The purpose of this paper to explore the possibility to look for a new accounting theory and accounting standards setting mechanism under some of Islamic principles.The paper has discussed basic Islamic principles of "Amanah" (Custody), "Shahadat" (Testimony), settlement in "Bay" (business deal) and "Shura" (Counseling) in the context..
As the accounting standards setting process will be based on Divine Guidance (Quran and Sunnah), the extent of subjectivity in setting and applying accounting standards can be minimized. These are initial thoughts. An accelerated integrated effort at OIC (Organization of the Islamic Countries) level to further explore the principles, specially "Bay", may be very useful.The new set of accounting standards would have a wide scope and just not be limited to Islamic finance. The paper provide an insight for another set of accounting standards which may improve the present status of accounting profession.
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The research objective is to find out the importance of Islamic accounting as compared to conventional accounting standards. Thus an effort is made to find out the various features of Islamic accounting along with the benefits and its comparisons with the conventional accounting system.
Research Problem and questions:
The research problem includes the facts that specify the benefits of Islamic accounting as compared to conventional accounting systems. The questions include the followings.
What is actually the Islamic accounting system?
What are the benefits of Islamic accounting system?
How this is different from other accounting system?
Research Source of data:
The data will collected from primary sources via questionnaire and secondary sources like previous studies and researches, book and magazines, and online resources.
Scope and limitations:
The scope of this research is only to the extent of this particular Islamic accounting study in comparison to the conventional accounting standards. The main variables that the researchers will look into are:
Methods and companionship to deliver such accounting standards.
Significance of the study:
This study will come in handy to serve other manufacturing companies and any related parties Thus; it will be significant for the general public, students of finance and potential customers of banks, investors, and may be useful for researchers.
Definition of terms
Islamic accounting can be defined as the accounting process which provides appropriate information to stakeholders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the Islamic Shariah and delivering on its socioeconomic objectives. Islamic accounting is also a tool, which enables Muslims to evaluate their own accountabilities to God. The meaning of Islamic accounting would be clearer if we compare this with the definition ofÂ conventional accounting. Conventional accounting as we know it is defined to be the identification, recording, classification, interpreting and communication economic events to permit users to make informed decisions (AAA, 1966).
Literature & Related Studies II Chapter
Stephen A. Zeff (2003) has taken a good stock of journey of accounting profession and its present status in the United States of America. If we thoroughly review this paper we shall also conclude that one of the basic problems with the present accounting is its departure from its inbuilt role of testifying independently the state of affairs of an entity
Laureen A. Maines and James M. Wahlen recommend that "Finally, we support
research that focuses on preparers because of their central role in the financial
Furthermore we supports the proposition that "Accounting should be more fundamentally about accountability than valuation"(Colson,2005)
In general accounting should be able to perform the following roles:
1-Properly protecting the stake entrusted by the stakeholders. This is more than book keeping.
2-Facilitating timely accountability of all the parties especially of the management
3-Testifying the true and fair view of business to the stakeholders.
4-Providing reliable information for successful decision making to all the stakeholders.
Presently a lot of debate is going on the various aspects of adopting accounting standards. Some are arguing in favour of accounting standards based on GAAP and some are in favour of IFRS (like Benston, Bromwich and Wagenhofer ,2006; Tarca, 2004; Jamal and Sunder, 2007;Soderstrom and Sun; Goncharov & Zimmermann, 2002 and Bradshaw, & Miller, 2002).
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There is also a discussion going on regulatory competition among accounting standards and choice to select a specific set of accounting standards(Sunder, 2002).
Than we also argue regarding harmonization of accounting standards. The joint efforts of IASB and FASB to develop a common conceptual framework although full of challenges (McGregor and Street, 2007), would be a landmark for accounting profession. All these efforts are to get high quality of accounting standards. However, the results of joint efforts of IASB and FASB are yet to be seen in the coming years.
"More importantly, the boards need to ensure that the revised framework addresses comprehensively both initial and subsequent measurement. This should include a clear articulation of acceptable measurement bases as well as identification of the measurement attribute or attributes that when applied will produce the highest quality decision useful information" (McGregor and Street, 2007).
Evaluations of the study:
From the above study it's clear that the Islamic Accounting is far way better and trustworthy accounting system. In this Accounting system all the flaws of the Conventional accounting system are drawn away and a good method of depicting the true picture of the accounting statement can be achieved.
The research is designed in the form of the questionnaires and other secondary sources of data. The attempt was made to keep secrecy and clarify the questions to the respondent before the filling of questionnaire. Also the interview questions were designed to maintain secrecy of the identity of the person.
Sources of Data
There are two types of data in any research, primary and secondary data. In this reportthe researchers have used the primary source of data through distributing questionnaires along with secondary source of data.
Purpose and research questions or null hypothesis
The purpose of the study is to find out the benefits of the Islamic banking and compare it with the conventional banking system and find out if really the Islamic banking system a better system than the other one.
The sample size consists of 30 respondents. These respondents are the Chartered Accountants with the knowledge of both Conventional and Islamic accounting system. Along with that the accounting lawyers were also among those who were consulted.
Scope and limitations
The scope of the research is the evaluation of the Islamic accounting system. No other sample shall be used to conduct this research. The research is done as the researcher must submit the study results before the end of the course to pass the course requirement.
What is your designation?
How many of years of experience in accounting you have?
What is your age?
What is your gender?
Do you know about the Islamic accounting system and conventional accounting system?
Do you think Islamic Accounting systems are better than Convention Accounting systems?
Do you think that Islamic Accounting system should be made compulsory for all the organization?
Do you think that Islamic Accounting is the answer to all the organization problems that investors, government and other parties faces in terms of transparency?
How you grade your knowledge about Islamic Accounting system?
Suggest any drawbacks or improvement you want to be added in Islamic Accounting system?
In the end, the Islamic accounting standards are very important to every nation in the world. This helps the country to get connected and channelized from the outside world. Thus the domestic company becomes multinationals and the government earns more taxes. The business in the country grows and prospers, thus making the company back on its feet.
The Accounting standards also aim at improving the financial health of the company. That is to take lesser decisions when the banks say no to a company.