PRACTITIONERS SUGGESTIONS TO OVERCOME THE SHARI’AH AUDIT CHALLENGES IN MALAYSIAN ISLAMIC FINANCIAL INSTITUTIONS

Authors

  • Mohammad Shahid IIUM
  • Ahmad Khaliq Department of Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia
  • Farhad Ahmed IIUM Institute of Islamic Banking & Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia.
  • Rusni Hassan

DOI:

https://doi.org/10.53840/ijiefer.v5i2%20December.60

Keywords:

Shariah Audit, Audit Challenges, Islamic financial Institutions, Malaysia

Abstract

The constant advancement of Islamic financial institutions requires highly qualified experts in Islamic finance administrations, to ensure that all transactions made by Muslims and non-Muslims conform to the Shari’ah conditions. Certainly, an appropriate method of audit is required for the IFIs to persist in growing and providing assurance that they are rigorously ensuring the Shari’ah in all features (of their products, rules, and processes, and contracts). The current study intends to seek suggestions from Shari’ah audit practitioners to meet the current gap in the Shari’ah audit practice further to ensure Shari’ah audit transparency in IFIs in Malaysia. The study employed a quantitative method involving 40 practitioners in the Shari’ah assessment services through a purposive sampling procedure from several Islamic banks and Takaful operators in Klang Valley, Malaysia. Data were gathered employing a structured questionnaire and analysed using descriptive statistical instruments, including frequency, percentage, averages, and standard differences due to the descriptive nature of this study. The results suggest that awareness of the Shari’ah audit among them is satisfactory, as most of them learnt Shari’ah audit through additional training. The findings also demonstrate that there is an absence of an independent audit report, an independent audit framework for the Shari’ah audit, and incompetent Shari’ah auditors in this practice. The study reveals that the Shari’ah audit service has a significant potential to become a marketable job shortly. In due course, to cultivate grander awareness, this study also suggests integrating Shari’ah audit-related courses into higher-learning institutions and incorporating them into the professional courses for students and professionals in order to produce competent and capable Shari’ah auditors. The study contains a few limitations such as the sample area for the study being confined to Klang Valley area. This research is also unable to perform ANOVA on religious differences as the sample consisted of largely Muslim respondents. Due to these factors, the generalisation of the study’s findings will be visibly restricted. This study is a comprehensive proposal for IFIs, whereby it suggests effective and curative solutions for the existing challenges to overcome Shari’ah audit challenges.

Downloads

Download data is not yet available.

References

Ali, M. Y., & Hassan, F. (2019). The Study of Potential Shari’ah Non-Compliance Risks in Murabahah along with Their Risk Management. Journal of Finance and Economics Research, 4(1), 44-58.

Ali, N. A. M., & Kasim, N. (2019). Talent Management for Shari’ah Auditors: Case Study Evidence from The Practitioners. International Journal of Financial Research, 10(3), 252-266.

Arwani, A. (2018). Issues And Challenges of Shari’ah Auditing in Islamic Financial Institution and Corporate Governance Compliance. Media Riset Akuntansi, Auditing & Informasi, 18(2), 169-186.

Ayub, M., Khan, K., Rashid, D., Shahzad, M. A., & Rehman, H. (2019). Enhancing the competence and effectiveness of Sharī ‘ah advisory boards: Case of Islamic banking institutions in Pakistan. Journal of Islamic Business and Management, 9(1), 42-63.

Basiruddin, R., & Ahmed, H. (2019). Corporate governance and Shari’ah Non-compliant risk in Islamic banks: evidence from Southeast Asia. Corporate Governance: The International Journal of Business in Society, 20(2), 240-262.

Besar, M. H. A. H., Sukor, M. E. A., Muthalib, N. A., & Gunawa, A. Y. (2009). The practice of Shari’ah Review as undertaken by Islamic banking sector in Malaysia. International Review of Business Research Papers, 5(1), 294-306.

BNM. (2019). BNM Annual Reports 2019. https://www.bnm.gov.my/o/annual-report/index.html.

Bosi, M. K., & Joy, M. Della. (2017). Issues and Challenges of Auditing in Islamic Financial Institutions. International Journal of Humanities and Social Science Invention, 6(2), 15–20.

Ghani, N. L. A., & Rahman, A. R. A. (2015). An analysis of Shari’ah Audit practices in Islamic banks in Malaysia. Jurnal Pengurusan, 43, 107–118.

Hamza, H. (2013). Sharia governance in Islamic banks: effectiveness and supervision model. International Journal of Islamic and Middle Eastern Finance and Management, 6 (3), 226-237.

Haqqi, A. R. A. (2014). Shari’ah Governance in Islamic financial institution: An appraisal. US-China L. Rev., 11, 112.

Haridan, N. M., Hassan, A. F., & Karbhari, Y. (2018). Governance, Religious Assurance and Islamic Banks: Do Shari’ah Boards Effectively Serve? Journal of Management and Governance, 22(4), 1015-1043.

IFDI. (2020). #IFDI2020 Progressing Through Adversity Islamic Corporation for the Development of the Private Sector. www.refinitiv.com/en/islamic-finance.

Isa, F. S., Ariffin, N. M., Hafizah, N., & Abidin, Z. (2020). Shari’ah Audit Practices in Malaysia: Moving Forward. Journal of Islamic Finance (ISSN: 2289-2109 e-ISSN: 2289-2117), 9(2), 42–58.

ISRA. (2016). External Shari’ah Audit Report.

Karim, M. R., & Shetu, S. A. (2020). Shari’ah Audit in Islamic Financial Institutions (IFIs): A Literature Review. BUFT Journal of Business & Economics (BJBE), 1(November), 45–66.

Kasim, N., Sanusi, Z. M., Mutamimah, T., & Handoyo, S. (2013). Assessing the current Practice of Auditing in Islamic Financial Institutions in Malaysia and Indonesia. International Journal of Trade, Economics and Finance, 4(6), 414.

Khalid, A. A., & Sarea, A. M. (2020). Independence and Effectiveness in Internal Shari’ah Audit with Insights Drawn from Islamic Agency Theory. International Journal of Law and Management. 63(3), 332–346.

Ab Ghani, N. L., Ariffin, N. M., & Rahman, A. R. A. (2019). The measurement of effective internal Shari’ah Audit function in Islamic financial institutions. International Journal of Economics, Management and Accounting, 27(1), 141-165.

Litwin, M. S., & Fink, A. (2003). How to assess and interpret survey psychometrics. 8.

Puad, N. A. M., Abdullah, N. I., & Shafii, Z. (2020). The Shari’ah Audit Framework from Practitioners’ Perspective: A Mirage or Fact? The Journal of Muamalat and Islamic Finance Research, 1-16.

Ali, N. A. M., Shahida, S., & Shafii, Z. (2018). Knowledge, Skills and Characteristics Requirements for Shari'ah Auditors. Asian Journal of Accounting and Governance.

Mohd Rodzi Ahmad, & Al-Hasan Al-Aidaros. (2015). The Need of Independent Shari’ah Members in Islamic Cooperative Banks: An Empirical Study of Professional Accountants in Malaysia. International Review of Management and Business Research, 4(1), 110–120.

Muhammad, R. (2018). Shari’ah Governance for Islamic Banking: What can be learnt from Malaysia? Conference on Islamic Management Accounting and Economics, 1(1999), 111–123.

Najeeb, S. F., & Ibrahim, S. H. M. (2014). Professionalizing the role of Shari'ah auditors: How Malaysia can generate economic benefits. Pacific-Basin Finance Journal, 28, 91-109.

Nawaz, T., Haniffa, R., & Hudaib, M. (2021). On intellectual capital efficiency and Shari’ah Governance in Islamic banking business model. International Journal of Finance & Economics, 26(3), 3770-3787.

Nor Aishah Mohd Ali, Zakiah Muhammadun Mohamed, & Shahida Shahimi & Zurina Shafii. (2015). Competency of Shari’ah Auditors in Malaysia: issues and challenges. Journal of Islamic Finance, 4(1), 22–30.

Nunnally, J. C. (1978). Psychometric theory.

Omar, M. (2019). Issues and Challenges of Shari’ah Compliance Auditing in Islamic Financial Institution. Advanced International Journal of Banking, Accounting and Finance, 1(1), 13-24.

Puad, N. A. M., Shafii, Z., & Abdullah, N. I. (2020). The Practices of Risk-Based Internal Shari’ah Auditing Within Malaysian Takaful Operators: A Multiple Case Study. International Journal of Academic Research in Business and Social Sciences, 10(7), 52-71.

Rahman, N. A. (2018). Risk Based Internal Shari’ah Audit Practices in the Islamic Bank 3. Shari’ah Audit Process and Methodology. 954–961.

Salleh, S., Hanefah, M. M., Shafii, Z., & Kamaruddin, M. I. H. (2019). Shari’ah Audit Practices in Malaysian Islamic Banks: An Audit Expectation-Performance Gap Analysis. Shari’ah Governance and Assurance in Islamic Financial Sectors, September, 113–145.

Shafii, Z., Ali, N. A. M., & Kasim, N. (2014). Shari’ah Audit in Islamic Banks: An Insight to the Future Shari’ah Auditor Labour Market in Malaysia. Procedia-Social and Behavioral Sciences, 145, 158-172.

Sheikh Hassan, A. F., & Mohd Haridan, N. (2019). Shari’ah Auditing and Shari’ah Compliance assurance in Malaysian Islamic banks. Gjat, Special Is (November), 61–72.

Sulub, Y. A., & Sulub, S. A. (2021). Multiple Directorships of Shari’ah Committees in Islamic Banks: Do Internal Audit and Financial Performance Matter? International Journal of Islamic Banking and Finance Research, 5(1), 1-15.

Suraya, W., Hassin, W., Munirah, U., & Mohamad, S. (2018). Shari’ah Audit for Islamic Financial Institutions (IFI’s): Issues and Challenges. 4(4), 151–158.

Yaacob, H. (2012, March). Issues and Challenges of Shari’ah Audit in Islamic Financial Institutions: A Contemporary View. In Proceedings of 3rd International Conference on Business and Economics Research.

Yahya, Y. (2018). A review of Shari’ah Auditing Practices in Ensuring Governance in Islamic Financial Institution (IFIs) – A Preliminary Study. Advances in Social Sciences Research Journal, 5(7).

Downloads

Published

2022-12-15

How to Cite

Mohammad Shahid, Ahmad Khaliq, Farhad Ahmed, & Rusni Hassan. (2022). PRACTITIONERS SUGGESTIONS TO OVERCOME THE SHARI’AH AUDIT CHALLENGES IN MALAYSIAN ISLAMIC FINANCIAL INSTITUTIONS. International Journal of Islamic Economics and Finance Research, 5(2 December), 1-12. https://doi.org/10.53840/ijiefer.v5i2 December.60