Chapter 2 Page 19

CHAPTER 2: WORLD-VIEWS, VALUES AND ACCOUNTING;

DIFFERENT “ACCOUNTINGS” FOR DIFFERENT
WORLDVIEWS.

2.0 OUTLINE OF CHAPTER

In this chapter, the “Western” worldview, values and norms that underlie conventional

Anglo–American Accounting are discussed. The Islamic worldview and values are then

presented and contrasted with the “Western” worldview and are shown to be different.

These differences are shown to lead to different economic objectives, norms and

socioeconomic behaviour. Finally, the implications for accounting systems arising from

these different socioeconomic norms are presented.

The researcher suggests that, extending Roslender’s (1992) concept of Accountancy as a

social institution and not merely a technical subject devoid of religious and philosophical

values, conventional accounting is based on a European psyche quite different from Islamic

worldview and philosophy. Conventional accounting has certain implicit values and norms of

its own society and this is reflected in the way it was developed and expanded. Further, in

its present conformation, it is devoid of those values, which we can term spiritual/religious

and thus may not be appropriate for an Islamic society. There is therefore a need for an

alternative ‘Islamic accounting’ consistent with their world-view and objectives. The

succeeding chapters examine this need in detail.

2.1 WORLDVIEWS,VALUES AND THEIR IMPACT ON ECONOMIC

OBJECTIVES,NORMS AND ACCOUNTING

A worldview (weltanschauung) can be thought of as the set of implicit or explicit

assumptions about the origin of the universe and the nature and purpose of human life

(Chapra, 1992). In the words of Lovejoy (1960)1, it controls the “nature of man’s reflections

on almost any subject” (p 6). Differences in world-view can lead to differences in economic

values and norms which in turn affects accounting.

1
As quoted by Chapra (1992).
Chapter 2 Page 20

According to Haralambos & Holborn (1995), values are beliefs that “something is good and

desirable” (p5). Values define what is important and consequently what is worth striving for.

Norms, on the other hand, are the guidelines that guide conduct in particular situations.

Norms are said to define “what is acceptable and appropriate behaviour in particular

circumstances” (ibid., p5).

We can thus see that the three terms namely the worldview, values and norms constitute

the thought/ behaviour interface. Worldview is at the most general level, values at a more

detailed level and finally norms at a very detailed, specific level. Every society has a shared

worldview, norms and values, which give it its distinctiveness and cultural identity and

delineate it from other societies and cultures. The group, which shares this cultural identity,

could be of national, regional, ethnic or linguistic origins. However, when similar norms and

values transcend geographical, linguistic and even ethnic boundaries, the society tend to

become a civilisation, even if these linguistic, ethnic and geographical traditions remain

intact among the group sharing this ‘civilisational’ identity.

The researcher differentiates two civilisations here, the Western (Anglo-American/Western

European) and Islamic civilisations (Hunttington, 1996; Economist, 1998). The differences in

the worldviews, values and norms between the two civilisations are in part due to their

sources. The West takes its values from philosophical thought although it cannot be denied

that Western values have been influenced by Judeo-Christian religion (Russell, 1995).

Despite this, however, 20th Century Westerners seem to be moving away from religion

(Ashford & Timms, 1992). On the other hand, Islamic civilisation sources its values from its

religious scriptures, the Qur’an and Hadith, although Muslim society has not been immune

to Western philosophical developments and influence.

Chapter 2 Page 21

2.1.1 The Western Worldview and values

A caveat is in order before discussing the Western world values. The researcher recognises

that like other societies, Western society is not monolithic and homogenous but reflects a

continuum of values. For example, individualism and consumer culture prevails in most

parts of the USA, a more communitarian approach is recognised in, for example, the Rhine

model of capitalism in Germany and other parts of continental Europe, where maximisation

of profits and shareholder wealth is not the main objective. The former Warsaw pact

countries were at least until recently more socialistic in approach. The study by Ashford &

Timms (1992), for example, indicates wide disparities among respondents in Western

European countries surveyed regarding attitudes to religion, politics and other social

matters.

Despite this fact, however, certain fundamental beliefs such as democracy, materialism,

secularism and utilitarianism still pervade Western values and thought and can be

considered root metaphors of being ‘Western’. Haralambos & Holborn (1995), for example,

note that materialism and individual achievement have been suggested as major values in

Western industrial society. The notions of democracy, liberalism and secularism are some

of the values, wh\ich underlie Western society and in turn affect economic behaviour and

accounting. Other values include individualism, consumerism and empiricism. Certain

newer values such as environmentalism, pluralism and gender equality are becoming more

mainstream, but cannot be as yet considered core values and therefore will not be

discussed.

2.1.2 Western Worldview

The researcher considers the Western Worldview as a basically materialist worldview, in the

sense that it is mostly sceptical towards the concept of life after death. Even when there is a

belief in God or a spiritual being, it does not seem to influence economic or political

behaviour to any great extent. Thus, religion to the Occident:

Chapter 2 Page 22

“.....means a way of spending an hour or so on Sundays in practices which give him

some support and strength in dealing with the problems of daily life, and which
encourages him to be friendly towards other persons and to maintain the standards of
sexual propriety2; it has nothing to do with commerce or economics or politics or
industrial relationships....or may even look upon religion as an opiate developed by
exploiters of the common people in order to keep them in subjection”.
(Watt, 1979, p3 as quoted in Haneef, 1997)

A more atheistic materialist Western view (e.g. Marxist) would hold that “matter is the

primordial or fundamental constituent of the Universe, which is not governed by intelligence,

purpose or final causes” (Chapra, 1992, p22). The consequence of this worldview is that

material wealth and sensuous pleasures become the greatest values one could seek or

attain. This in turn becomes the basis for the increasing commercial consumer culture in

economics and shareholder wealth maximisation concepts in accounting.

2.1.3 Democracy and Popular Sovereignty

According to Held (1996) democracy means “‘a form of government in which, in

contradistinction to monarchies and aristocracies, the people rule” (p1). The word is derived

from the root Greek works demos (people) and kratos (rule). Democracy is said to have

developed in the classical model in Athens around 500 BC.

Although the ideals of freedom, equality, respect for Law and Justice were developed by

Greek Philosophers, democracy developed into the modern form through the social contract

theories of Hobbes, Locke and Rousseau and ended up in the modern liberal form through

the writings of John Stuart Mill. (McClelland, 1996)

John Locke’s (1632-1704) work is perhaps the most important for understanding the

construction of the modern liberal economic state. His political philosophy was based on

the laws of Nature which reason and experience suggest will provide the best practical

policy for governing human communities. While Hobbes had justified strong leadership as

necessary to control the natural wild solitary and competitive state of man, Locke argued

2
According to Ashford and Timms (1992), the percentage of people wishing complete sexual freedom in Western Europe
has increased from 25% to 35% from 1981 to 1990, while only 41% believed that the Church should have a say in
extra-marital affairs. Only 22% wanted the Church to have a say in Government Policy.
Chapter 2 Page 23

that man had a natural tendency to form contracts (which eventually took the form of moral

laws) with his fellows for survival. He thus advocated that government was only legitimated

by a social contract - a constitutional government with a separation of powers, between

legislature, the executive and the judiciary.

Although Held (1996) describes the various types of democracies, these will not be

discussed here, as the importance of the democratic values in this research is not in the

political sphere but the concept of popular sovereignty implicit in democracy (Hirst, 2000).

The concept of popular sovereignty holds that the people are the ultimate legislator or

source of ultimate authority. Since most Western states are democracies, the sole

legislative prerogative of the “Western” people implies that people are the source of all

morality, norms and values which find their way through the legislature into the regulation of

economic and social sectors of the community. This can be compared to other systems in

which sovereignty belonged to the King (e.g. in 16th Century France) or a God-King (in

China or Japan) or God Himself (as in Islam).

Since values in modern states tend to be prescribed or proscribed into Law, the concept of

popular sovereignty in a democratic setup has major implications for economic norms,

regulations and laws, which in turn have direct implications for accounting.

2.1.4 Individualism, liberalism and utilitarianism

The appeal to a naturalistic conception of justice and law in the social contract developed

into liberalism and individualism. According to Macpherson (1962), the roots of the liberal

democracy is to be found in the liberal new belief in the primary moral value and the rights

of the individual i.e. individualism of the 17th Century. Thus:

“Whether the individualism of the 17th Century is deplored as undermining the

Christian natural law tradition, or applauded as having opened new vistas of freedom
and progress, its importance is not disputed. Nor is doubted that individualism has
been an outstanding characteristic of the whole subsequent liberal tradition.
Individualism as a basic theoretical position , starts at least as far back as Hobbes.”
(Macpherson, 1962, p1)

Individualism was partly influenced by Kant (1724-1804) who considered that individual

human beings are ends in themselves. Persons are owed respect for their autonomy, which
Chapter 2 Page 24

is protected by inviolable rights. Individualism also presents itself in the guise of the

importance of individual achievement, such as coming out top of the class. According to

Haralambos & Holborn (1995), this individual achievement is often measured and

symbolised by the quality and quantity of material possessions. This can also be seen as

the basis for the rat race and cutthroat economic competition.

This individualism later gave rise to liberalism. The liberal tradition is that there are “radical

and irresolvable differences over what the good for the human beings is and what their

ultimate nature is thought to be” (Plant, 1991, p 74). Hence, there are no foundations to

guide the West on the ultimate nature of good and bad. Therefore a communitarian

conception of politics i.e. a state or society built on the basic virtues is impossible. Thus

Ackerman (1980) (as quoted by Plant, 1991) argues that:

“Liberalism does not depend on the truth of any single metaphysical or epistemological
system....In order to accept liberalism, you need not take a position on a host of Big
Questions of a highly controversial character”.
(Ackerman, 1980, p361)

Hence, in the liberal democracy, the community agrees to disagree on basic values, which

leads to moral pluralism i.e. that there are many equally worthwhile values and ways of life,

which are incompatible with each other.

Another form of individualism is influenced by classical utilitarianism put forward by Jeremy

Bentham (1748-1832) which prizes the human capacity for pain and pleasure. According to

Bentham, man in his political and economic relationships was and should be treated as a

calculator of his own interest, and that this calculus exhausted his nature. “The utilitarian is

at bottom only a restatement of the individualistic principles which were worked out in the

17th Century” (Macpherson, 1962 p2).

According to Honderich (1995), “Utilitarianism is a moral philosophy which treats pleasure or

desire satisfaction as the sole element in human good” and the “morality of actions entirely

depends on consequences or results for human well-being. It discards religious traditions

and social conventions in treating human well being or happiness as the touchstone for all
Chapter 2 Page 25

moral evaluation. In its earliest form, utilitarianism is a hedonistic doctrine i.e. treating

pleasure and pain as the sole good things in human life” (p 890).

Benthamite utilitarianism led to excesses in individualism as it expounded a narrowly selfish

and narrowly rationalistic doctrine. John Stuart Mill attacked it as a perversion of the

fundamental liberal insights of an earlier tradition. The suggested solution was to bring back

a sense of moral worth of the individual and combine it again with a sense of the moral

value of the community.

The many attempts to ‘repair’ individualism such as that of idealism and pluralism ran into

serious difficulty according to Macpherson (1962). He propounds the theory of ‘Possessive

individualism’, which he states is the underlying unity of English political thought and the

persistent and deep rooted assumption of liberal democratic thought. This ‘possessive

quality’ was the concept of the individual as essentially the proprietor of his own person or

capacities, owing nothing to society for them. The individual is neither a moral whole nor a

part of a social whole, but as an owner of himself. Freedom from dependence on the will of

others is a function of possession. Society consists of relations of exchange, which are

undertaken voluntarily between proprietors with a view to their own interest. “Political

society is a human contrivance for protection of the individual’s property in his person and

goods and for the maintenance of an orderly relations of exchange between individuals

regarded as the proprietors of themselves i.e. a series of market relations” (Macpherson,

1962, p264). This view it seems to the researcher restricts the role of government to

facilitating economic activity so that people can accumulate material wealth instead of

promoting equitable distribution of wealth or spiritual values.

Chapter 2 Page 26

2.1.5 Empiricism

Empiricism is a philosophy of knowledge, which claims that the body i.e. the senses, is what

brings us in touch with the world of external reality. Thus, knowledge is only attainable by

perception of the senses through scientific observation and experiments. Reason alone or

Revelation cannot be a source of knowledge. Lock’s philosophy became the first

comprehensive exposition of empiricism, which was itself a spin-off of earlier scepticism and

later elaborated by Berkeley (1685 -1753) and Hume (1711-1776). Hence, the study of

cause and effect relationships in natural phenomena was henceforth to occupy pride of

place in research and knowledge acquisition. However, the empiricists went overboard on

extending this to social sciences and ethics, where complex human interrelationships

require critical or interpretative enquiry, which require value-based interpretations. The

realist ontology of empiricism also led to a realist construction of ethics. For example, Hume

believed that morality was a wholly human construction governed by human nature and not

by a higher authority (Russell, 1995).

However, Hume’s distinction between ideas and impressions (perception of patterns in our

experience), and his admission that it is uncertain whether impressions arose immediately

from the object or perceived by the creative power of the mind, led to more uncertainty and

a feeling of more unreality. This is the exact opposite of what science is supposed to

achieve; certainty and fact rather than belief and superstitions. The extension of empiricism

to ethics in the contemporary postmodern scene, marked by an ‘incredulity towards

metanarratives’ (Lyotard, 1990) has led to ethical relativism and moral pluralism.

Empiricism became the foundation of modern social science, which together with

utilitarianism drives much mainstream positive accounting research and practice. It is also

the reason for a preference to a positive economic and accounting theory (Watts &

Zimmerman, 1980) rather than normative, value based ones.

Chapter 2 Page 27

2.1.6 Secularism

Scientific discoveries during the renaissance, such as the heliocentric theory by Copernicus,

went against the beliefs of the Roman Catholic Church, which by that time was deeply

involved in politics. These discoveries were considered heretical and the Church started to

persecute the scientists using the Inquisition, for example, Galileo (1564-1642) who had

publicised Copernicus’s work. However, according to Russell (1995), “The Inquisition was

successful in putting an end to science in Italy but it did not prevent men of science from

adopting the heliocentric theory, and did considerable damage to the Church by its

stupidity” (p 520).

This tussle between science and religion (represented by the teachings of the Church) led

to the eventual cessation of religious control (and even influence in) of politics and society in

the West. The secularisation and separation of politics from religion and morality began with

the writings of Niccolo Machiavelli (1469-1527), who had studied the mechanics of political

power as a subject beyond, if not exclusive of, moral doctrine. He put forward a new kind of

political theory basing it upon experience of history rather than any moral or abstract

principles. Governing could henceforth be justified by the end, notwithstanding the means

used to achieve it. Thus, Machiavelli was clearly an early modern liberal’ who liberated the

ruler from responsibility to God and ethics.

Francis Bacon (1561-1626) championed the inexorable rush towards the values of scientific

reason and weakening the dominance of theology and authority of scholasticism. According

to him, It is only through reason that men can hope to understand and control the laws of

nature, knowledge was power, and theology should be separated from philosophy. Practical

affairs rather than moral speculation should drive the latter.

Secularisation was perhaps a thrust to the decay of Christian doctrine in the European mind

and led to the separation of Science and Religion. The latter came to be seen as an

inhibition to reason, experimentation and free enquiry and a force for indoctrinating false

beliefs. Thus:
Chapter 2 Page 28

“The power of the Church was gradually corralled into the religious sphere; the
influence of religion increasingly limited to the realm of private conscience. As a result,
the speculation of the theologians, scientists and philosophers, the work of artists and
writers, and the policies of the princes were freed from the control of a Church with
monopoly powers and ‘totalitarian’ pretensions”. (Davies, 1997, p471)

The prime quality of the Renaissance was ‘independence of mind’ which meant that a

person no longer needed God or religion to guide or authorise him to believe, know or taste

in certain ways. Humanity was now capable of mastering the world. In the first phase the

Church and its authority (and tradition) was dethroned but God still sat on His throne but

became less active in man’s affairs. Man gained self-confidence and could now use God-

given ingenuity to unravel the secrets of God’s universe; man’s fate could now be controlled

and improved. Secularism also gave birth to biblical criticism as a scholarship and

eventually led to scepticism of religion as a whole (not only Christianity and the Church)

which meant the loosening of the bond between religious based beliefs and individual,

economic and social action.

Secularism had a profound effect on Western thought and on economic behaviour, as these

were now freed from moral constraints of religion and economic behaviour was only

restricted by man-made laws.

2.2 CAPITALISM, ECONOMIC NORMS AND ACCOUNTING

Capitalism, along with double entry, the essence of modern accounting, is said to have

started in 13th Century Italy (Yamey, 1982). During that time, several rich city-states

developed in Italy, i.e. Venice, Florence and Genoa as a result of the interchange of trade

and culture between Europe and the Islamic /Byzantine empires. The trade became

enormous, the cities importing the luxurious silk, spices etc. from the East and exporting

handicrafts to the East. Commercial capitalism arose in Italy on a vast scale. Although usury

was prohibited and scorned at by Christian Law, the city-states and the Papacy, due to

commercial expediency, tolerated it. The inconsistency was argued away as ‘profit’ from

loans because it was for productive purposes and not for consumption expenditure

(Tawney, 1927). This led to the expansion of banking and trading houses and the banking
Chapter 2 Page 29

system, which eventually spread to other parts of Europe in which agencies of these

bankers were established.

When trade expanded with colonialism, conquests and scientific discoveries, new trading

centres emerged in other parts of Europe in Antwerp, London, Paris and Rotterdam and

lastly in Germany. The increasing trade and especially the later industrial revolution

resulted in the establishment of joint-stock companies, firstly as Chartered monopolies and

later as publicly traded companies on a stock exchange. Whereas the large traders of the

Renaissance age were European family companies, the new industries were owned in

theory at least by many people but in reality controlled by a few.

Adam Smith (1723-90) who published The Wealth of Nations laid down the theoretical

foundations of modern economic theory and capitalism. In this work he propounded the

theory of the invisible hand of the market i.e. that self-interest and a free market ensures the

good of the society. In his, Theory of Moral Sentiments, born out of rationality and

empiricism of his age, Smith argued that people are naturally inclined to selfishness and

that social co-operation was an insufficient guarantee for social harmony. He opined that

the latter could only be achieved by ensuring that the interests to which men dedicated

themselves, often selfishly, coincide with those that promote social harmony. On the

positive side, Smith was highly critical of monopolistic privileges of aristocratic society. He

proposed the liberation of the spirit of enterprise through competition and a free market and

insisted that the function of government was merely to protect the free market from

monopoly and privilege and was against state regulation of markets. Smith’s ideas, together

with utilitarianism, formed the basis of modern laissez-faire economic theory and were the

basis of Thatcherism of the 1980’s.

Capitalism has been defined differently by different writers. Saunders (1995) defines it as “a

system in which individuals or a combination of individuals compete with each other to

accumulate wealth by buying the rights to use land, labour and capital in order to produce

goods or services to sell them at a profit in the market” (p 1). According to Marx quoted by
Chapter 2 Page 30

Giddens (1971) “ capitalism is a system of commodity production”(p 46). Producers do not

produce for themselves or their families but for exchange in a national or international

market (Giddens, 1971).

Weber (1992) differentiates capitalism from normal pursuit of gain and desire for wealth,

which he says, has existed in most times and places. Western Capitalism, according to

Weber, involves a regular orientation to the achievement of profit through economic

exchange. This capitalistic endeavour is associated with routinised and calculated

administration within a continuously functioning enterprise, disciplined labour force and

regularised investment of capital. Further, according to Weber (1992), this Western

capitalism is foreign to traditional (non-Western) enterprise, as it could only be the result of

economic rationality, which represented the summum bonum of (Western) protestant ethic

of making more and more money. In the latter ethic, acquisition is the ultimate purpose of

life (although Weber contends, without any eudamonistic or hedonistic mixture), in the hope

that material success would lead to election for salvation. This economic acquisitiveness

according to Weber (1992) is the leading principle of capitalism.

Chapra (1992) notes five distinguishing features of capitalism:

1. Maximum production, accelerated wealth expansion and want satisfaction in

accordance to individual preferences is of prime importance.

2. The ownership and management of private property are viewed as essential to secure

the unhindered freedom to pursue pecuniary self-interest.

3. Assumes that individual initiative, combined with decentralised competitive free markets

are sufficient conditions for optimum allocative efficiency.

4. Minimised role (if any) for government or collective value judgements in allocative

efficiency or distributive equity.

5. Claims that collective social interest is served by allowing the self-interest of individuals

to reign free.
Chapter 2 Page 31

From the brief explanation of capitalism above, capitalism (and as discussed below

Marxism) can be seen as the extension of the materialistic worldview. The secular values of

democracy, liberalism, individualism and utilitarianism are incorporated in the capitalistic

economic system. Accordingly they lead to certain economic behavioural norms. According

to Haralambos and Holborn (1995), “many norms can be seen as reflection of values” and

“a variety of norms can be expressive of single values” (p 6). Norms as the researcher

stated above, are guidelines to acceptable and appropriate conduct in specific situations.

Norms may be written as Law (e.g. safety regulations) or carry informal sanctions such as

bodily disapproval. The Western values and the resulting capitalistic economic system lead

to certain norms (some in the form of Laws). These include:

• Primacy of wealth and profits. Accumulation of wealth is the norm arising from

materialistic and individualistic and utilitarian values. Profit maximisation or wealth

maximisation is of primary importance and the raison d’être for organisations and

individuals. The individual pursuit of material wealth is assumed to lead to optimum

social welfare.

• The pursuit of individual self-interest is justified and made easier by unregulated

markets. Only market prices determine allocation and distribution of resources.

Therefore, there are no moral or value judgements in production or consumption of

goods and services. Hence, although usury and interest were forbidden or restricted to

low rates, as it was considered unjust in the past (Tawney, 1927), it is now justified as a

just reward for the use of money and the rate is decided only by market forces.

• The sanctity of, and unrestricted rights to, private property. This includes the right to

destroy the property (e.g. sheep slaughtered to increase prices) as well as to will it all

away as one pleases even to a cat.

• Although there is an assumption of perfect competition and information symmetry and

efficiency, in reality none exist. The common law legal maxim caveat emptor (buyer

beware) reflects the value-less acquisitive philosophy. Consumers are supposed to be

careful (as in the common law principle of caveat emptor). As long as sellers do not
Chapter 2 Page 32

flaunt the law, they can get away with gross exploitation, as there is no need to disclose

all the information about a product.3

• Consumerism is encouraged through marketing efforts to create demand for wants as

opposed to needs, whatever their social or environmental consequences (as long as

there is no economic cost to the entity). The only restriction on consumption is

affordability and prices. Easy credit expansion and availability avoid even this. There are

no value-based restrictions to consumerism (except perhaps the ethical investment and

fair-trade movements).

• The promotion of competition is through prices and markets. Although, capitalism

professes free markets and fair competition, the actuality is cutthroat competition (for

example in the microprocessor industry) and the use of intellectual property rights to

restrict new entrants (e.g. the case of Intel and Microsoft). Sometimes, prices are cut

below cost to get rid of new competitors. The result is an oligopolistic market, where a

few firms control an industry.

• Taxation and welfare benefits are frowned upon but accepted as the cost of maintaining

the system. However, there is increasing pressure to cut social benefits and reduce

taxation based on production and shift the tax burden on consumers through value-

added taxation instead of income-based taxation. The previous state services such as

education, health and utilities are increasingly being privatised and commercialised.

3
Although the consumer movement has resulted in many consumer protection laws, the philosophy still prevails. For
example, the small print in insurance contracts, and the conditions hidden in footnotes (if at all disclosed) in advertised
offers all point to caveat emptor in operation.
Chapter 2 Page 33

2.3 MARXISM: A REACTION AGAINST CAPITALISM.

As the factories got bigger in industrial Europe, and wealth became more concentrated, the

exploitation of the workers began in England and other European countries. The condition

of the working classes led to several humanist and socialist philosophies of the 19th

centuries including socialism and Marxism.

Marx was the opposite of Smith in economics. Marx propounded historical materialism.

According to him, Man’s production relations are the origin of all history. Economic, political,

religious and social structures (supra structures) are all constructed around the form of

production within which men are engaged. This is the basis of his economic determinism.

All human history is materially determined and there is a constant class struggle between

the rich and the poor, the bourgeois and the proletariat. Feudalism gave way to Capitalism

as a result of conflict between the bourgeoisie and the landowners. According to Marx,

Capitalism would eventually give rise to communism because of its internal contradictions.

In Capitalism, the exchange value was separated from use value. It is only labour which

gives rise to value. Capital resulted in the alienation of the working classes by the

accumulation of surplus value to the capitalist, which should rightfully belong to labour.

Once the working classes realised this, they would overthrow the capitalist. Although this

did happen in Russia and China, the system was hijacked by dictators who oppressed and

exploited the proletariat even more than their feudal and capitalist predecessors. By getting

rid of private property and in the absence of spiritual /religious values man had nothing to

work for and nothing motivated them. Hence the collapse of communism in the USSR and

the rush to the free market by China.

Although Marxism can be seen as the reaction to capitalistic excesses, both economic

systems can be seen as characteristically Western as both propound a material worldview.

While capitalism consigns metaphysical/religious beliefs to the individual domain, Marxism

view the belief system as the reason for the oppression of capitalism and feudalism and

therefore must be thrown out of both society and individuals. However, despite its concern
Chapter 2 Page 34

for the welfare of workers, its definition of welfare also coincides with capitalism i.e. material

wealth. Hence, capitalism and socialism/Marxism aim at the same objectives, material

welfare but only the means to achieve it are different. While capitalism does not concern

itself with equitable distribution by insisting on the free operation of markets, socialism tries

to control the production centrally. However, it is the same value-free materialistic man in

the centralised planning committee of socialism. In the absence of material incentives or a

moral filter (Chapra, 1992) corrupt ways of acquiring wealth by the proletariats’ leaders is

the result. The communisation of private property resulted in social instability and fall in

production due to a lack of economic incentives. The result has been capitalism has

unequally distributed wealth while socialism has equally distributed poverty.

Despite the apparent success of the capitalist system, it has resulted in many problems.

The concentration of power and wealth in the hands of individuals and managers and the

economic deprivation of many people even in the developed West has resulted in soul

searching among even the rightist elements in modern liberal economic society. Friedman’s

(Friedman, 1982) philosophy that business has no social obligations beyond that of

following the law is rejected by people who are searching for something spiritual to motivate

their society. Thus:

“I am concerned by an absence of a transcendent view of life and the purposes of life

and by the prevalence of the economic myth, which colours all that we do. Money is the
means of life not the point of it. There must be something we can do to restore our
balance. We have allowed ourselves to be distracted by the false lures of certainty
which are offered by the competing traditions of science, economics and
religion...Economics offers material prosperity as the only universal goal, all else
follows ineluctably, according to the laws of the market and the dictates of
efficiency...our hearts revolt at the thought that our purposes should be so preordained
in one way or another”. (Handy, 1997, p4)

2.4 THE ACCOUNTING IMPLICATIONS OF WESTERN WORLDVIEWS, VALUES

AND ECONOMIC NORMS.

Many accountants and users of accounting think of accounting as a mere technical subject.

They would therefore pose the question: what have the ‘ true and fair‘ values, which appear

in the balance sheets of modern corporations, to do with society, culture, values, religion or
Chapter 2 Page 35

civilisation? The link between accounting and society can be seen if one were to define

accounting as Roslender (1992) defines it, not as technical value-neutral subject but as a

social institution. He therefore, includes in addition to the constituent parts of accounting

such as financial and management accounting, the people who practise the art, the

organisations in which they are practised, and the outcomes of accounting.

Thus:

“In the same way that science and technology are as much about the ‘greenhouse’
effect’, or the search for geologically appropriate burial sites for ‘safe’ nuclear waste,
so accountancy commonly involves lost jobs, restricted choices and reduced safety
standards, all of which may, quite knowingly, make the world a much worse place
today, tomorrow, forever perhaps”. (Roselender, 1992, p3)

According to Burchell et al. (1985), accounting is “coming to be seen as a social rather than

a purely technical phenomenon” (p 381). They opine that the ways in which accounting

emerges from and itself give rise to the wider (social) context in which it operates is slowly

being recognised.

Hines (1988) views that reality does not concretely exist independently of the concepts,

norms, language and behaviour of people. Although people create society, however, at the

same time, their concepts, norms, language and behaviour become institutionalised. Hence,

accounting both reflects reality (or perceived reality), but the rules through which accounting

reports communicate reality, itself constructs reality. Hence, accounting both affects and is

affected by worldviews, values and perceptions of society.

The relationship of the worldviews, economic objectives, values and accounting is depicted

in Figure 2-1 on the next page. The researcher assumes that initially the worldview and

values of the society (arising from religion or intellectual movements) give rise to its social

and economic objectives4. The society then sets its economic norms and Laws

4
. This view is different from historical materialism of Marx who views that production relations (economic objectives)
lead to the establishment of political and religious superstructures (worldview and values)
 Chapter 2 Page 36

FIGURE 2-1:THE SOCIETY / ACCOUNTING INTERFACE

WORLDVIEW AND VALUES

SOCIAL AND ECONOMIC OBJECTIVES

ECONOMIC NORMS and LAWS

ECONOMIC & SOCIAL BEHAVIOUR

(TRANSACTIONS)

1
INFORMATION REQUIREMENTS

DIFFERENT‘ACCOUNTINGS’
Chapter 2 Page 37

accordingly, in an attempt to achieve these socioeconomic objectives. These norms then

regulate individual and collective social and economic life through transactional behaviour.

When people associate and transact to achieve economic and social purposes, there are

information requirements of both internal and external stakeholders to the various

organisational setups, the process of organisation may involve separation of ownership from

management of resources.

Accounting plays a leading role in providing this information. The transacting individuals, in

order to control and guide the organisations (e.g. buying, selling shares or dismissing

directors) act upon this information to achieve their social and economic objectives

consonant with their worldview and values (Arrow marked 1). However, if the accounting

system used is one which is infused with values alien to those of the host society, then the

information it produced may result in incorrect economic behaviour. This in turn results, in

the long run to a change or at least a compromise in its world-view and values (arrow

marked 2 in figure 2-2). This in turn leads to the achievement of different social and

economic objectives, which will result in a change in the economic norms and laws to one,

which is in line with the new objectives.

Modern corporate accounting is the result of the development of accounting in industrial and

capitalistic environments. Tinker et al. (1982) observe that contemporary accounting

assumes a marginalist economic theory representing a utility-based concept of value. They

assert that individualism and ‘objective’ market price based on a utility-based concept of

value is the result of a realist ontology of accounting in which an objective truth exists

independent of the subject. They use a dialectical materialist epistemology of accounting to

expose the partisan role played by accounting in social conflict rather than being objective

and value-free as held out to be by positive accounting theorists.

Gray et al. (1996) are of the view that conventional (Anglo-American) accounting is

justifiable only by reference to the conception of a ‘pristine liberal economic democracy by

which Western developed nations, especially North America, Britain and Australia, could be

conceptualised” (p 15). Although the pristine form of the liberal economic democracy does
Chapter 2 Page 38

not exist in these countries, these values, they opine are integral to the notion of

contemporary Western civilisation.

Arrington (1990), considers that accounting is implicated with the negative consequences of

modernity through its orthodox rationality and its preoccupation with the search for an

objective reality for its own sake. He suggests accounting knowledge should be based on

solidarity i.e. that which is useful to the community.

Gallhofer & Haslam (1995) accuse the Benthamite (modern) accounting of focusing

attention on profit in Western capitalistic economies, a focus that isolates corporate agency

by expressing it in purely financial terms and which deflects attention from its social,

economic and political consequences. An alternative post modern view is presented by

Cooper et al (forthcoming), who conceive the accounting construct as an obsolete product

of modernity which has lost all relationship to the economic reality it purports to represent.

The only meaning left in annual accounts therefore, is the aesthetic signification, which

vaunts the idea of balanced accounts, which complements the visual design of

contemporary annual reports. They further consider that accounting as an instrument of the

modernist project has subjugated human beings to the control of a discipline that privileges

numbers in the construction of social reality.

From the above brief citations, it is clear that conventional accounting is the product of

modernity and is value based. The result is that the objectives, characteristics and

consequences of accounting reflect these values and norms. For example, the materialist

worldview and utilitarian economics give rise to the accounting objective of providing

information for finance providers to make decisions, which will increase their wealth (the

decision usefulness objective). The characteristics of objectivity, neutrality, historical cost,

entity, going concern and monetary measurement are all geared towards the financial

enrichment of shareholders and creditors even at the expense of damaging social and

environmental consequences.

MacNeal (1970) for example considered that historical cost concept was the result of and

appropriate for the increased used of bank debt financing in the Middle Ages, which is
Chapter 2 Page 39

complete inappropriate today. Further, MacNeal (1970) trenchantly criticises the going

concern theory and its consequent going concern values arguing that although a fixed asset

may be carried for a long term, investors change during this period. Therefore, if investors

were not given the market values, it would favour the insider who can buy up the shares,

knowing the real values of the assets and rake in the profit at the time of realisation. This is

tantamount to defrauding the previous shareholder who would have sold his shares for a

value less than its worth. Since individualist, utilitarian values do not consider the equitable

distribution of wealth, the persistence of the historical cost, prudence and going concern

principles in conventional accounting may perhaps be attributed to these ‘Western’ values.

Further, the entity and monetary measurement concepts, by relegating the damaging

effects on the social fabric and environment as externalities, means that accounting hides

itself in the clothes of objectivity by not measuring these at all (Maunders & Burrit, 1991)

As accounting itself creates reality by communicating it, it leads to certain behavioural

consequences, which is in line with the materialistic utilitarian worldview of capitalism.

These include competition, conflict and domination (Miller & O’Leary, 1987).

It can thus be seen that a worldview affects values, which in turn affect economic norms,

and objectives and these in turn have implications for accounting. Different worldviews and

values therefore should lead to different accountings. The researcher shall next present the

Islamic worldview, values and economic norms and show how they differ from those of the

West.

2.5 THE ISLAMIC WORLDVIEW AND VALUES

Islamic ontology presents a dual worldview, this world (universe) and the hereafter. What

man does (in all areas) in this short life affects his prospects in the hereafter. Izetbegovic

(1984) views the Islamic worldview as a distinct and unique paradigm, which is separate

from the ‘religious’ worldview (represented by) Christianity and the secular worldview

represented by the West. Although there may be similarities to the religious or Christian
Chapter 2 Page 40

worldview in some aspects such as belief in life after death, there are some basic

differences, which make Islam unique.

Khurshid Ahmad views Islam as unique to the fact that it is a religion based on a Book- the

Qur'an, which has fashioned the unique identity of Muslim culture and civilisation (Mawdudi,

1988). The Qur’an is believed by Muslims to be the literal words of God revealed in Arabic

to Prophet Muhammad (pbuh). Unlike the Bible, it is not a compilation of several books

written in different historical periods containing God’s commandments, sayings of the

Prophets, oral traditions and historical accounts of Jewish and early Christian life and

epistles of the apostles of Jesus (pbuh). Muslims separate these ‘Words of God’ (in the

Qur’an), words and actions of the Prophet (pbuh) (in the Hadith) and historical material

(Prophet’s biography, early Islamic history etc.) into different books. Only the Qur’an is

considered direct divine revelation and the Hadith- an exemplification of the Qur’an by the

Prophet (pbuh) in real life. The Islamic worldview is therefore synonymous with the Qur’anic

worldview. According to Khurshid Ahmad:

“the Qur’an is a book of movement. It presents a message, invites the whole human
race to a view of reality and society, organizes those who respond to this call into an
ideological community and enjoins upon this community the social-moral
reconstruction of humanity both individually and collectively.”
(Foreword to Mawdudi, 1988, p xiv)

According to Mawdudi (1988): The Qur’anic view of reality is as follows:

a) Allah (God), the one and only Creator and Sovereign of the entire universe created man

with a capacity for cognition, reflection and understanding with the ability to distinguish

between good and evil, with the freedom of choice and volition and appointed him as

His vicegerent (Khalifa) on earth.

b) Despite this freedom of choice, God alone is the absolute Lord and Sovereign. Hence,
man should not consider himself independent but to worship and obey God.

c) The life of this world is only a short prelude to the everlasting life after death. The whole
universe will come to an end one day. The world is a place of test of the trust God has
placed in man. He is accountable to God, who will judge him based on his actions on
this life. If man chooses the right way and obeys God’s commands in this earthly life, he
Chapter 2 Page 41

will be rewarded with eternal bliss and happiness in Paradise. If he fails to do so, he will
experience the evil effects of corruption and disorder in this world and will taste eternal
grief in Hell in the hereafter (if he does not ask forgiveness and repent to God directly in
his earthly life, for his transgressions).

d) The right way of God is revealed to a line of men whom He has selected as Prophets
(pbut), from the first man Adam (pbuh) to the last Prophet Muhammad (pbuh). Some of
these Prophets received scriptures (such as the Torah, Psalms and the Evangel) others
received it in the form of scrolls (e.g. Abraham and Moses pbut). He has sent Prophets
to every nation before Muhammad (pbuh). All Prophets carried the same essential
message i.e. to worship only God and to obey His commandments that was revealed to
the prophets. Although there were certain basic commandments, which were common
to all prophets, details were different with the condition of the various nations to which
the Prophets came.

e) The final Prophet Muhammad (pbuh) was the first world Prophet for the whole of
humanity and not just the nations he was sent to. The Qur’an being the last scripture
until the Day of Judgement, had more comprehensive principles and some details on
many facets of life including the political, social, criminal, ritual, family and economic
spheres. Unlike messianic religions like Christianity, Islam seeks to organise into one
political and ideological community all those who accepted it, to mould this society in
accordance with God’s guidance and strive to reform entire mankind.

From the above, it can be seen that the Islamic worldview is in fact a dual worldview, this

world of action and accountability for the actions in the next. The Islamic values from the

above worldview has been summarised by Abdalati (1994) as:

a) Tawhid (Unity) which is the foundation of Islamic belief.

b) Khilafa (vicegerancy)

c) Ikhtisab (accountability) and

d) Adalah (Justice)

The concept of Tawhid (Unity and Oneness of God) implies that since there is only One

God who is the creator and sovereign of all (humans and non-humans), Islam (literally

meaning submission) requires total submission to Him in all aspects of life. To be a Muslim

is to make God the Judge and Sovereign from whom is derived all laws, values and norms
Chapter 2 Page 42

and to do all God has directed and for His sake according to His will (as revealed in the

Qur’an). This is the meaning of worship in Islam which the Qur’an describes as the purpose

of creation. As Haneef (1997) asserts that “it is in this sense that even economics become

part of the ‘religion’ ” (p 44).

Tawhid has direct implications for politics and economy. The Qur’an enjoins consultative

government (Shura’). However, it does not enjoin democracy in the sense, that the people

have the absolute right to make laws in accordance with their own whims and fancies.

Sovereignty in Islam is to God alone, not to the ruler (even of an Islamic state) or the

people. Hence, any laws whether social, economic or accounting cannot contradict the

Qur’an, which serves as the constitution of an Islamic state. There is also no separation of

the Mosque from the State and hence Islam vehemently opposes the principle of

secularisation. All areas of life including the political, economic and social must be

consistent with Islamic values.

According to the concept of Khilafah (vicegerancy) Allah created men to be his khalifa

(vicegerants) to carry out his divine Will on earth. Thus, khilafah implies trust and

responsibility, authority and duty, election and service (Abdalati, 1994). Man holds a

position of high-ranking status in the hierarchy of all known creatures due to his possession

of rational faculties and spiritual aspirations as well as powers of action. However this rank

engenders responsibility. As God’s agent, he is necessarily imbued with authority and

power but in addition honour and integrity. His position confers upon him certain rights over

other creatures. Animals and plants have been created for man to enjoy and use and for his

benefit. Nevertheless, plants and animals, in addition to his own life, religion, family,

property, honour and intellect are a trust which Allah has granted man. This concept of trust

or amanah puts some restriction on the use of economic resources. The concept of Khilafa

has direct repercussions for liberalism and freedom. Although God has given freedom of

choice and action to man, he is nevertheless commanded to act according to God’s will i.e.

within the Islamic framework. Hence, Islam cannot condone gambling and interest-based

finance or the absolute freedom to do with one’s property as one pleases. Property should
Chapter 2 Page 43

be earned and must be seen as a trust from God in which the disadvantaged in the

community have rights.

Accountability (ikthisaab) to Allah for one’s actions is the next key Islamic concept. The

Muslim belief in God’s Judgement implies that every act in this world will have to be

accounted for to Allah when man will be resurrected both bodily and in spirit in the

hereafter. The central purpose of a Muslim by definition is to submit to the Will of Allah and

seek His pleasure (rida’) and his rewards in the Hereafter. Any lawful act done with the

intention of pleasing Allah is considered worship in Islam. “To worship God is to ‘live’ life not

to run away from it” (Abdalati, 1994, p15). Associated with this concept is the belief in

rewards and punishments. According to the Qur’an, there are two angels with every human

being who records their every act and this record of reward and sin, will be presented to

them on the day of Judgement as evidence for or against their acts. Allah will judge all the

people according to His commandments, which He revealed to the various Prophets. The

scales of judgement (Al Mizan - literally measure) will be set up to measure the good and

the bad deeds. Man is especially accountable to God for his life, youth, wealth (how he

acquired and spent his wealth) and knowledge. Believers with more good deeds than bad

deeds to their credit will be sent to Paradise whereas a person with more bad deeds will be

consigned to Hell (unless God forgives them).

The belief in the Day of Judgement according to Abdalati (1994) is the “final relieving

answer to many complicated problems of our world” (p 17). According to him the apparent

injustice of criminals getting away with their crimes produces an air of hopelessness which

would result in apathy. “If the good people who are sincere and virtuous seem to be

suffering and the criminals can escape from mundane laws, who, then is left to promote the

cause of morality and goodness” (ibid, p 17), he asks. However,

“This is not to condone injustice or tolerate mischief in this world. It is not to sedate the
deprived or comfort their exploiters. Rather it is to warn the deviants from the Right
Path and remind them that the Justice of God shall run its full course sooner or later”.
(Abdalati, 1994, p17)
Chapter 2 Page 44

Accountability requires every Muslim to ensure that every word and deed in this world is in

line with Islamic teachings, whether in the matter of performing their prayers or buying

shares in the stock market. Muslims have an extended concept of utility i.e. God given pain

and His pleasure in the hereafter rather than the material pain and pleasure of this world.

God’s pleasure also requires discharge of responsibilities and trusts to other fellow

creations, Muslims, Non-Muslims, animals and the environment. It is not charity to give from

one’s wealth to an underprivileged person or group but rather it is their right on his wealth.

Contracts, whether commercial or non-commercial have to be kept. Hence, although

accountability is individual and not vicarious, the responsibility to one’s family, neighbours,

community and humanity as a whole and the objective of seeking God’s pleasure serves as

a check on the excesses of individualistic behaviour and places the individual in the context

of the community.

Justice (Adalah or Qist) is the utmost political, social and economic principle in Islam.

The Qur’an says:

“We sent aforetime Our messengers with Clear Signs and sent down with them The
Book and the Balance (of right and wrong), that mankind may establish Justice”.
(Al-Qur’an, 57: 25)
and

“Allah commands justice, the doing of good (equity), and charity to kith and kin, and
He forbids all shameful deeds and injustice and rebellion: He instructs you, that you
may receive admonition”. (Al-Qur’an, 16:90)

The stress on Justice has implications for politics as well as economic objectives and policy

prescriptions. The establishment of justice implies political power, which has to be

undertaken within the concept of Khilafa. Hence from the earliest times Islam never

separated itself from politics or government. The Qur’an gives certain governing principles

for government but does not require any particular political system except that there must

be a political mechanism to unite the Muslims under the authority of a Khalifa. Muslims are

supposed to be ruled by shura’ (or consultation) and all executive orders are subject to the

Shari’ah or Islamic Law derived from the Qur’an and Hadith (see section 2.6 below).
Chapter 2 Page 45

The concept of justice and equity also implies the objective of individual and social welfare

and public benefit as the objective of an Islamic state. This is especially pertinent in an

economic framework. Hence, not only productive and allocative efficiency but distributive

equity as well is sought in an Islamic economic framework with the aim of achieving social

welfare and stability. Hence, production of certain goods, which may be economically

justified (in terms of good monetary returns) cannot be undertaken due to its effect on social

welfare, for example, alcohol, interest-based financing or gambling operations.

2.6 THE IMPLICATION OF ISLAMIC WORLDVIEW AND VALUES FOR

ECONOMIC NORMS AND CODES: THE SHARI’AH AND ECONOMIC
OBJECTIVES

The Islamic values described above have implications both for individual and collective

economic behaviour. These economic (as well as non-economic) values, norms and codes

are inscribed in the Shari’ah (Islamic Law). However, Islamic Law (the Shari’ah) is not the

same as Law in the Western sense, where Law is promulgated by parliament, monarch or

president and carries state sanctions. Shari’ah includes Law (as it is normally known in the

West), ethics, and religious doctrines. The Law part is justiciable but the non-justiciable

ethics (or akhlaq) and religious doctrines may play a more important part in Muslim

behaviour. The Shari’ah is derived from the Qur’an and Hadith. According to Kamali (1989),

the Shari’ah “refers to commands, prohibitions, guidance and the principles that God has

addressed to mankind pertaining to their conduct in this world and salvation in the next” (p

215).

The whole system of Islamic Law or what is today called the Shari’ah includes Fiqh or

Islamic legal rulings developed over the course of 14 Centuries by the methodology of

consensus, analogy, deduction, legal opinion from considerations of the public interest and

welfare, and from customs which were Islamised. These methodologies form the discipline

of usulul-fiqh (sources and principles of Islamic jurisprudence). However, while Shari’ah

principles and rules from the Qur’an and Hadith are held to be immutable, the fiqh rules can
Chapter 2 Page 46

change within the Islamic framework to accommodate changing time and conditions thus

Ramadhan (1992) argues:

“Juristic reasoning is never final, whether it be reasoning on the implications of these

very texts or reasoning pertaining to occurrences in the absence of a directly applicable
text...Did the founders of our schools (of Islamic Jurisprudence) ever claim finality for
their reasoning and interpretations? Never! The teaching of the Qur’an that life is a
process of progressive creation necessitates that each generation, guided but
unhampered by the work of its predecessors, should be permitted to solve its own
problems”. (Ramadhan, 1992, p 63)

The elaboration of the Shari’ah into fiqh, however, should be undertaken within the

worldview and principles and rules of the Qur’an. In reality, due to certain historical reasons,

Islamic fiqh on commerce (and politics) has ossified and are not as developed as in the

West. This is part due to interpretation of Muslim Scholars have in the past, been mainly of

a literalist/technical type with a concern with sticking to the text as close as possible.

However, there have been recently an emphasis on the theory of the Maqasid al Shari’ah or

objectives of the Shari’ah first promulgated by Al-Shatibi in 14th Century Muslim Spain

(Masud, 1997). This theory offers a way out of this ‘time-hole’ in which the Muslims find

themselves. Kamali (1997a) observes:

“By comparison to the legal theory of the sources- the usulul-fiqh, the maqasid al
Shari’ah are not burdened with methodological technicality and literalist reading of
the text. As such, the maqasid integrates a degree of versatility and comprehensive into
the reading of the Shari’ah that is in many ways unique and rides above the
vicissitudes of time and circumstance. At a time when some of the important doctrines
of usul al fiqh ...are seemed to be burdened with difficult conditions...that might stand
in a measure of disharmony with the prevailing socio-political climate of the present
day Muslim countries, the maqasid have become the focus of attention as it tends to
provide a ready and convenient access to the Shari’ah”. (Kamali, 1997a, p 20)

The maqasid al-Shari’ah or the objectives of the Shari’ah is very important in determining

the type of detailed rules which ultimately emerge from the process of ijtihad or continuous

exertion to derive law and rules (for example, in economics and accounting) from basic

principles of the Qur’an. The Maqasid or Objectives of the Shari’ah could be termed as the

spirit of Islamic Law which should influence the development of Islamic Law even at the

expense of the literal technical principle.

Chapter 2 Page 47

The realisation of Maslaha (public benefit or welfare) to the people is considered one of the

principal objectives of the Shari’ah. Thus, (Chapra, 1992), quotes the Muslim philosopher,

Al-Ghazali :

“The very objective of the Shari’ah is to promote the welfare of the people, which lies
in safeguarding their faith, their life, their intellect, their posterity and their wealth.
Whatever ensures the safeguarding of these five serves public interest and is
desirable”. (Chapra, 1992, p1)

According to Ibn Ashur (1966), the most important objective of the Shari’ah as regards

wealth is to protect the Ummah’s (Global Muslim community) wealth and make it available

for their use through controlling its public as well as individual management. Most of its

regulations pertain to the protection of the individual’s property as it leads to the protection

of the community’s resources in aggregate. This does not mean absolute right of individual

ownership but to the person or group most likely to use it wisely in the public and owner’s

interest . Hence, in certain cases, it even means depriving the unsuitable person of it and

holding it in trust for him.

“It is the concern of the Shari’ah to see that its management is controlled in a way that
would secure its distribution among people as far as possible and to help its growth in
itself or in its considerations regardless of whether the direct beneficiaries are private
individuals, groups, or sectors, large or small.” (Ibn ‘Ashur, 1996, p5)

Ibn ‘Ashur has listed several objectives (or values) of the Shari’ah for Economic activity

including (i) circulation of wealth, (ii) security, (iii) authenticity, (iv) equity, (v)dignity of labour

and (vi) morally filtered consumption.

2.6.1 Circulation of Wealth

Wealth should be circulated widely and not held or concentrated in a few. The concentration

of wealth in the hands of the few can lead to disastrous social and political consequences,

which are enumerated elsewhere. This norm is a direct consequence of Tawheed (Oneness

of God who cares for all his creation instead of ‘chosen’ few) and in keeping with the

concept of Adalah (Justice). To encourage circulation of wealth, the Shari’ah encourages

Chapter 2 Page 48

trade. The Shari’ah encourages commutative sales contracts and thus encourages the

attainment of a monetised economy rather than barter.

On the redistributive side, the Shari’ah also institutes Zakat which is the third ‘pillar’ of Islam.

It is a religious tax based on wealth or income depending on the category of wealth. It is

obligatory on all Muslims who possess wealth beyond a fixed minimum and hold it for at

least one calendar year. The Islamic State collects it, in the absence of which individuals

are obliged to pay it on their own to the beneficiaries designated by the Qur’an (poor,

indigent, travellers, bankrupt, zakat collectors, to liberate slaves or oppressed people and

“in the way of God”. Traditionally, Zakat is only payable on gold and silver (and by

extension money), business inventory and profits, livestock and farming output of staple

food crops. Its basic rate is 2.5% but in case of agricultural output it is 5% or 10%

depending on whether the land is irrigated naturally or otherwise. Zakat on cash and

savings at 2.5% of value acts as a disincentive to holding wealth in a zero interest

environment. In addition to Zakat, sadaqah (voluntary charity) and waqf (endowments) are

encouraged.

From, the earnings side, the Shari’ah prohibits Interest. Interest may lead to unearned

wealth accumulation while avoiding to a large extent, risk that besets the borrower. Interest

both on consumer and commercial loans is totally prohibited in Islam. (Alternative views on

interest are discussed in Chapter 5). The result of this is interest-based banking and fixed

return securities which are the corner stones of modern finance and investment are totally

prohibited in Islam. This is the reason for the growth of Islamic banking (discussed in

Chapter 5). On the other hand, Equity based partnership, shareholding and commenda are

allowed for capitalists to join in a business venture with labour to reap the rewards of

productive investment. The only form of fixed return allowed is the murabaha (cost plus)

contract which allows the sale of a product at a higher price on a deferred basis than on

spot on the pretext that this is to cover for opportunity cost of the trader. The only form of

loan is the interest-free loan (qard hasan).

Chapter 2 Page 49

Hoarding and monopolies (except state monopolies) are not allowed in Islam. The giving of

just measure for measure is essential and a whole institution (the Hisba) pertaining to just

weights and measures and surveillance of market activities to root out fraud has been part

of Islamic economy for a long time (Taymiya, 1985). The prohibition of gambling can also be

seen as an obstacle to wealth concentration as is evidenced by the enormous profits of

casinos and lotteries.

There is also an elaborate law of succession in the Qur’an and Hadith of the Prophet

(pbuh). The Shari’ah has specified the beneficiaries of an estate together with their shares

rather than allowing the testator to do as he wishes. This stipulation seeks to redistribute

property to the nearest relatives of the deceased in a fair manner so that the deceased

cannot will away the property to others while leaving his children to poverty. However, an

individual can will away one third of his property to other than the stipulated beneficiaries. .

This is one of the restrictions of property ownership in Islam. This ensures the redistribution

of wealth and its circulation.

2.6.2 Security

The Qur’an extols the believers not to eat up each other’s properties in vanities but

exchange in trade or in goodwill. A regulated market system, control of monopoly, public

endowments and perhaps internal auditing and control procedures are essential to protect

it. Depriving the incompetent from administration of their property and administering it in

trust for them is provided for in Islam

2.6.3 Authenticity

This means clear evidence of ownership or of earning the property and is achieved either by

having a written rather than oral contract e.g. in case of loan contracts and/or having

witnesses during the making of a contract. A whole string of fiqh rulings have been derived

to make up the Shari’ah law of contracts5 regarding validity, fulfilment of obligations,

5
Vogel and Hayes (1998) have given a detailed analysis of financial contracts in Islam
Chapter 2 Page 50

rescinding etc. To increase validity of ownership, Islam obliges witnessing of many

contracts except those of spot transactions.

2.6.4 Equity:

The Shari’ah insists on a free competitive market in which prices are determined by supply

and demand. The Prophet (pbuh) refused to intervene in the market he established in

Medina (Kallek, 1995) when prices rose. However, despite this the13th Century Islamic

scholar Ibn Taymiyah (Islahi, 1988) argued that the state can fix prices in times of dire

public need (emergencies) and during market imperfections. The Shari’ah also encourages

complete information symmetry, for example, no fraudulent labeling or false or misleading

description is allowed. Hoarding and monopolies are prohibited. Conventional insurance

contracts based on uncertainty and speculation and having an element of gambling are

prohibited. This is replaced by takaful, an insurance scheme based on co-operative saving.

Both public and private ownership have their roles in an Islamic society. According to the

Qur’an the purpose of prohibiting the giving and taking of interest is also the prevention of

injustice (Al-Qur’an 2: 79)

Chapter 2 Page 51

2.6.5 Dignity of Labour

Islam upholds the dignity of labour and lawful endeavours to earn one’s livelihood and to

provide for one’s family and relations. It encourages one to work and prohibits begging or

living on benefit unless one is unable to work e.g. in case of invalidity, involuntary

unemployment, children and the aged etc., the latter should be supported from pensions

from Zakat and other sources. For those who do not have capital, Islam encourages

mudharaba or commenda where the labourer can partner with the capitalist to carry out an

industry or trade and the profits shared in agreed proportions. In case of loss, the capitalist

will bear the entire amount whereas the labourer loses his labour. This has become an

instrument of Islamic bank financing, although not a successful one due to agency costs

and moral hazard problems (Obiyathulla, 1995). Labour should be paid fair wages, which

allows him the basic necessities of life. The employer is encouraged to pay a wage which

will allow the employee to have a similar standard of living as the employer and immediate

payment is encouraged as non-payment of wages has serious repercussions for the

spiritual well being of the believer (Khan, 1989). Further the employees should not be given

work beyond their capability and capacity. All labour contracts, involving servitude or

slavery are declared invalid. The Shari’ah contracts regarding labour gives certain

exemptions on gharar (or uncertain contracts e.g. share cropping) because there would be

hardship to the people if it were not allowed. These contracts also result in increase in

production by cooperation between labour and capital.

2.6.6 Morally Filtered consumption:

Modern marketing and business create excessive wants and demand, which cannot be met

equitably due to scarce resources. However, the creation of excessive demand or wants

rather does not ensure the basic needs of society are fulfilled, inspite of ‘trickle down

theories’. The capitalist consumerism patterns of the West and their export to developing

countries has led to a real danger of sinking mother earth due to limited environmental
Chapter 2 Page 52

resources. These have led to inequitable distribution of wealth and social injustice

perpetrated on other countries and communities by the rich and powerful in the name of

economic interests (Caufield, 1998).

According to Chapra (1992), the most challenging task in ensuring that resources are both

efficiently allocated and equitably distributed, is that of motivating individuals to hard and

conscientious work. There is also a need to make the necessary changes in consumption,

investment and saving behaviour to realise social welfare as envisioned by the Maqasid al

Shari’ah. He criticises both socialism and capitalism for their naiveté and impracticality, the

former for “expecting individuals to work efficiently even though it deprived them of the

opportunity to serve their self interest” (p 252) and the latter for assuming that self-interest

and social interest would always be in harmony. Therefore,

“It is not possible to motivate individuals to be both efficient and equitable unless a
moral dimension is injected into their pursuit of self-interest so that social interest is
not jeopardised even when it is in conflict with self-interest”. (Chapra, 1992, p 252)

Islam provides this moral dimension in encouraging a moderate lifestyle and prohibiting a

ostentatious and opulent lifestyle of the rich and famous (Khan, 1989). In fact the word for

economics, iqtisad by itself means moderation. According to Khan (1989), “a Muslim is

required to adopt a moderate attitude in the acquisition of and utilisation of resources”(p 77).

The Qur’an and the Prophet (pbuh) have condemned the two extremes of consumer

behaviour; israf (extravagance) and bukhl niggardliness.

The simple unpretentious lifestyle of the Prophet (pbuh) and his Companions’ example of

living in almost poverty conditions, and the examples of the Rightly guided Khalifs and most

of their governors are always presented as a standard and challenge to all Muslims who

regard them as examples. Luxury is frowned on e.g. man cannot wear silk and gold. It is

also prohibited to use golden or silver utensils. Conspicuous consumption is frowned on as

is ostentation and wastage. In many rural areas, this value still holds, but the advent of

global capitalism has infected Muslim societies where the young yearn for the trappings of

modern consumer lifestyle. However, the Shari’ah rules and Islamic education and culture
Chapter 2 Page 53

produce a controlling effect on Muslim consumer behaviour (Ahmed, 1992) and serves to

restrict conspicuous consumption in Muslims societies although Kuran (1995) disputes this

fact:

“In most countries efforts to inculcate Muslims with behavioral norms drawn from
classical sources of Islam have been limited to publications, educational programs in
the mass media and the incorporation of Islamic economics into school curricula. Only
in Iran have efforts gone much further, Islamic councils have been set up at Iranian
factories and offices. There is no evidence that such measures have brought about the
behavioural changes envisioned in Islamic texts. Nor is there evidence from any other
country that the emphasis on Islamic morality has altered work patterns or business
relations although such factors are notoriously difficult to measure”.
(Kuran, 1995, p165)

Although there may be some truth to Kuran’s claims he has provided no empirical evidence

to support his thesis. Chapra (1992) insists that Islam provides both a filtering mechanism

(by its prohibitions of luxury consumption) and motivating factor (in the promise of rewards

and God’s pleasure in the after-life) which induces everyone to abstain from making

‘unnecessary claims’ on resources. Thus:

“The moral system (of Islam) influences the inner consciousness of the individual,
makes him aware of the trust nature of resources and provides the criteria needed for
their efficient and equitable allocation and distribution. It also makes the individual
conscious of his unavoidable accountability before the all-knowing God, thus serving as
a strong motivating force for not pursuing his personal preferences and self-interest in
a way that hurts the realisation of social well being. This helps prune a substantial part
of the demand for goods and services even before it finds expression in the market
place”. (Chapra, 1992, p 348).

According to him, the price system alone, although indispensable, is not enough to realise

equity as it allows the rich to buy luxuries and status symbols, no matter how high their

prices are raised while it leads to suppression of need satisfaction of those unable to afford

these status symbols. This leads to the unintentional allocation of resources in favour of

status symbols and squeezes their availability for need satisfaction.

Chapter 2 Page 54

2.6.7 Prohibition of immoral and unsocial contracts

Investment and trade in industries involving products and services which are religiously and

morally reprehensible in Islam such as alcoholic drinks, tobacco, pornography, gambling

and interest-based financing are declared haram (forbidden and sinful) and are prohibited.

This is to discourage the growth and spread of these industries. All contracts must be clear

and any uncertain contract (gharar) e.g. buying the fish in the pond is illegal. This is to

avoid damage, conflict and disputes.

2.7 ACCOUNTING IMPLICATIONS OF ISLAMIC ECONOMIC VALUES AND

NORMS

In accordance with the Islamic value of accountability, justice and keeping of trust, a

decision-usefulness framework is not suitable for Islamic society. The Islamic objective of

maslaha and welfare points towards a more social oriented accounting especially for large

organisations. Further, the prohibition of interest results in the absence or reduction of debt

financing (although the so-called Islamic debts are issued in Malaysia). This together with

the objective of social welfare orientation makes stakeholders other than shareholders, as

important or perhaps more important. This new importance accorded to other users make

the slant towards shareholders (in conventional accounting) inappropriate to Islamic

accounting.

The same concepts of accountability and justice to all of God’s creations mean that Islamic

accounting would need to recognise and account for what is now considered as

externalities. This means that the monetary measurement concept may not be appropriate.

Further, there is a need for new profit sharing models in accounting to equitably account for

different classes of equity based investors (especially in banks) (see Chapter 5 for a more

detailed exposition). The problem of assessing Zakat and preserving equity between current

and future investors may also require current valuation especially in times of rising prices.

To avoid a tendency towards materialistic individualism, profits may need to be decentred in

an Islamic accounting system. Hence, a new accounting report incorporating non-

Chapter 2 Page 55

financial measures, which measure the all- round record of Islamic organisation rather than

its monetary performance may need to be devised. An Islamic version of the balanced

scorecard (Kaplan & Norton, 1996) type of accounting report may be appropriate in order to

induce Islamic behaviour.

Finally, Islamic accounting needs to report any activities undertaken by the organisation,

which are prohibited by the Shari’ah. In addition to other socioeconomic transactions not

normally reported in conventional accounting reports e.g. state of employee-employer

relationship, Zakat collection and payment as well as social and environmental effect of the

organisations activities needs to be disclosed. This information will enable users to ensure

that their Islamic organisations are operating within Islamic parameters.

2.8 A COMPARATIVE ANALYSIS OF WESTERN AND ISLAMIC VALUES AND

THEIR IMPLICATIONS FOR SOCIOECONOMIC NORMS AND
ACCOUNTING

From a Western perspective, the Islamic worldview would be seen as a retrogressive

religious worldview, which attempts to turn the clock back from secularist thought. The

Christian religious experience of the West creates a mental spectacle through which is seen

an image of Islam attempting to revert to absolutist doctrinal authority of the “Church”, which

is inconsistent with science and reason. However, this secular view is not necessarily

acceptable to all societies and civilisations. It is a description of the European experience

and history of Western Christianity. As Eliade (1987)6 holds, secularism is a Western

product:

“This dichotomy between the religious and the remainder of human life is a western
product and concern...This distinction between the sacred and the profane, between
religion and other aspects of human endeavour is a result of the process of
secularization that has been the experience of Christian/Western civilisation especially
since the 17th Century”. (Eliade, 1987, p 12 as quoted by Haneef, 1997, p40)

It can be seen from the discussions above, the worldview and values and their

corresponding economic norms and codes of the West and Islam are quite different. While

the West went through a number of intellectual and technological development phases, the
Chapter 2 Page 56

Muslim worldview is derived from interpretations of its scriptures, the Qur’an and the Hadith.

The West swung from intellectual movement (Greek philosophy), secular government

(Roman Empire), ascetic religion (Monasticism, Roman Catholicism and Schoolmen),

business as a religious ‘calling’ (Protestantism) and back to secular, humanistic intellectual

movements of the enlightenment, modernism and post-modernism phases. It also went

through industrialisation and technological development not characteristic of Islamic society

(see for example Russell, 1995; Davies, 1997). Muslims developed knowledge mainly in the

religious sciences and grappled with the problems of real life by the interpretation of its

scriptures through deduction and consensus. After a period of ossification due to its own

historical development and colonisation, Muslims are striving to reestablish the flexibility

and adaptability of Islamic Shari’ah to contemporary requirements.

Even when Christianity held sway over Europeans in the Middle Ages, there was a certain

secularistic schism between Church and State and between the sacred and profane. The

renaissance, reformation and enlightenment were movements away from religious authority.

Muslim history, however never had a movement away from its religion, although there was

degradation in the political framework from consultative accountable governance to despotic

monarchies (currently ‘Presidents’). Only in its recent colonial and post-colonial history was

state law separate from the religious. However, despite the incredulity of the West, Muslims

want to go back to religion instead of away from it as demonstrated in the Islamic

resurgence in Muslim countries.

The world-view of Muslims is one of the dual-worldview of Islam as envisaged by its

scriptures. Religion is becoming less and less relevant to economic activity and consumer

behaviour in the West. On the other hand, Muslims want to forge an Islamic economic

system in line with the economic values and norms consistent with their religious teachings

(Islahi, 1988). Thus, the different worldviews and values give rise to different economic

objectives and economic/moral norms, which in turn lead to different behaviour patterns

(real and ideal). This in turn, the researcher believes, requires different accountings, which

6
Eliade (1997), Encyclopedia of Religions, Vol 12.
Chapter 2 Page 57

give the appropriate information, which will lead to proper decisions and economic conduct

conducive to their respective world-views.

2.9 WORLDVIEW AND VALUES: A COMPARISON

The world-view of Islam and values of Islam were discussed above. Briefly these are a dual-

world view, divine unity (tawhid), vicegerancy (khilfah), accountability (ikhtisab). From the

principle of tawhid arises unity of state and religion as opposed to the secularism principles

of the West. From the Western perspective, the current worldview may be termed as

materialist fundamental secularism. Religion is consigned to private life if at all.

The Post-modernist trend of incredulity of meta-narratives seems to imply that there is a

lack of purpose and mission in life (see Handy, 1997). Generally, there is a lack of belief in

the hereafter as the ultimate purpose of life. Even though surveys conducted show a

general belief in God (e.g. Ashford & Timms, 1992), His nature, purpose and relevance to

worldly life is at best confused in the minds of Westerners. It seems to the researcher, that

economic materialism has not only become a way of life but the ultimate purpose of

existence in the West. The general idolisation of science and technology, breakdown in

family life coupled with individualism, utilitarianism and consumerism combined with nihilism

seem to characterise Western life. The concept of naturalistic liberty and democracy has led

to legislation as the main means of consensus in moral and legal values. Further the

concept of liberty and individual rights has got out of hand with unrestricted property rights

and privatisation of public resouces which serves to concentrate wealth in the hands of a

few and leads to waste, extravagance and environmental destruction (Arnold & Cooper,

1999; Maunders & Burrit, 1991).

However, there is growing concern for the inequity, social welfare and environmental

problems but lack of a fundamental purpose result in lack of consensus among the different

groups in Western society on how to solve these problems (see Gray et al., 1996; Gray &

Bebbington, 1998).
Chapter 2 Page 58

On the other hand, the Muslim world is characterised by a lack of political unity, ‘democracy’

and material progress although Islam itself stresses unity, consultative rule and encourages

active participation in this worldly life. This is evidenced from its early history of egalitarian

and just rule and its later scientific and cultural golden age during Europe’s dark ages.

However the sources of Islamic teachings are intact along with the will of the Muslim

masses to change their societies to one enjoined by Islam and hence, the Islamic

resurgence.

Although it may seem inconsistent to compare ‘practical’ Western values with ‘theoretical’

Islamic ones, the Islamic values are not the theoretical concerns of the clergy but as a

whole practised in the social and economic life of Muslims. This is despite the secular or

feudal unrepresentative regimes ruling the Muslim world today. The fact that Islam is at

least partially operational in the economic domain in many Muslim countries with the

increasing role of Islamic finance and economics and the growth of Islamic institutions

justifies the comparison. In any case, it is the duty of academicians to debate the theoretical

issues and develop theoretical and operational models with a view to change society for the

better. Social and critical accountings were once theoretical constructs of some

academicians (see Matthews, 1997 for a review of social accounting over 25 years). If some

academicians did not discuss the issues, these alternative ‘accountings’ would have not

have developed as they have now. In any case the establishment of Islamic economic

organisations attempting to practise Islamic values in the economic domain adds a practical

reality to these notions.

Bearing the above caveat in mind, the worldview and values of both civilisations are

summarised in figure 2-2.

Chapter 2 Page 59

FIGURE 2-2: COMPARATIVE WORLD-VIEW AND VALUES OF ISLAM AND

WESTERN CIVILISATION
WESTERN WORLDVIEW ISLAMIC WORLDVIEW
AND VALUES AND VALUES

MATERIAL WORLD VIEW DUAL WORLD VIEW

Khilafah: ‘Shuracracy’
Democracy Consultative Government

Secularism Tawhid,Unity Of State And Religion

Amanah: Trust
Individualism Individual In The Context Of Community
Ikhtisab: Accountability;God’s Pleasure /
Utilitarianism Rida

Welfare Public Benefit/Maslaha

Liberalism And Freedom Responsibility & Restricted Freedom

The above values lead to an economic objective of maximising material riches as the

economic objective of Western civilisation. The theoretical objective of Islam is the

attainment of falah (everlasting success) and rida (God’s pleasure) by acting within God’s

law and adopting a moderate simple life style.

The above values and objectives lead to certain moral/economic and legal norms and

behaviour. This is shown in figure 2-3.

In Islam, economic activity and wealth in Islam is viewed as a means to a balanced life and

not its ultimate or even its main aim. The belief in the Hereafter imposes a ‘moral filter’ and

consciousness and feeling of accountability in one’s actions in this world (Chapra, 1992;

Jahangir, 1999). Therefore primacy of social welfare would be the main concern of the

Islamic economic system as opposed to the primacy of profit in capitalist systems. The

Shari’ah provides flexible but in depth guidelines for economic and social behaviour.
Chapter 2 Page 60

FIGURE 2-3: COMPARISON OF WESTERN (CAPITALIST) ECONOMIC NORMS

VS. ISLAMIC ECONOMIC NORMS

Western Economic norms Islamic Economic norms

(CAPITALISM) (ISLAMIC ECONOMIC SYSTEM)

Primacy of profit/ wealth Primacy of justice and social welfare

Usury restrictions /degregulated Prohibition of interest. Generally non -
markets intervention in markets

Sanctity of private property Property as trust from God.

Disposal of property unrestricted Succession law fixes share and identity of
beneficieries
Caveat emptor/ information Information symmetry
efficiency
Market values Market values
Competition Negotiation- cooperation
Consumerism Moral filter
Welfare benefits Zakat
Taxation Restricted taxation

Its dictates impinge on the type of economic activity on what can and cannot be contracted.

For example, interest is forbidden, this together with detailed succession rules for hereditary

property reduces the concentration of wealth. Although Islam encourages market valuation

and pricing, it must be ensured that is really a competitive market with information

symmetry. However, the market is not God and is not the ultimate authority in determining

the allocation of Muslim resources to the correct use. Here the state can and must intervene

to provide a modicum of welfare and minimum needs to society (Siddiqi, 1996), even if it

means less efficiency in the allocation of resources and redirecting it away from luxury

production. Islam encourages a mix of private and public property and uses the family and

voluntary sector (awqaf) to cater to welfare needs more as compared to the problematic

welfare state (Siddiqi, 1996). However, the family and voluntary sectors are supported by

the system of Zakat (a religious tax on property and income) which recognises the right of

poor in the property of the rich and serves as a wealth redistribution mechanism. Social
Chapter 2 Page 61

welfare in Islam is a dual world concept. Hence the attainment of spiritual, social, familial

welfare is as important if not more important than economic welfare. Taxation beyond Zakat

is allowed but frowned upon by Islamic scholars although in Muslim history the despotic

rulers did burden the populace with taxes. However, compared to the fiscal tyranny of the

Roman (both pre and Post Christian) and Persian Empire, the Muslims territory represented

tax havens! (See Thomson & Rahim, 1996). Finally, these economic/legal and moral norms

of behaviour have implications for accounting. This is shown in figure 2-4.

FIGURE 2-4: ACCOUNTING IMPLICATIONS OF DIFFERENT ECONOMIC/VALUE

SYSTEMS

Issue Conventional accounting Islamic accounting

(capitalist economic
system)
Objectives Decision usefulness for
investors and creditors;
capital market orientation
Users Market players and finance
providers
Recognition Monetarily measurable
internal economic events
Measurement Monetary , historic cost
Disclosure All ‘material’ economic
events
(islamic economic system)
Islamic accountability
Falah and maslaha
Social welfare orientation
Society
Stakeholders
Socio-economic events,
include externalities, exclude
shariah proscriptions, not
necessarily financial
Monetary and non monetary,
balanced score card
Current valuation
Shariah compliance
Socio-economic

The values and economic norm of the different societies need different accounting systems

in terms of their objectives, its users, recognition and measurement characteristics and type

of information disclosed to be consistent with their worldview. Conventional accounting is

capital market oriented towards the interests of capitalistic investors and interest-based

creditors. Its users are market players (speculators) and interest-based debt providers who

should not exist in an Islamic society. It recognises and records and discloses only

monetarily measurable economic events using historical costs.

Chapter 2 Page 62

An Islamic accounting system, on the other hand, would produce information that would

enable and motivate Muslims and other citizens of an Islamic society to behave in a manner

consistent with the Shari’ah. It would allow the discharge of accountability towards God and

society by identifying and measuring economic events whether externalities or otherwise as

the users are various stakeholders in society. It should not construct a hyper reality or

reality which pushes the Muslims to a pointless or frivolous life.

Accounting systems within Islamic organisations should promote solidarity instead of

conflict based on numbers as the present management and budgeting system does. The

Shari’ate world view of Islam would require an accounting with different objectives

(Islamically defined social welfare), different emphasis on events or transactions (halal and

haram transactions), different measuring units (non-monetary, qualitative, weighted

measures), different valuation and measurement (current value), different stakeholders

(society, community, employees, government, ulemas, creditors, owners) and different

disclosures (social, environmental, Shari’ah compliance), which arise from its own values.

The cost concept, cash flow and shareholder value concept, the emphasis on profit and

monetary measurement, even the accrual and going concern concept need a thorough

review from an Islamic viewpoint and some of these concepts may well have to be rejected.

Some of these issues are discussed in depth in chapters 3,5 and 6.

In short Islamic accounting would enable the re-establishment, control and transparent

administration of Islamic institutions such as Zakat Administration, Islamic Partnerships,

Islamic companies, Islamic banks and takaful (insurance) establishments, Endowments

(Waqf) and would lead to the achievement of the aim of these organisations in an Islamic

society.

As accounting is said to create reality by itself (Hines, 1988), the continued use of

conventional accounting by Islamic institutions and Muslim users, however, may lead to

behaviour inconsistent with the Islamic world view and subsequently over the long term a

perversion of objectives might take place (See figure 2-5). This may pervert Islamic
Chapter 2 Page 63

organisations to become capitalistic organisations with materialistic values (indicated by the

dashed curved arrow), which will in turn aim to achieve the objectives of the capitalist

economic system.

2.10 CONCLUSION

In this chapter, the world-view and values of Islam were discussed and compared with the

Western worldview and values. The researcher discussed the relationship of worldviews

and values and their corresponding economic norms affect the objectives, characteristics

and consequences of accounting. Since, different worldview and values give rise to different

economic systems (e.g. capitalist, communist and Islamic), than alternative accounting

systems consistent with these systems may be more appropriate.

The materialist worldview and secularised values of liberty, democracy, utilitarianism have

given rise to the capitalist economic system where individual self interest based on relativist

values dictate the production and consumption of goods and services. It was shown that the

worldview of Islam (which puts God in the picture) gives rise to a different set of values and

economic principles which aim to promote individual welfare within a social and moral

framework.

These values are elaborated in the Shari’ah or Islamic law which provides both a moral and

legal code under which a Muslim lives. The economic objectives of the Shari’ah indicated a

concern with distributive equity and social justice rather than individual utility. This included

circulation of wealth, prohibition of interest, the promotion of clarity, security, authenticity

and equity in transactions together with implementation of Zakat and all these were

considered the main economic objectives of the Shari’ah. In line with these
 Chapter 2 Page 64

FIGURE 2-5: RESULT OF INCONGRUENCY BETWEEN ECONOMIC SYSTEM AND ACCOUNTING SYSTEM

THE SOCIO-ECONOMIC OBJECTIVES OF THE

Conclusion
SECULAR CAPITALIST ECONOMIC SYSTEM THE SOCIOECONOMIC OBJECTIVES OF
THE SHARI’AH

CAPITALIST ECONOMIC INSTITUTIONS THE ISLAMIC ECONOMIC SYSTEM

ESTABLISHMENT OF ISLAMIC SOCIO-

ECONOMIC ENTERPRISES ORGANISATIONS
AND INSTITUTIONS

USE OF CONVENTIONAL ACCOUNTING

BASED ON ‘SECULAR PHILOSOPHICAL
VALUES INCONSISTENT WITH ISLAMIC
VALUES ISLAMIC ACCOUNTING
CONSISTENT WITH ISLAMIC
VALUES

INCONSISTENT OR DEVIANT
BEHAVIOUR OF MUSLIM USERS
(HOMEO ECONOMICUS) CONSISTENT BEHAVIOUR IN
LINE WITH ISLAMIC NORMS
Chapter 2 Page 65

objectives, the rules regarding manpower transactions, Islamic consumer behaviour

and forbidden transactions and contracts were discussed to clarify the

economic/moral norm underlying an Islamic economic system.

Finally a comparison was undertaken between the worldview of Islam and the West

along with the implications of the differences in values, economic norms and

accounting. The researcher concluded the chapter by suggesting that an alternative

Islamic accounting is necessary to achieve the objectives of the Islamic economic

system as continued use of conventional accounting by Islamic organisations and

users may lead to a perversion of the Islamic economic and value systems.

The next chapter (chapter 3) will explore in depth the objectives, characteristics and

consequences of conventional accounting which make them unsuitable for Islamic

organisations and Muslim users. The critique of conventional accounting from a

social, environmental, critical and behavioural perspective will be discussed with the

addition of a critique from an Islamic perspective. This, the researcher hopes, will

convince the reader of the unsuitability of conventional accounting for Muslim

organisations and users and the need for Islamic accounting.

Chapter 2 Page 66

CHAPTER 2: WORLD-VIEWS, VALUES AND ACCOUNTING; DIFFERENT

“ACCOUNTINGS” FOR DIFFERENT WORLDVIEWS. .............................................................. 19
2.0 OUTLINE OF CHAPTER .................................................................................................................... 19
2.1 WORLDVIEWS,VALUES AND THEIR IMPACT ON ECONOMIC OBJECTIVES,NORMS AND ACCOUNTING
............................................................................................................................................................ 19
2.1.1 The Western Worldview and values................................................................................ 21
2.1.2 Western Worldview ......................................................................................................... 21
2.1.3 Democracy and Popular Sovereignty ............................................................................. 22
2.1.4 Individualism, liberalism and utilitarianism .................................................................. 23
2.1.5 Empiricism ...................................................................................................................... 26
2.1.6 Secularism ...................................................................................................................... 27
2.2 CAPITALISM, ECONOMIC NORMS AND ACCOUNTING ....................................................................... 28
2.3 MARXISM: A REACTION AGAINST CAPITALISM. .............................................................................. 33
2.4 THE ACCOUNTING IMPLICATIONS OF WESTERN WORLDVIEWS, VALUES AND ECONOMIC NORMS..... 34
2.5 THE ISLAMIC WORLDVIEW AND VALUES ...................................................................................... 39
2.6 THE IMPLICATION OF ISLAMIC WORLDVIEW AND VALUES FOR ECONOMIC NORMS AND CODES: THE
SHARI’AH AND ECONOMIC OBJECTIVES ................................................................................................ 45
2.6.1 Circulation of Wealth ..................................................................................................... 47
2.6.2 Security ........................................................................................................................... 49
2.6.3 Authenticity ..................................................................................................................... 49
2.6.4 Equity: ............................................................................................................................ 50
2.6.5 Dignity of Labour ........................................................................................................... 51
2.6.6 Morally Filtered consumption: ....................................................................................... 51
2.6.7 Prohibition of immoral and unsocial contracts ............................................................. 54
2.7 ACCOUNTING IMPLICATIONS OF ISLAMIC ECONOMIC VALUES AND NORMS .................................... 54
2.8 A COMPARATIVE ANALYSIS OF WESTERN AND ISLAMIC VALUES AND THEIR IMPLICATIONS FOR
SOCIOECONOMIC NORMS AND ACCOUNTING ............................................................................. 55
2.9 WORLDVIEW AND VALUES: A COMPARISON ................................................................................... 57
2.10 CONCLUSION ............................................................................................................................... 63