Financial accounting: Conventional and Islamic approach
Financial accounting: Conventional and Islamic approach. By Md. Jahirul Hoque, Begum Ismat Ara Huq & Afzal Ahmad. Dhaka: Bangladesh Institute of Islamic Thought, 2013. Pp. 302, ISBN: 978-984-8471-09-8.
Reviewer: Harunur Rashid, Professor, Department of Accounting & Information Systems, University of Chittagong, Bangladesh. E-mail: firstname.lastname@example.org
Accounting is the language of business, a mechanism of recording and reflecting the real financial aspects of any person or organisation. Without acquiring adequate knowledge and skill of accounting no one can think of becoming successful in business, specifically when financial accounting plays a vital role. Accounting practices are based on secular Western culture which is termed conventional accounting. However, Islam has its own ways of accounting on the basis of Islamic Shari‟ah. But there is a lack of professional standard textbook to use and refer to. The book Financial Accounting: Conventional & Islamic Approach published by BIIT is an effort to overcome this shortcoming.
The book consists of 13 chapters. At the very outset, the authors highlight the basic concepts, significance, common types of accounting, principles of Islamic accounting in contrast with conventional accounting, problems of conventional accounting towards Zakat calculation, operational results, financial position, interest, tax payments, replacement of assets, disclosure etc. and their position in Shari‟ah compliance. These contents help students to familiarize with
the issues needed to be readdressed towards the introduction of Islamic accounting.
The second chapter reviews the conventional conceptual framework of accounting from the perspective of Islamic accounting. As the basis of Islamic accounting is acceptance of the principles of Tawhid, „Adl, Ihsan, Amanah, Tawakkal, Infaq, Sabr, Istislah, Riba, Ihtikaar, Zulm, Hirs, and Israf, the authors synthesised the conventional accounting principles and concepts like entity, going concern, accounting period, money measurement, cost, full disclosure, conservatism etc. with Islamic perspective and recommended further research and studies for replacement.
In chapter three, the authors present the fundamentals of the business transaction processing under double entry system (as followed in conventional accounting) avoiding the transaction which are strictly prohibited in Islam. Recording, processing and summarizing the business economic events are thoroughly stated in chapter four. Adjusting entries needs to recognize the revenue and expense accounts under accrual concepts of accounting, closing entries to shutdown the periodic temporary accounts and reversing entries to switching over the accrual type adjusting entries to save time are analyzed in chapter five but these are subject to be readdressed under cash basis of accounting which is very much essential under Islamic accounting system. Chapter six highlights accounting for depreciation on block assets only ignoring the treatment of depletion and amortization. Even there is a scope for restructuring the depreciation practices on the current market value of assets as desired by Islamic accounting practices.
As regards the preparation of financial statements - Income statement, Owner‟s Equity, Balance sheet and Cash flow - the text recognize the conventional accounting standard, GAAP etc. for the Islamic accounting practices until the separate principles like GAAP, Accounting standard, Tax rules and regulations are introduced in chapter seven but prohibited transaction in Islam (for example – interest) should not be considered for recording.
Chapter ten appears to be very important as it discusses in detail the accounting practices under conventional and Islamic perspectives as practiced by banks and financial institutions. They prepare accounts and financial statement based on the guidelines of the Banking Companies Act 1991, The Companies Act 1994, Security Exchange Rules 1987, IAS, BAS, and Bangladesh Bank Circular. Islamic bank and other financial institutions also prepare their accounts and
statements based on the same but interest and other haram transaction which are strictly prohibited in Islam are not dealt in accounts.
Therefore, to establish accounting standards of Islamic financial Institution, the book incorporates and analyses the following: a) Structure of Investments as unrestricted and restricted; b) Modes of investment such as- Murabaha, Isara, Istisnaa, Salam, Mudaabaha and Musharaka; c) Objectives of Financial Accounting for Islamic banks and Institutions; d) Qualitative criteria of accounting information; and e) Disclosure of Balance Sheet items. Some illustrations attached at end of this chapter also help the learners to understand this issues in practice. Chapter 11 deals with the financial reporting procedures, attributes of good accounting report and disclosure system, objectives of FRS in Islamic Perspectives, and guidelines of IAS-2 relating to reporting system.
Ethics also referred to as the set of moral principles that distinguish what is right from what is wrong. Everywhere people feel the absence of ethical activities, so incorporating ethical issues in different areas and accounting practices in particular is becoming increasingly important. In Islamic accounting, ethics is more important to accountants due to their dual responsibility and accountability primarily to the almighty Allah the creator and secondly to the organization and stakeholders. Chapter 12 rightly focuses relevant ethical issues, importance of ethics, ethical principles in Islam, and factors affecting ethical behavior. To develop the moral and ethical value in practical life one should go through this chapter.
Overall, this book is inspirational as it is first of this kind and is meant for learners in business education and those who are working in Islamic Shariah based institutions.