamic accounting among Muslim accounting academics and accountants in Malaysia. Most of the participants agree with the accountability objective of Islamic accounting and support the integrative and holistic nature of Islamic accounting information. Although the respondents are not convinced about the unsuitability of the conventional accounting concepts of historic cost, prudence and monetary measurement, for
Islamic organisations and Muslim users, they generally agree that conventional accounting is not suitable in terms of its objectives, the information it provides and its behavioural effects. In the next chapter, evidence from a survey of Muslim executives and employees of both Islamic and Non-Muslim companies in Malaysia, regarding the unIslamic behavioural effects of conventional accounting are presented. Together with the evidence presented in this chapter, there is at least prima facie evidence for the development of an Islamic accounting system, although further research is needed to elaborate on more practical ideas and obtaining evidence of wider consensus among Muslim users and accountants in other Muslim countries.
9.1 SOCIO-ECONOMIC PRINCIPLES OF ISLAMIC BUSINESS ORGANISATIONS
The objectives and operations of Islamic and Muslim organisations should have some unique characteristics, if there is to be a need for an alternate Islamic accounting system for these organisations. These objectives and operations should be different from non-Islamic organisations, as otherwise, it would be a case of reinventing the wheel or adding cosmetics to conventional accounting. research question therefore is: The first
Are the socio-economic principles under which Islamic business organisations operate different from those of non-Islamic business organisations?
The researcher has attempted to argue that arising from the different world-view of Islam discussed in chapters 2, the objectives and operations of Islamic business and non-business organisations are different. This was illustrated in detail in the case of Islamic banks and to some extent Islamic business organisations, which was discussed in chapter 5. Islamic organisations have to carry out their financing, investing and operating activities according to the Shari’ah. In addition, from the world-view of Islam, the
researcher believes that profit maximisation or wealth maximisation is not the ultimate rationale for the existence of Islamic business organisations. Instead, earning a reasonable rate of return according to the risk undertaken should suffice Muslim investors who should always keep the success of the hereafter in mind. Hence, the equitable treatment of other groups and the general social well-being of the community should be more important to the Muslim businessmen than profits. This is the theory and it thus remains to elicit empirical evidence to substantiate these arguments. This could be done to some extent by undertaking analyses of the financial statements of Islamic organisations. However, given that conventional financial statements do not disclose details on the Islamicity of operations, it was considered more appropriate to obtain the perceptions of accountants, academics and executives of various companies in this regard. Academics play an important role in moulding current and future business leaders while public accountants provide important services as auditors and consultants. Further, corporate accountants play key roles in running the organisations in various capacities such as company accountant and finance manager. Thus, the perceptions of these groups of respondents are relevant to determine the actual and intended state of these organisations. Two hypotheses were developed and set up in a hypothesis statistical testing framework with a null hypothesis Ho and alternative hypothesis H1, in attempt to answer these questions. The first hypothesis is as follows:
HYPOTHESIS NO.1 Ho: Malaysian Muslim accountants and accounting academics believe that Islamic Business organisations concentrate more on profits as compared to the attainment of social welfare. Malaysian Muslim accountants and accounting academics believe that Islamic Business organisations concentrate more on the attainment of social welfare than on profits.
FIGURE 9-1: HYPOTHESIS 1: IBO’S CONCENTRATE ON SOCIAL WELFARE
To test this hypothesis, an ethical score, ETH11 was constructed using Q1.2, Q1.3 (a) to (c) and Q1.6 – a total of five items (see figure 9-2). Since question 1.3c (IBO’s should include shareholder profit maximisation as an objective) is in the opposite direction, the coding is reversed. Hence, a Strongly Disagree, which would score a one, is re-coded in this case to a five.
1. The Shari’ah should constrain the activities of Muslim Business Organisations. [not included in hypothesis due to reliability reasons]. 2. Islamic and Muslim Business Organisations should promote the attainment of falah (success) and social welfare and not just concentrate on profits. 3. The Objectives of Islamic Business Organisations (IBO’s) should include: (a) Ensuring all stakeholders are treated in a just and fair manner even if this means profits are lowered. (b) Avoiding damage to the environment even in the absence of adequate legal requirements. (c) Maximising profits for shareholders. 6. Islamic business organisations should pay sufficient wages to its employees for them to live reasonably, even if this means reducing shareholder profits. FIGURE 9-2: QUESTIONS ON ETHICAL NATURE OF ISLAMIC BUSINESS
Some respondents failed to answer all the questions in the questionnaire. This were coded as missing by the system. These missing items are taken into account, when the mean formula of SPSS is used. However, in cases where there are too many items of information missing for a particular respondents, an average score for that participant may be inappropriate as it would not be comparable to the scores of other participants. As such, a minimum number of non-missing questions are necessary if the index score is to be comparable (Bryman & Cramer, 1997). This can be made a requirement in SPSS by using a formula in computing the score. This procedure is adopted in this research. According to Bryman & Cramer (1997), suggest a 10% cut-
1 Question 1.1 and Q1.4 were left out, as the reliability analysis showed that they did not fit well with the other questions in the group.
off rate (i.e. if less than 9 out of 10 questions in the score is not answered, the score is not computed). However, (at the authors point out), in a score which has only a few questions, this would mean all questions must be answered before the score is computed. If this rule is followed strictly in this research, many scores would not have been computed for many respondents, thus losing a lot of useful information. Hence, a more practical approach is adopted in determining the minimum number of questions required computing a score. Generally, a 10% or rounded to 10% of the number of questions is normally used as cut-off for the number of non-missing questions. However, in case the number of questions used to compute the score is less than 5, then all the questions in the score is used as the minimum number of questions required to compute the score. For example, in a score containing 5 questions, 10% cut off would mean 0.5 question, which rounded up becomes 1 question. Hence, the minimum number of questions required to compute the score is set at 5-1=4 questions. In case of a score computed using 4 questions, the 10% cut-off rate is 0.25. Following the 10% rule, all four questions should be used. Using SPSS the formula for ETH1 was ETH1= mean.4(q1.2,q1.3a,q.1.3b,rq1.3c,q1.6)2 (9.1)
The (.4) in the formula for the mean of ETH1 denotes a minimum of 4 questions in the score must be answered in order for the score to be computed. A graph of ETH1 showed that the distribution is negatively skewed with a median value of 4. This means that at least 50% of the respondents in the combined sample of academics and accountants perceived Islamic business organisations concentrate more on social welfare than on profits.
2 As discussed in Chapter 8, Q1.1 and 1.4 are not used in computing this score to doubts concerning reliability and validity problems respectively.
The sample was split into two groups, one professional accountants3 and academics. Since the distributions were not normal, a non-parametric test of median is conducted. The tests were conducted using Minitab as SPSS did not have corresponding univariate tests. A normality test of the distribution of the score showed that for the academics, for score ETH1, the normal distribution could not be rejected (with a p value of 0.1) at the 5% significance level. However, the scores of the accountants were not normally distributed (p value 0.0) Hence non-parametric tests should be used to test the hypothesis for accountants. For both accountants and academics, the null hypothesis that the median of ETH1 is ≤ 3, against the alternate hypothesis that the median of ETH1>3 is tested. The researcher has used the non-parametric sign test, which does not assume that the population is normally distributed and holds for whatever the shape of the population distribution. The results in Table 9-1, show that, for both groups of respondents the median of ETH1 is significantly larger than 3 at the 5% significance level. (The p value of 0.000 shows that the probability of the sample coming from a population having a median eth1 of 3 is almost 0). Hence we reject the null hypothesis that the median of ETH1 is 3 and accept the alternative hypothesis, at the 5% significance level, that the median of ETH1 is greater than 3.
Due to the sampling error noted in chapter 8, it is insufficient to test the accountants as one homogenous group. Hence, although the accountants are tested as a group in all the hypothesis presented in this chapter, separate tests for each group of accountants in the government, commerce & Industry and public practice sector were conducted to ensure the sectoral population means were consistent with the hypothesised means for all professional accountants. The results of the sectoral testing of means (table A9-1) and medians (table A9-2) is presented in the Appendix to this chapter (Appendix 9-1). Except for the variable UNISL (Hypothesis No.4) on the unIslamic consequences of conventional accounting, where the p-value median test for accountants in public practice was 0.7142 and therefore the null hypothesis for H4 cannot be rejected for public practice accountants, all the other hypotheses tested sectorally, were in agreement with the accountants tested as a group.
TABLE 9-1: Statistical Results for Hypothesis Testing of ETH1 :
Sign Test for Median :Professional Accountants4
Sign test of median = 3.000 versus N 95 Below 3 Equal 0 > 3.000 P 0.0000 Median 4.000
Sign Test for Median: Accounting academics
Sign test of median = 3.000 versus N ETH1 96 Below 0 Equal 1 > 3.000 P 0.0000 Median 4.200
From these tests, the researcher infers that Malaysian Muslim accountants and academics perceive that Islamic business organisations concentrate on the attainment of social welfare rather than on profits. The second hypothesis is as follows:
HYPOTHESIS NO. 2 HO: Malaysian Muslim accountants and accounting academics believe that Islamic business organisations participate in activities, which are not in line with Islamic socio-economic principles. H1: Malaysian Muslim accountants and accounting academics believe that Islamic business organisations do not participate in activities, which are not in line with Islamic socio-economic principles.
FIGURE 9-3: HYPOTHESIS 2: IBO’S DO NOT PARTICIPATE IN UNISLAMIC ACTIVITIES
As discussed in chapters 3, 6 and 7, interest is forbidden in Islam, hence Islamic organisations should not place their funds in interest bearing deposits, even if this results in lower profits. Further, as discussed in the same chapters, Islam forbids
Refer to appendix Table A9-2 for results of sectoral testing of medians. All p values <0.05.
short selling and contra trading although the later is more controversial. Further options and futures may be prohibited because of the aleatory nature of the contract and the uncertainty (or gharar) involved. Although the researcher believes that options and futures are prohibited in Islam, there is a great variety of opinions on this. However, going by the Islamic juristic principle of “blocking the means to an evil” (Kamali 1991), the researcher believes, the truly Islamic organisation would avoid this investment as well. To test the hypothesis that “Malaysian Muslim accountants and accounting academics believe that Islamic business organisations participate in activities not in line with Islamic socio-economic principles”, the respondents were asked whether Islamic business organisations should participate in interest based debt market and short selling, both of which are clearly forbidden by Islam. In addition, questions on the more controversial futures/options market and contra trading of shares, where there is a difference of opinion on the issue were also asked. Since, according to Islamic law, doubtful things should be avoided, a strongly disagree response to these questions would mean that Malaysian Muslim accountants and accounting academics believe that Islamic business organisations do have strong principles which makes them sacrifice profits for religious ethics. As a negative response would give a favourable answer, the responses were re-coded in reverse. As a multi-item score would give a better indicator of the concept, another score consisting of four questions (see figure 9-4 below) was constructed and named ETH2 (ethical behaviour 2 – investment behaviour). The formula for this was: ETH2=mean.4(rq1.5a,rq1.5b,rq1.5c,rq1.5d) (9.2)
The minimum number of non-missing questions for each respondent was set at following the rule mentioned above. This meant that for the score to be computed, at least three of the four questions must have been answered. In any case, the controversial nature of some of the activities in Islamic Law may mean less
agreement would be forthcoming, hence a lower number of responses was acceptable.
5. Islamic business organisations should participate in: a) Interest based Debt market. b) Futures and/or Options market. c) Short selling. d) Contra Trading. FIGURE 9-4:QUESTIONS ON INVESTMENT ACTIVITIES OF IBOS.
Normality tests for both groups indicate that the normality of the distributions could not be rejected. Hence, both the sign test and the t test are used in this case. The mean of ETH2 3 (null hypothesis) is tested against the alternative that the mean is greater than 3, the median ≤3 against the median >3 is also tested. The results are listed in Table 9-2 on the next page. From Table 9-2, it can be seen that the p values for both academics and accountant, for both the t-test and sign test are below 0.05 (p value is 0.000). This means that there is almost a nil chance of drawing a sample with the calculated sample mean, from a population with a mean value for ETH2=3. Hence we reject the null hypothesis, that the mean value of ETH2≤ 3 and accept the alternate hypothesis, that the mean value of ETH2 is more than 3. From the sign test, we infer similarly for the median. Hence, this implies that both accounting academics and professional accountants believe that Islamic business organisations do not participate in activities, which are not in line with Islamic socio-economic principles.
TABLE 9-2: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF ETH2
Professional Accountants: T-Test of the Mean5
Test of mu = 3.000 vs mu > 3.000 Variable ETH2 N 89 Mean 3.5346 StDev SE Mean 0.9330 0.0989 T 5.51 P 0.0000
Sign Test for Median
Sign test of median = 3.000 versus N 89 Below 16 Equal 11 > 3.000 P 0.0000 Median 3.500
Accounting academics: T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable ETH2 N 87 Mean 3.8036 StDev 1.0500 SE Mean 0.1126 T 7.14 P 0.000
Sign Test for Median
Sign test of median = 3.000 versus N 87 Below 14 Equal 6 > 3.000 P 0.0000 Median 4.000 Above 67
For sectoral tests of the mean for professional accountants of all the hypotheses , please refer to Appendix 9-1, table A9-1.
9.2 THE ADEQUACY OF ISLAMIC SOURCES (QUR’AN, SUNNAH) AS A BASE FOR DEVELOPING AN ISLAMIC ACCOUNTING AND ECONOMIC SYSTEM FOR CONTEMPORARY ORGANISATIONS.
The current wisdom in the West is that Muslim countries should adopt Western style democracy and secularism in order to progress. Adherence to fundamental tenets of Islam is seen as backward and retrogressive to a primitive state of existence. The implication is that Muslims should forget about their religious teachings in the social, political and economic domain and Islam should be a matter of personal conviction rather than state policy. With many Muslim students studying in the West, the possibility of secular thinking among Muslims may be widespread. In fact, the discussion in Chapter 4 indicates that the bifurcated education system in Muslim countries is one of the root causes of the Muslim malady. In this situation, the researcher believes that a survey is important, of perceptions of among Muslim accounting professionals and academics, regarding their attitudes towards the viability of their religious sources being developed into a modern economic regulatory framework that can meet the needs of Islamic organisations. A strong belief in their viability would make an easier task of developing an alternative Islamic accounting system. The results would also give an idea of the success of secularist education and indication of the extent of acceptance of the secularist ethos among Muslim professional and accountants. In order to answer this question as to whether Islamic sources i.e. the Qur’an and the Sunnah are adequate as a base for developing an Islamic accounting and economic system for contemporary organisations, the following hypothesis is set up.
Hypothesis No. 3: Null Hypothesis: Malaysian Muslim accountants and accounting academics believe that an economic framework cannot be developed from the socio-economic principles of the Qur’an and Sunnah to meet the current needs of organisations. Alternative Hypothesis: Malaysian Muslim accountants and accounting academics believe that an economic framework can be developed from the socio-economic principles of the Qur’an and Sunnah to meet the current needs of organisations
FIGURE 9-5:HYPOTHESIS ON THE INHERENT DEVELOPMENT CAPACITY OF THE
ISLAMIC SOURCES OF LAW
In order to test the above hypothesis, a score, QSREL constituting questions 1.7a – 1.7d was computed with the following formula: QSREL=mean.4 (q1.7a, q1.7b, q1.7c, q1.7d) and, tested as to whether Ho: mean/median of QSREL ≤3.0 H1: mean/median of QSREL>3.0 As can be seen from the results listed in Table9-3, both the professional accountants and accounting academics groups have p values of less than 0.05 for both the t and sign tests for the mean and median respectively. Hence the null hypothesis that the population mean/median for QSREL≤3 is rejected and the alternative hypothesis that QSREL>3 is accepted. This implies that both groups of respondents believe that the Qur’an and Sunnah (the basic sources of Islamic Law) provide principles which can be developed into a business and or/legal framework (including accounting framework) to meet the needs of different types of organisations. (9.3)
TABLE 9-3: STATISTICAL RESULTS OF HYPOTHESIS TESTING FOR QSREL
Sign Test for Median
Sign test of median = 3.000 versus > 3.000
N Below QSREL 87 0
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable QSREL N 87 Mean 4.5431 StDev 0.4719 SE Mean 0.0506 T 30.50 P 0.0000
Accounting Academics: Sign Test for Median
Sign test of median = 3.000 versus N 95 Below 0 Equal 0 Above 95 > 3.000 Median 5.000
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable QSREL N 95 Mean 4.6447 StDev 0.4692 SE Mean 0.0481 T 34.16 P 0.0000
9.3 THE APPROPRIATENESS OF CONVENTIONAL ACCOUNTING FOR ISLAMIC BUSINESS ORGANISATIONS AND MUSLIM USERS
Accounting is said to be the language of business. Each language has its own nuances and accounting is not free from this phenomenon. As argued in chapter 2, accounting helps to construct reality and itself is a construction of its environment. The fact that Anglo-American accounting, shaped in the environment of Western philosophy and history, is being used to assess and monitor the performance of Islamic business organisations could be a problem.
Given the socio-economic principles, under which Islamic and Muslim business operate, the information that is required may vary from what conventional accounting is attuned to provide. The researcher has argued in Chapter 3, 5 and 6 that the objectives, characteristics and consequences of conventional accounting do not make it a suitable information tool for Muslim users and organisations. This inappropriateness can be categorised into three aspects: • Conventional accounting may in effect direct Muslim users towards unIslamic behaviour. • Conventional accounting may not provide appropriate information for Muslim users (various stakeholders and Organisations) • The concepts of conventional accounting such as historical cost and monetary measurement concept may be unsuitable for adoption by Islamic organisations. To elicit answers to these questions, three hypotheses are and tested.
9.3.1 Conventional accounting results in UnIslamic behaviour
The first hypothesis for these research questions is set up as follows:
Hypothesis No. 4: H0: Malaysian Muslim accountants and accounting academics believe that Conventional accounting provide information, which directs Muslim users towards Islamic behaviour : Malaysian Muslim accountants and accounting academics believe that Conventional accounting provide information, which do not direct Muslim users towards Islamic behaviour.
FIGURE 9-6: HYPOTHESIS ON CONSEQUENCES OF CONVENTIONAL ACCOUNTING
The hypothesis to be tested is that “Malaysian Muslim accountants and accounting academics believe that conventional accounting provides information, which directs Muslim users toward Islamic behaviour”. To test the hypothesis a score (UNISL)
consisting of questions Q2.1, Q2.2, Q2.3 and Q2.4 (see figure 9-7) was calculated with the following formula is computed. UNISL= mean.4(q2.1, q2.2,q2.3,q2.4) (9.4)
Please indicate the extent to which you agree with the following statements by ticking (√) the appropriate box. If you are unable to give an answer, please leave the boxes Blank.
2.1 The fact that Western cultural values underlie conventional accounting principles may make them inappropriate for use by Islamic business organisations 2.2 The focus given to money and profits by conventional accounting fosters materialism, individualism and competition among Muslim users. 2.3 Information produced by conventional accounting cannot lead to welfare (falah) in the Islamic perspective through the efficient allocation of resources. 2.4 Conventional accounting needs major modification to enable it to provide the appropriate information which will allow Muslim users to make the appropriate decisions to ensure the attainment of Islamic objectives.
FIGURE 9-7:QUESTIONS ON THE BEHAVIOURAL IMPLICATIONS OF CONVENTIONAL
The hypothesis is set up as follows: H0: mean/median of UNISL ≤ 3 H1: mean/median of UNISL > 3 The results are presented in table 9-4 below:
TABLE 9-4: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF UNISL
Sign Test for Median Sign test of median = 3.000 versus N 89 Below 29 Equal 7 > 3.000 P 0.0055 Median 3.500
T-Test of Mean Test of mu = 3.000 vs mu > 3.000 Variable UNISL N 89 Mean 3.3624 StDev 0.8815 SE Mean 0.0934 T 3.88 P 0.0001
Sign Test for Median Sign test of median = 3.000 versus N 90 Below 14 Equal 5 > 3.000 P 0.0000 Median 3.750
T-Test of the Mean Test of mu = 3.0000 vs mu > 3.0000 Variable UNISL N 90 Mean 3.6361 StDev 0.6881 SE Mean 0.0725 T 8.77 P 0.0000
From table 9-4, it can be seen that for both professional accountants and academics, the p value is less than 0.05 for both the sign and t tests. This indicates that the difference between the population median and the test value of 3 is significant and cannot be ignored. Hence the null hypothesis that the population median is 3 is rejected. The alternative hypothesis that the median of UNISL is 3 is accepted. It can thus be inferred that Malaysian Muslim accountants and accounting academics believe that conventional accounting does not lead to Islamic behaviour.
However, a sectoral test of mean and median produced a p value of 0.35 and 0.7142 for accountants in public practice. Due to the sampling error mentioned in chapter 8, the null hypothesis cannot be rejected for public practice accountants. Hence, the above conclusion that Malaysian Muslim accountants believe that conventional accounting information do not lead to Islamic behaviour must be restricted to only accountants working in commerce and government sectors.
9.3.2 Conventional accounting provides inappropriate information
The second hypothesis in this section as follows:
HYPOTHESIS NO. 5: H0: Malaysian Muslim accountants and accounting academics believe that Financial Statements provided under conventional accounting provide appropriate information for Muslim users. H1: Malaysian Muslim accountants and accounting academics believe that Financial Statements provided under conventional accounting provide inappropriate information for Muslim users.
FIGURE 9-8:HYPOTHESIS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING
Again, a score, CAINF, is constructed to measure this concept better, using the responses to questions Q2.5(b) and Q2.5(c) (see figure 9-9) . The SPSS formula used is: CAINF6= MEAN.2(q2.5b,q2.5c) (9.5)
In order for the score to be calculated, all the questions constituting the score must have been answered.
6 As noted in Chapter 8, question Q2.5a is not included in this score as the reliability test indicated that it does not measure the same concept as the other two questions.
5. Financial Statements prepared in accordance with conventional accounting principles: a. provide appropriate information to enable Islamic business organisations (IBO) to properly disclose their Islamic accountabilities ( e.g. Shari’ah compliance) to all their stakeholders. (not included in above score) b. impede the fair and proper allocation of wealth between stakeholders e.g. as between shareholders , managers and employees. c. hinder the making of the appropriate decisions needed to control Islamic organisations to ensure the attainment of their Islamic objectives. FIGURE 9-9: QUESTIONS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING
TABLE 9-5: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF APPROPRIATENESS OF CONVENTIONAL ACCOUNTING INFORMATION FOR MUSLIM USERS (CAINF). Professional Accountants: Sign Test for Median
Sign test of median = 3.000 versus N 84 Below 32 Equal 24 > 3.000 Median 3.000
Above P 28 0.7407
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable CAINF N 84 Mean 2.9583 StDev 1.0126 SE Mean 0.1105 T -0.38 P 0.65
Accounting Academics: Sign Test for Median
Sign test of median = 3.000 versus N 78 Below 30 Equal 16 > 3.000 P 0.4495 Median 3.000
T-Test of the Mean
Test of mu = 3.000 vs mu > 3.000 Variable CAINF N 78 Mean 3.0769 StDev 0.9469 SE Mean 0.1072 T 0.72 P 0.24
From Table 9-5, it can be seen that for both professional accountants and accounting academics, the p-value is above 0.05, indicating that there is more than 5% chance that the sample comes from a population with a mean and median of ≤ 3.0. Hence the null hypothesis that Malaysian Muslim accountants and accounting academics perceive that conventional accounting information is suitable for Muslim users cannot be rejected. It is therefore likely that Malaysian Muslim accountants and accounting academics do not believe that conventional accounting information is not appropriate for Muslim users.
9.3.3 Conventional accounting concepts (principles) are not suitable for Islamic organisations.
The third Hypothesis for these research questions is set up as follows:
Hypothesis No. 6: H0: Malaysian Muslim accountants and accounting academics believe that Conventional accounting concepts are suitable for Islamic organisations H1: Malaysian Muslim accountants and accounting academics believe that Conventional accounting concepts are not suitable for Islamic organisations.
FIGURE 9-10: HYPOTHESIS ON SUITABILITY OF CONVENTIONAL ACCOUNTING
To test this hypothesis, a multi-item score, CAP was calculated consisting of questions 2.6a,2.6b and 2.6c (see figure 9-11). CAPRIN=mean.3(rq2.6a,rq2.6b,rq2.6c) (9.6)
Re-coding of all the questions in the score was necessary because the questions are in the reverse direction. Answers to all the questions must be present before the score is computed.
6. The following accounting concepts are appropriate for Islamic organisations: a. Historic Cost. b. Prudence/conservatism. c. Money Measurement. FIGURE 9-11:QUSTIONS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING
The hypothesis is set up as follows: H0: CAPRIN≤3 H1: CAPRIN>3 Again both non-parametric sign test and t tests were used, to allow for the possible non-normality of the population distribution. The results are listed in Table 9-6.
TABLE 9-6: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF CAPRIN Professional accountants Sign Test for Median
Sign test of median = 3.000 versus > 3.000 P 1.0000 Median 2.333
N Below Equal Above CAPRIN 97 57 22 18 T-Test of the Mean Test of mu = 3.0000 vs mu > 3.0000 Variable CAPRIN N 97
Mean StDev SE Mean 2.4399 0.8998 0.0914
Accounting Academics Sign Test for Median
Sign test of median = 3.000 versus N CAPRIN 94 Below 54 Equal 13 > 3.000 P 0.9991 Median 2.417
T-Test of the Mean Test of mu = 3.000 vs mu > 3.000 Variable CAPRIN N 94 Mean 2.5798 StDev 1.1435 SE Mean 0.1179 T -3.56 P 1.00
The p values of nearly 1.00 in both cases for accountants and academics, for both the sign and t tests indicate that the probability of the sample having come from a population containing a median and mean of 3 or less is almost 100%. Hence the null hypothesis cannot be rejected for both the groups of respondents. Hence, the hypothesis that “Malaysian Muslim accountants and accounting academics believe that some conventional accounting principles are suitable for Islamic organisations” is accepted. From the results of testing the above three hypotheses in section 9.2, it can be inferred that the information it provides may be suitable for Islamic organisations and users. However, the lower number of respondents answering this question and the fact that a separate test of Q2.5 (CAINF_2: refer appendix 9-1) indicated that the academics and accountants (except for those working in the government) did not believe that “conventional financial statements provides appropriate information to enable Islamic business organisations to properly disclose their Islamic
accountabilities to all their stakeholders” (p values were below 0.05 except for govt which was 0.42), It also appears that some conventional accounting principles,
such as monetary measurement, prudence and historical cost, may be viewed as appropriate for Islamic organisations. Nevertheless, despite this, conventional
accounting does not appear to direct Muslim users to Islamic behaviour.
9.4 THE OBJECTIVES AND CHARACTERISTICS OF ISLAMIC ACCOUNTING
From section 9.1, it was found that that Malaysian Muslim accountants and accounting academics believe that Islamic business organisations follow a different set of socio-economic principles from Western business organisations. The findings from section 9.3 indicate that conventional accounting may not provide appropriate information for them. Further the findings in section 9.2 indicate that Muslim
academics and accountants believe that the basic Islamic sources (Qur’an and Sunnah) provide principles which can be developed into a viable economic regulatory framework for contemporary Islamic organisations in various sectors. These findings point to an alternative Islamic accounting system. The researcher has argued for an “Islamic accountability” as the main objective of Islamic accounting. Further social and environmental objectives should be given at least equal weight as profits. Further, the researcher has suggested from Chapters 3 and 6 that the stakeholders other than shareholders are equally if not more important than shareholders as users of Islamic accounting information. To further this, the type of information (non-financial, integrative, and holistic) disclosed by Islamic accounting and its recognition and valuation principles, needs to be different from those of conventional accounting. In the subsections below, the results of testing the
hypotheses regarding the objectives, users and characteristics of Islamic Accounting will be presented.
9.4.1 The Objectives of Islamic Accounting.
The first hypothesis to be tested refers to the objective of Islamic accounting. In conventional accounting, the primary objective is held to be decision-usefulness for investors and creditors (FASB, 1979; AAA, 1977). As discussed in chapter 6, although the researcher has no qualms on the need for usefulness of accounting information, decision-usefulness has come to imply usefulness for investors and creditors to make financial decisions to increase their wealth measured in cash flows. The researcher believes that this cannot be the main objective of Islamic accounting. Further, it cannot be more important than other social, religious and environmental objectives. This notion is tested as follows:
Hypothesis No. 7: Null Hypothesis: Malaysian Muslim accountants and accounting academics believe that decision-usefulness is the main objective of Islamic accounting. Alternative Hypothesis: Malaysian Muslim accountants and accounting academics believe that decision-usefulness is not the main objective of Islamic accounting.
FIGURE 9-12:HYPOTHESIS ON THE MAIN OBJECTIVE OF ISLAMIC ACCOUNTING
In the Islamic Accounting Questionnaire, Q3.1 lists four alternative objectives of Islamic accounting from which respondents are asked to choose one or give their own. Decision usefulness, stewardship, Islamic accountability and social
accountability is listed as answers. Decision-usefulness is given a score of 1, stewardship a 2, own choice a 3, social accountability 4 and Islamic accountability 5. The further away from 1 the mean score is the more the tendency towards Islamic accountability. To be doubly sure, the null hypothesis is that H0: ≤ 3 against the alternative hypothesis H1>3 was tested using both the sign test for median and t test of means. In table 9-7, the p values for both the sign test and t-test are 0.0000 (very much less than 0.05), for both categories of respondents. Therefore the null hypothesis, decision usefulness is the main objective of Islamic accounting has to be rejected. This indicates that Malaysian Muslim accountants and accounting academics believe that decision-usefulness should not be the main objective of Islamic Accounting. Further the table of response frequencies (Table 8-6 in chapter 8, page 358), shows that only four respondents (representing 2% of the 205 participants who answered this question) chose, number 3 (own choice). Hence, even if the rank three were not the appropriate rank to be given for their choice (given 3 was interpreted to mean neutral), it would not affect the results above.
TABLE 9-7: RESULTS OF TESTING THE DECISION-USEFULNESS HYPOTHESIS
Professional Accountants: Sign Test for Median Sign Test for Median
Sign test of median = 3.000 versus N 98 Below 7 Equal 5 > 3.000 P 0.0000 Median 5.000
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable 3.1 N 98 Mean 4.4490 StDev 0.9538 SE Mean 0.0963 T 15.04 P 0.0000
Sign Test for Median
Sign test of median = 3.000 versus N Q3.1 95 Below 2 Equal 0 > 3.000 P 0.0000 Median 5.000
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable Q3.1 N 95 Mean 4.7158 StDev 0.6301 SE Mean 0.0647 T 26.54 P 0.0000
Chapter 9 9.4.2 The Subsidiary Objectives of Islamic Accounting
In addition to the main objective of Islamic accounting, there may be subsidiary objectives of Islamic accounting. These could include the provision of information to achieve its non-economic objectives as opposed to, as opposed to the case of conventional accounting objectives where the objectives of increasing shareholder wealth and efficient capital allocation is given prominence. These Islamic socioeconomic objectives include the equitable distribution of wealth among stakeholders, proper assessment of Zakat, Shari’ah control of organisations and the creation of a co-operative friendly environment for employees and stakeholders. Thus another hypothesis related to the objectives of Islamic accounting is set up and tested as follows: In order to test this hypothesis, two scores, NFOB (mean of non-financial objectives) and MFO (mean of financial objectives) are computed. The first score consists of the mean of Q3.2c –f; NFOB=mean.4(q3.2c,q3.2d,q3.2e,q3.2f) (9.7)
The second score consists of the mean of Q3.2a and b from the Islamic accounting questionnaire (see figure 9-14). MFO= mean.2(q3.2a, q3.2b) (9.8)
HYPOTHESIS NO.8: H0: Malaysian Muslim accountants and accounting academics believe that Islamic/Social objectives of Islamic accounting are of equal importance to Economic objectives of Islamic accounting. Malaysian Muslim accountants and accounting academics believe that Islamic/Social objectives of Islamic accounting are more important than Economic objectives of Islamic accounting.
FIGURE 9-13: HYPOTHESIS ON THE SUBSIDIARY OBJECTIVES OF ISLAMIC
3.2 The objectives of Islamic accounting should be to provide information:a) in order to maximise efficient allocation of capital to the most effective uses. b) to increase shareholder wealth. c) so that all users (including shareholders, employees and others) get their fair share of the wealth generated by an organisation. d) for the government to assess Zakat properly in order that Zakat beneficiaries can get their proper rights. e) so that activities of the organisation can be controlled to be in accordance with the Islamic Shari’ah. f) to create an environment conducive to solidarity within the organisation and cooperation between various stakeholders.
FIGURE 9-14:QUESTIONS ON THE SUBSIDARY OBJECTIVES OF ISLAMIC ACCOUNTING
The hypothesis is set up as follows: H0: mean/median of (NFOB- MFO)=0 H1: mean/median of (NFOB- MFO)>0 Again the sign test (non-parametric) and the t-test are used. The results are listed in Table 9-8. Table 9-8 shows that for both professional and accounting academics, the p value is well below 0.05, indicating that the difference between the two medians cannot be attributed to chance. Hence, the null hypothesis is rejected and the conclusion is that Islamic/social objectives of Islamic accounting are seen by Malaysian Muslim accountants and accounting academics as more important than the economic objectives such as the maximisation of shareholder wealth.
TABLE 9-8: RESULTS OF HYPOTHESIS TESTING OF SOCIAL VS. ECONOMIC OBJECTIVES OF ISLAMIC ACCOUNTING Professional accountants: Sign Test for Median
Sign test of median = 0.00000 versus N 97 Below 11 Equal 21 > 0.00000 P 0.0000 Median 0.5000
T-Test of the Mean
Test of mu = 0.000 vs mu > 0.000 Variable NFOB-MFO N 97 Mean 0.5387 StDev 0.7683 SE Mean 0.0780 T 6.91 P 0.0000
Accounting Academics Sign Test for Median
Sign test of median = 0.00000 versus N 91 > 0.00000 P 0.0000 Median 0.5
Below Equal Above 11 20 60
T-Test of the Mean
Test of mu = 0.000 vs mu > 0.000 Variable NFOB-MFO N 91 Mean 0.6703 StDev 0.7931 SE Mean 0.0831 T 8.06 P 0.0000
9.4.3 The Users of Islamic Accounting
Stakeholders other than shareholders may be more important as users of Islamic accounting information. Since conventional accounting focuses on shareholders and creditors (FASB 1978), IASC (1989), it may not provide the information required by other stakeholders. To find out whether these other stakeholders were viewed as more important as users of Islamic accounting information than shareholders, the participants were
asked to rank the importance of other stakeholders such as employees, government, community, consumer groups and benevolent loan creditors. A score, STIMP constituting questions 3.3a to 3.3d (see figure 9- 15) was computed with the following formula: STIMP= mean.4(q3.3a,q3.3b,q3.3c,q3.3d,q3.3e)
3.3As compared to shareholders, please rank the importance of the following stakeholders as users of Islamic accounting information. a) Employees/Trade Unions. b) Government. c) Community. d) Benevolent Loan (Qard Hasan) Creditors. e) Customers / Consumer groups. FIGURE 9-15:QUESTIONS ON THE RELATIVE IMPORTANCE OF VARIOUS
STAKEHOLDERS COMPARED TO SHAREHOLDERS
The questions were measured on a 1 to 5 scale; a score of 1 indicating that the stakeholder group was not important at all compared to shareholders while a score of 5 would mean the stakeholder group is much more important than shareholders. A score of 3 indicates that the stakeholder group was equally important as shareholders. The following hypothesis was tested:
Hypothesis No. 9: H0: Malaysian Muslim accountants and accounting academics believe that as in conventional accounting, shareholders are more important users of Islamic accounting that other stakeholders Malaysian Muslim accountants and accounting academics believe that in contrast to conventional accounting, shareholders are not more important users of Islamic accounting than other stakeholders.
FIGURE 9-16:HYPOTHESIS ON THE RELATIVE IMPORTANCE OF ISLAMIC ACCOUNTING
The hypothesis test was: H0: mean/median of STIMP=3
H1: mean/median of STIMP>3
Both the non-parametric sign test of median and the t-test of means were employed. The results are illustrated in Table 9-9.
TABLE 9-9: RESULTS OF HYPOTHESIS TESTING OF STIMP
Sign Test for Median
Sign test of median = 3.000 versus N STIMP 98 Below 16 Equal 22 > 3.000 P 0.0000 Median 3.400 Above 60
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable STIMP N 98 Mean 3.4490 StDev 0.7064 SE Mean 0.0714 T 6.29 P 0.0000
Accounting Academics Sign Test for Median
Sign test of median = 3.000 versus N 96 Below 21 Equal 19 > 3.000 P 0.0001 Median 3.300
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable STIMP N 96 Mean 3.4130 StDev 0.7012 SE Mean 0.0716 T 5.77 P 0.0000
The results in table 9-9 indicate that, for both the professional accountants and accounting academics, the p value was less than 0.05, indicating that the
median/mean was (significantly) more than 3. Hence the null hypothesis is rejected and we accept the alternative hypothesis, that stakeholders other than shareholders are perceived by Malaysian Muslim accountants and accounting academics, as important as, if not more important than, shareholders, as users of Islamic accounting information.
9.4.4 The characteristics of Islamic accounting
Conventional accounting tends to emphasise financial information in line with its monetary measurement concept. It does not measure what is not reducible in monetary terms. Hence externalities i.e. negative and positive consequences caused by the accounting entity are not reported, as they do not have a direct financial cost or benefit for the entity itself. The consequences of this have been documented by Tinker (1985) and have been referred to in chapter 3. From the Islamic perspective, however, economic institutions such as businesses are also social institutions having a responsibility to Allah, their stakeholders and environment (see Chapter 5). As such, externalities, especially negative
consequences, irrespective of financial considerations, should be reported by an Islamic accounting system. The system should also provide non-financial information concerning employee-employer relationships, discharge of contract, details of prohibited transactions under Islamic law, (if any, and their reasons), environmental and communal responsibilities undertaken and the amount of Zakat payable and paid (Khan 1994). The researcher further believes an integrated system of reporting both financial and non-financial information is in line with the integrative concept of Islamic enterprise, although Chen (1975) suggests two reports; one financial and another social. This would induce Muslim users to look for integrated performance measures when evaluating their investments and not motivated to look for the profit figure first, as in
conventional annual reports. In addition, the accounts should be Shari’ah audited; the term “Shari’ah” used in a broad sense encompassing not only strict legal compliance but also social compliance- an Islamic equivalent of the social audit. As discussed in chapter 6, the researcher also believes that as the calculation of a Zakatable base requires the use of current values, a current valuation system would be adopted by Islamic accounting. The non-financial information is especially relevant to Muslim users of Islamic organisations because, the user requires assurance that the organisations have conducted their activities within the Shari’ah, for which purpose, the institution was set up in the first place. In order to elicit empirical evidence on the type of information, Islamic accounting should disclose the following hypothesis is tested.
HYPOTHESIS NO. 10: H0: Malaysian Muslim accountants and accounting academics believe that Islamic accounting do not emphasise Islamic and social information . H1: Malaysian Muslim accountants and accounting academics believe that Islamic accounting emphasises Islamic/social information.
FIGURE 9-17: HYPOTHESIS ON THE INFORMATION CHARACTERISTICS OF ISLAMIC
To operationalise the hypothesis, another score, SEI consisting of 14 questions of the Islamic Accounting Questionnaire (see figure 9-18) was computed using the formula: SEI=mean.13(q3.4a,q3.4b,q3.4c,q3.4d,q3.4e,q3.4f,q3.6,q3.7,q3.8,q3.9,q3.10,q.3.11, q.3.12,q3.13). As there were fourteen questions, the ruling adopted i.e. 10%x14=1.4, rounded to the nearest whole number leaves one question to be deducted, thus making a minimum of thirteen responses as a criterion for calculating the score. The hypothesis tested was as follows:
H0: mean/median of SEI ≤ 3 H1: mean/median of SEI>3.
Both the sign test and the t test of mean were used. The results are indicated in Table 9-10.
3.4 Islamic accounting should provide information on: a) b) c) d) e) f) 3.6 3.7 3.8 3.9 3.10 3.11 3.12 Impact of the organisation’s activities on the Environment. Internal Employee-Manager relationships and working conditions. Distribution of salaries, perks and wages among different levels of managers and employees. Prohibited (haram) activities or financing undertaken by the organisation. Social impact on the community. Allocation of wealth between National and Foreign interests. ‘Accounting’ in the Islamic context should NOT be restricted to a mere monetary account rendering. Islamic accounting (IA) needs to de-emphasise the focus given by conventional accounting to cash flow, profits and financial position. IA should provide wider holistic information on the activities undertaken (or not undertaken) by the Islamic organisation. IA should attempt to recognise and measure externalities. IA should use current values in the balance sheet in order for Zakat to be calculated fairly. IA should recognise unrealised profits in order to attribute an equitable share of profit/loss as between present and future shareholders. Accounts and annual reports of large Islamic business organisations should be Shari’ah audited to ensure that the organisation has conducted its activities in accordance with the Shari’ah. Islamic accounting should integrate non-financial information reflecting significant activities, which cannot be reliably measured in monetary terms.
FIGURE 9-18:QUESTIONS ON THE CHARACTERISTICS ON ISLAMIC ACCOUNTING
It can be seen from Table 9-10 that, for both academic and professional accountants, the p value for both tests is less than 0.05. Thus, the null hypothesis is rejected, as it is very improbable that the sample is drawn from a population with a mean/median value of 3. Hence, we accept the alternative hypothesis that Malaysian Muslim
accountants and accounting academics believe that Islamic accounting emphasises Islamic/social information.
TABLE 9-10:RESULTS OF HYPOTHESIS TESTING OF SEI Professional Accountants: Sign Test for Median
Sign test of median = 3.000 versus N 91 Below 2 Equal 2 > 3.000 P 0.0000 Median 3.786
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable SEI N 91 Mean 3.7849 StDev 0.5331 SE Mean 0.0559 T 14.05 P 0.0000
Accounting Academics: Sign Test for Median
Sign test of median = 3.000 versus N 90 Below 0 Equal 1 > 3.000 P 0.0000 Median 4.071 Above 89
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable N Mean StDev SEI 90 4.1233 0.4592 SE Mean 0.0484 T 23.21 P 0.0000
The SEI score included one question, which asked the whether financial information (cash flow, profit, financial position) should be de-emphasised by Islamic accounting points scored a mean and median around 3.5. This suggests that financial information needs to be de-emphasised in Islamic accounting.
9.5 INTERPRETATION OF RESULTS
Out of the 10 hypotheses tested, in general, it can be seen that Malaysian professional accountants and academics seem to agree that there is a need for
Islamic accounting. This is due to the fact that Islamic organisations are based on different socio-economic principles compared to their capitalist counterparts and need an alternative to conventional accounting whose objectives, characteristics and consequences are not conducive to the attainment of the objectives of Islamic organisations. The respondents believe that Islamic organisations do not emphasise profits as much as social welfare and do not participate in activities, which are not in line with Islamic socio-economic principles (Hypotheses 1 & 2). The respondents of both categories are of the firm belief that the basic sources of Islam provide adequate principles on which an alternative socio-economic regulatory framework to meet the contemporary needs of various types of organisations can be developed (Hypothesis No.3). This score (QSREL) was very negatively skewed, indicating almost total agreement. In fact a separate test conducted to see whether the hypothesis holds for H1; median >4 (see Table 9-11), indicated that this was so in the case of this score and Q3.1 on the objectives of Islamic accounting. This means the Malaysian Muslim Academics and Accountants expressed strong agreement on this issue. Although this might be a matter of religious conviction rather than based on practical experience, many of the respondents were Western educated with a very basic (equivalent to O level) level of education in Islam, and were mainly from the upper middle class level of society. This makes it a remarkable finding. Hence, while only the future will tell if their conviction is rightly placed, there is at least a belief in the Islamic solution to accounting problems! Both Malaysian Muslim Accountants and accounting academics consider that conventional accounting conventional accounting provides information, which motivates Muslims in the wrong direction and may lead them to unIslamic behaviour (Hypotheses 4). However, the respondents view that information provided by conventional financial statements do not impede proper wealth allocation between
stakeholders nor hinder the making of appropriate decisions to control Islamic organisations (Hypothesis 5). However, a separate test shows that except for government accountants, the respondents consider that conventional financial statements do not provide the information necessary to disclose proper Islamic accountabilities. Due to the negative wording of the questionnaire and the small number of respondents answering these questions, the results are not very conclusive. On the other hand, the respondents strongly reject the view conventional accounting principles tested i.e. historic cost, prudence and monetary measurement are unsuitable for Islamic organisations. However, the researcher considers that further research is necessary in this area. The response could have been due to one of the following reasons: Conventional accounting principles such as historic cost having stood the test of time (Ijiri, 1971) add a semblance of stability to the system. In the case of alternatives put forward in the West for a change to other valuation systems such as replacement cost (Edwards & Bell, 1961), the establishment has rejected the changeover. The failure of SSAP 16 in the UK and the failure of the conceptual framework projects to address this issue (Solomons, 1986 & AICPA, 1973) indicate this. This demonstrates the fact that when it comes to changing something basic and practical, which has been working, although somewhat imperfectly, for many years, it is natural to feel uncomfortable to change. Therefore, despite their agreement to the need for an alternative Islamic accounting system, the respondents may adopt a similar tendency. Another more plausible reason could be that, there is still a lack of awareness of the very real consequences of adopting the monetary measurement concept for example, the inability to recognise externalities. Further, it may be wrongly thought that Islam approves of prudence to protect the investor and thus historical cost would be entirely in line with Islam. Abdelgader (1994) for example, is
of the opinion, that since it is very difficult to have equitable apportionment of profits to different investors in different accounting periods, it is a compromise to accept historical cost profit as a basis for profit distribution. The researcher is of the opinion that further education of Muslims and research into alternative measurement systems is necessary before Muslims can compromise on this issue. In any case, for calculation of Zakat, historic cost is certainly not acceptable in Islam.
TABLE 9-11RESULTS OF TESTS OF IAQ HYPOTHESIS AT MEAN/MEDIAN=4.0
Sign Test for Median: academics Sign test of median = 4.000 versus P Median Q3.1 0.0000 5.000 ETH1 0.0038 4.167 ETH2 0.8759 4.000 CAINF 0.8759 4.000 UNISL 0.9999 3.750 QSREL 0.0000 5.000 OBIA 1.0000 3.667 STIMP 1.0000 3.400 SEI 0.3375 4.000
Sign Test for Median: professional accountants Sign test of median = 4.000 versus > 4.000 P Median Q3.1 0.0000 5.000 ETH1 0.9746 3.833 ETH2 1.0000 3.500 CAINF 1.0000 3.500 UNISL 1.0000 3.500 QSREL 0.0000 4.750 OBIA 1.0000 3.667 STIMP 1.0000 3.400 SEI 0.9965 3.786
The results on the objectives and characteristics of Islamic accounting indicate strong agreement on the Islamic accountability objective of Islamic accounting. A further test (see Table 9-11), conducted on the main objective of accounting, but with the null hypothesis that the mean/median response of the population is 4.0 with the alternative hypothesis that mean/median of q3.1 is more than 4.0, led to the rejection
of the null hypothesis. This indicates support that the population mean and the median were more than 4 (agree). This means that Malaysian accounting academics and accountants agree that decision-usefulness is not the main objective of Islamic accounting as opposed to conventional accounting. In fact only three out of the entire sample of 200 respondents chose decision-usefulness. Additional support for the social objectives of Islamic accounting as indicated by Hypothesis No. 8 provides evidence that the non-financial objectives of Islamic accounting are more important than financial objectives such as increasing shareholders’ wealth. Again the results of testing hypothesis No.9 indicates that that Islamic accounting views stakeholders other than shareholders as more important. This contrasts with the position of conventional accounting, which is addressed to investors (shareholders) and creditors in line with a decision-usefulness emphasis. There is, however, a caveat here as the extent of difference in importance is not found to be very much. A further test of median by the researcher showed that the null
hypothesis could not be rejected at median STIMP=3.2 against alternative STIMP>3.2. This suggests that the difference in importance in shareholder and other stakeholders is not very marked. Hence, it would be safer to assume that other shareholders are at least as important although not more important than other stakeholders. Conventional accounting, despite the efforts of critical and social accountants, gives primary importance to financial information. This is also reflected in a change of emphasis in accounting terminology, where the profit and loss account and balance sheet are now termed “financial” statements rather than accounting statements. Profit and loss account has become the “income statement”. Accounting has also split into “financial” and management accounting. All this indicates the tendency of accounting to overemphasis financial activity as opposed to delivering a report of accountability in a holistic sense. However, it would appear that the Malaysian professional
academics and accountants support the hypothesis that Islamic accounting emphasises Islamic/social information. They support Islamic accounting providing an integrated, holistic accountability report of not only economic but social and Islamic matters as well. It must also provide current valuation for Zakat calculation and the accounting statements should be Shari’ah audited which will be more comprehensive than the current financial statement audit. In conventional accounting, the ideal of the balanced scorecard has been advocated recently by Kaplan and Norton (1996). These authors have realised that the traditional accounting measures focused on financial profitability and net worth are outdated for enterprises in the global environment of the 21st Century. They advocate measures based on financial, customer, internal business processes and learning and growth measures. Despite its primary objective of financial success, the nonfinancial aspects of organisations are receiving increased focus. Social and environmental accounting is also making some inroads into mainstream accounting broadening the scope of accounting in the process. Hence Islamic accounting may take a cue and develop broad Islamic based indicators, perhaps an Islamic scorecard statement which might include the concept of giving scores to Islamic/social activity. Such a shift in emphasis away from profits is conducive to Islamic behaviour and Muslims. As the objective of conducting the empirical work, from an Islamic perspective, was to obtain consensus, a further test to obtain evidence of proportion of the population supporting these various hypothesis was conducted. The population proportion of the participants not favourable to Islamic accounting was hypothesised to be 40%. This would mean at least 60% consensus. The alternative hypothesis was that the proportion was more than 40% unfavourable to Islamic accounting. Table 9-12 lists the results.
It can be seen that the null hypothesis cannot be rejected at 5% confidence level except for conventional accounting principles (variable pcap). This means that there is at least 60% consensus to all the issues discussed earlier except for the unsuitability of conventional accounting principles, in which case about 73% to 80% of the respondents disagreed indicating consensus against. Hence, overall, there is evidence of consensus for Islamic accounting.
TABLE 9-12: PROPORTION TEST OF VARIABLES FOR ACADEMIC AND PROFESSIONAL
Professional Accountants:Test and Confidence Interval for One Proportion
Test of p = 0.4 vs p > 0.4 Success = 1 (score 1 to 3) Variable peth1 peth2 pcainf punisl pqsrel pobia pstimp psei pcap X 6 29 29 45 0 10 40 4 79 N 98 91 91 94 98 99 101 98 97 Sample p 0.061224 0.318681 0.318681 0.478723 0.000000 0.101010 0.396040 0.040816 0.814433 95.0 (0.022797, (0.224874, (0.224874, (0.374556, (0.000000, (0.049511, (0.300087, (0.011231, (0.722673, % CI 0.128508) 0.424670) 0.424670) 0.584268) 0.036942) 0.177925) 0.498256) 0.101218) 0.886152) Exact P-Value 1.000 0.956 0.956 0.074 1.000 1.000 0.570 1.000 0.000
Accounting Academics:Test and Confidence Interval for One Proportion Test of p = 0.4 vs p > 0.4 Success = 1 (score 1 to 3) Exact P-Value 1.000 0.999 0.999 0.926 1.000 1.000 0.473 1.000 0.000
Variable peth1 peth2 pcainf punisl pqsrel pobia pstimp psei pcap
X 2 23 23 32 2 6 40 1 71
N 99 91 91 96 98 98 98 98 97
Sample p 0.020202 0.252747 0.252747 0.333333 0.020408 0.061224 0.408163 0.010204 0.731959
95.0 (0.002456, (0.167455, (0.167455, (0.240381, (0.002481, (0.022797, (0.309923, (0.000258, (0.632416,
% CI 0.071076) 0.354728) 0.354728) 0.436883) 0.071782) 0.128508) 0.512107) 0.055545) 0.816849)
Chapter 9 9.6 CONCLUSION
The researcher has reported the tests conducted and the findings of the analysis of the Islamic Accounting questionnaires through the means of hypothesis testing of means and medians. In general, the result indicate: (i) The respondents (both Malaysian Muslim accounting professionals and accounting academics) believed that Islamic and Muslim businesses should aim at social welfare, avoid damage to the environment, ensure just and fair treatment of all stakeholders and pay sufficient wages to their employees (Hypothesis 1). However, this do not seem to mean sacrificing profit maximisation, as long as the organisations operate within the ethical and Shari’ah boundaries. (ii) The respondents also believed that Islamic business organisations should not take financing or invest in debt securities, futures and options, short selling and contra trading i.e. quick ways of making money without effort (Hypothesis 2). (iii) The respondents also very strongly believed that the principles in the Islamic sources are capable of being developed into business/legal framework to meet the current needs of various types of profit and non-profit organisations (Hypothesis 3). (iv) The respondents also agreed that conventional accounting leads to unIslamic behaviour and accounting needs a major overhaul before it can lead to appropriate behaviour by Muslim users. This together with hypothesis demonstrates clear support for an alternative accounting (Hypothesis 4). (v) The respondents (except for accountants in the government sector)also agreed that financial statements prepared in accordance with conventional accounting principles do not provide proper information as regards Shari’ah compliance and to discharge accountabilities. However, they did not perceive (Hypothesis 5).
that the information might impede the equitable allocation of wealth between stakeholders and hinder the making of appropriate Islamic decisions. (vi) In contrast to the other hypotheses, the respondents strongly rejected the hypothesis that conventional accounting principles of historical cost, prudence and money measurement were inappropriate for Islamic organisations (Hypothesis 6). (vii) The respondents very strongly supported Islamic accountability to be the main objective of Islamic accounting (Hypothesis 7). Decision usefulness as the main was almost rejected totally rather than decision usefulness. (viii) The respondents also believed that non-financial objectives of accounting are more important than financial objectives, although the latter were not rejected (Hypothesis 8). (ix) The respondents also believed that stakeholders such as employees, government, community, customers and benevolent loan creditors were equally important, if not more important than shareholders as users of Islamic accounting (Hypothesis 9). (x) The respondents also showed strong support for the holistic (integrated) and varied (financial and non-financial, qualitative and quantitative, “internalities” and externalities, current valuation) character of Islamic accounting information rather than a focus on money and profits (Hypothesis 10). From the above, it can be seen the results of at least eight out of ten hypotheses suggest the need for an alternative Islamic accounting. Although the support of the respondents for the view that conventional accounting is inappropriate, is not as strong, the support for developing Islamic accounting with different objectives and characteristics can be said to be overwhelming. However, there is no evidence from this research that conventional accounting principles tested are not appropriate for
Islamic accounting. Further research needs be conducted in this area to determine the scope and extent of the appropriateness and to test other conventional accounting principles. The next chapter (chapter 10) reports on the results of the survey on the unIslamic behavioural consequences of conventional accounting on Muslim users; executives and other employees of Islamic, Muslim and Non-Muslim organisations.
APPENDIX 9-1: RESULTS OF IAQ HY POTHESIS TESTING BY SECTORS TABLE A9-1: MEANS TEST OF HYPOTHESES BY SECTOR
T-Test of the Mean
Test of mu = 3.0000 vs mu > 3.0000 Variable ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI N 25 24 21 22 23 23 20 25 24 25 24 Mean 3.9520 3.5417 4.6310 3.5909 3.1304 3.0435 2.3583 4.5200 0.531 3.5200 3.8100 StDev 0.3280 0.8395 0.4718 0.7775 0.9561 1.0651 0.9053 0.9183 0.681 0.6557 0.5401 SE Mean 0.0656 0.1714 0.1030 0.1658 0.1994 0.2221 0.2024 0.1837 0.139 0.1311 0.1103 T 14.51 3.16 15.84 3.56 0.65 0.20 -3.17 8.28 3.82 3.96 7.35 P 0.0000 0.0022 0.0000 0.0009 0.26 0.42 1.00 0.0000 0.0004(mu=0vs.mu>0) 0.0003 0.0000
Test of mu = 3.0000 vs mu > 3.0000 Variable ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI N 41 39 37 40 36 41 32 45 40 44 43 Mean 3.8890 3.4487 4.5878 3.5500 3.0694 3.3415 2.6823 4.4889 0.506 3.5636 3.8837 StDev 0.4847 1.1531 0.4648 0.8847 1.0833 0.9383 0.9469 0.7869 0.717 0.7247 0.4687 SE Mean 0.0757 0.1846 0.0764 0.1399 0.1806 0.1465 0.1674 0.1173 0.113 0.1092 0.0715 T 11.74 2.43 20.78 3.93 0.38 2.33 -1.90 12.69 4.46 5.16 12.36 P 0.0000 0.010 0.0000 0.0002 0.35 0.012 0.97 0.0000 0.0000(mu=0vs.mu>0) 0.0000 0.0000
Sector: Public practice
Test of mu = 3.0000 vs mu > 3.0000 Variable ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI N 34 30 34 31 29 32 31 34 33 34 29 Mean 3.8485 3.6944 4.4338 3.0645 2.7241 3.5625 2.3978 4.2647 0.583 3.2941 3.6374 StDev 0.3886 0.6732 0.4700 0.9036 1.0401 1.0453 0.8920 1.1886 0.898 0.6915 0.5924 SE Mean 0.0666 0.1229 0.0806 0.1623 0.1931 0.1848 0.1602 0.2038 0.156 0.1186 0.1100 T 12.73 5.65 17.79 0.40 -1.43 3.04 -3.76 6.20 3.73 2.48 5.79 P 0.0000 0.0000 0.0000 0.35 0.92 0.0024 1.00 0.0000 0.0004(mu=0vs.mu>0) 0.0092 0.0000
Q2.5A(CAINF_2)93 3.462 1.048 0.109 4.25 0.000
Chapter 9 TABLE A9-2:MEDIAN TESTS OF HYPOTHESES BY SECTOR
SIGN TESTS FOR MEDIAN Sector: Government
Sign test of median = 3.000 versus N 25 24 21 22 23 23 20 25 24 25 24 Below 0 5 0 4 4 4 14 1 1 2 0 Equal 0 2 0 1 10 13 4 1 7 8 2 > 3.000 P 0.0000 0.0085 0.0000 0.0036 0.1334 0.3770 0.9997 0.0000 0.0001 0.0012 0.0000 Median 4.000 3.500 5.000 3.625 3.000 3.000 2.333 5.000 0.6250 (med=0vs med>0) 3.400 3.742
ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI
Above 25 17 21 17 9 6 2 23 16 15 22
Sign test of median = 3.000 versus N 41 39 37 40 36 41 32 45 40 44 43 Below 2 11 0 10 13 6 16 2 4 5 1 Equal 1 3 0 4 9 19 8 2 10 10 0 > 3.000 P 0.0000 0.0144 0.0000 0.0057 0.5000 0.0262 0.9680 0.0000 0.0000 0.0000 0.0000 Median 4.000 3.500 4.750 3.750 3.000 3.000 2.833 5.000 0.3750 (med=0vs.med>0) 3.400 4.000
ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI
Above 38 25 37 26 14 16 8 41 26 29 42
Sector: Public practice
Sign test of median = 3.000 versus N 34 30 34 31 29 32 31 34 33 34 29 Below 1 1 0 15 16 5 18 5 6 8 1 Equal 0 6 0 3 6 12 6 2 4 6 0 > Above 33 23 34 13 7 15 7 27 23 20 28 3.000 P 0.0000 0.0000 0.0000 0.7142 0.9827 0.0207 0.9927 0.0001 0.0012 0.0178 0.0000 Median 3.800 3.500 4.125 3.000 2.500 3.000 2.333 5.000 0.5000 (med=0vs.med>0) 3.400 3.643
ETH1 ETH2 QSREL UNISL CAINF CAINF_2 CAPRIN Q3.1 NFOB-MFO STIMP SEI
RQ2.5A(CAINF_2)93 17 26 50 0.0000 4.000
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