ACCOUNTING

PRESENTATION

~ISLAMIC ACCOUNTING~~
NURUL HAZIRAH MUHAMMAD
ASMALYANA BT ABD MUHSIN
IZZAH DALILAH ROHIMI
MASITA ABU BAKAR
 INTRODUCTION
• OLD IDEA
• Accounting is an objective, technical and
value-free discipline.
• Accounting+religion adjective= seem
unprofessional
• NEW IDEA
• Embracing the idea of Islamic Banking and
finance.
 What is Islamic
Accounting?
• Specific form of accounting dictated
by religious precepts of Islam
• Sources:
– Qur’an
– Sunnah
• Likely to be normative-deductive:
– Shari’ah
 DISTINCTIONS BETWEEN ISLAMIC ACCOUNTING AND
CONVENTIONAL ACCOUNTING

CATEGORIES ISLAMIC CONVENTIONAL

ACCOUNTING ACCOUNTING

Objectives of providing To obtain reasonable To maximize profit after

information profit and abide Islamic determining scarce
laws in dealings to resources
achieve socio-objectives
encouraged by Islam
Identification of • Identify socio- • Identify economic
information economic events, events and
religious and normal transactions
transactions • Social Interest is
• Social interest is overlooked
taken care of I.e.: Failure of company

Profit determination report honest profit for Manipulation of profit

the whole accounting and loss by auditor
period
 CATEGORIES ISLAMIC
ACCOUNTING
Valuation of asset and • Current cost or selling
liabilities price
• To determine the
payment of zakat
Differences in users of • Include all range of
information people who are
involved in business
regardless of status
• Return deserved profit
according to
investment
• Focus on society
aspect –ethics: no
cheating and no
manipulate
Business activities Comprise activities
allowed by Islam
CONVENTIONAL
ACCOUNTING
Historical cost
• Elite group of
financiers and banks
• Promote the
concentration of
wealth and power to
the hand of the rich
especially those who
provide the resources
to the business
•  Focus on individuality
aspect without
Prohibited
considereconomic
any social
activities
aspectssuch as selling
alcoholic drinks and
gambling, lotteries and
casinos
 APPLICATION OF ISLAMIC BANKING
Islamic Accounting, enable users to ensure that Islamic
organisations abide by the principles of the Shari’ah or Islamic Law
in its dealings and enables the assessment of whether the
objectives of the organisation are being met. Islamic accounting
must be holistic in its reporting Hence, both financial and non-
financial measures regarding the economic, social, environmental
and religious events and transactions are measured and reported.
 
In Islamic finance the technical term for a transaction between an
entrepreneur and the suppliers of funds is mudaraba. Two of the
conditions for a mudaraba- type venture show the level of
partnership implicit in Islamic contracts:
• The gross or net return on capital or entrepreneurship should
not be predetermined.
• Partners should share not only profits but also losses in
proportion to their shares in the enterprise.

In a business based on mudaraba, each partner shares an agreed

portion of the profits, which may or may not be predetermined,
according to a contract.
 TYPES OF ISLAMIC BANKING CONTRACTS

 Concessionary
 Participatory mechanisms
 Profit and loss sharing
 Mudaraba (trustee financing)
 Musharaka (equity participation)
 Musaqat (orchard financing)
 Muzar’ah (share of harvest)
 Direct investment
 Non-profit and loss sharing
 Qard al-hasanah (benevolent loan)
 Bai’mua’jjal (spot sales)
 Bai’salam (Forward contracts)
 Ijara wa iqtina’ (leasing)
 Murabaha (cost plus markup)
 Jo’alah (service charge)
 Trade financing
 Why we must apply Islamic
Accounting?
• Ensure any of society comply with the
syari’ah principles and do not harm others
while making money ethically
• Achieve an equitable allocation and
distribution of wealth among members of
society especially the stakeholders of the
concerned corporation
• Information relevant - calculating zakah
• Social reporting – to the ummah
 Religion and Accounting
The adjective “Islamic” is worried to be
added to accounting because:
• May compromise the objectivity of the
discipline
• Religion is mostly seen as an unchanging code
• Religion is not subject to logical
considerations
Religion and Accounting
• Capitalist is not used before the word
accounting.
• Epistemology (the nature and sources
of knowledge)
• Science has replaced the religion as the
authority in defining what is knowledge.
• Knowledge is only what is perceptible
through our senses,
experiment,observation, or anything
appears logical to our mind.
• Revelation is not considered as
knowledge since religious truth cannot
be verified by our senses.
Religion and Accounting
• However, science and religion are dealing
with two different level of reality.
• Science deals – physical universe that
perceptible through our senses.
• Religion deals – higher level reality beyond
the sense of perception.
• The ultimate objective of both science and
religion is to bring about the well being of
human beings.
• Science-physical and material
• Religion – social, mental , emotional and the
spiritual.
 CONCLUSION
Islamic accounting would in fact be more
logical to use as it would result in an ethical
based accounting system which measures not
only profits but social, environmental and
religious performance!
THANK YOU!!