FAR 600 : Islamic Accounting

My own simple notes for parts of article by Dr. Shahul Hameed,here.

What is Islamic Accounting?
-Accounting process which provides info to stakeholders of an entity which enable them to ensure that the entity is continually operating within Shariah bound and delivering its socio-economic objectives.

Comparison between Islamic Accounting (IA) with Conventional Accounting (CA)

Objectives of providing info:

Islamic Accounting (IA)

• To enables users to ensure that Islamic organisation abide by the principles of Shariah in its dealings.
• To ensure the assessment of whether organization objectives are being met.
• Try To achieve certain socio-economic objectives encouraged by Islam.

Conventional Accounting (CA)

• Ultimate purpose: To help users make appropriate decisions on their investments.

Type of information:

Islamic Accounting (IA)

• Identify socio-economic,religious events and transactions.
• Uses the concept stewardship: prepare final account ; balance sheet,Profit & Loss
• Identify economic events and transactions.

Conventional Accounting (CA)

• Uses the monetary measurement concept ; prepare financial statement.

Measurement, Valuation, Recording & Communication:

Islamic Accounting (IA)

• Current value is an obligation, for the purpose of Zakat.
• Due to prohibition of interest-based income, profit determination is more important.
• Uses holistic approach,where both financial & non-financial measure regarding economic,social,environment,etc are being measured and reported.
• Value Added Statement suggested.

Conventional Accounting (CA)

• Mainly uses the historical cost because it does not involve Zakat.
• The idea of using current values was given up due to its complexity and presumed lack of objectivity.
• Income Statement suggested.

Users of the information: 

Islamic Accounting (IA)

• Serves the gamut of stakeholder,while making sure of  money made from ethical manner, do not harm others and distribution of wealth among member of society.

Conventional Accounting (CA)

• Recognised various stakeholders, but focuses more on shareholders and creditors
• From recent development in finance and financial markets, accounting seems to be serving an elite group of financiers market players and banks and other financial institutions.

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Past years questions:

APR 2010: Question 1,a

i: Meaning of Islamic Accounting.

~Accounting process which provides info to stakeholders of an entity which enable them to ensure that the entity is continually operating within Shariah bound and delivering its socio-economic objectives.

ii: Why Islamic accounting is considered more holistic in nature?

~Does not mainly focus on material / financial aspects but all aspects.

~Both financial & non-financial measure regarding economic,social,environment,etc are being measured and reported.

~Encourages ethical manner in dealings.

~Wealth maximization for the shareholders is not the main goal. Others also taken into account,thus the distribution of Zakat.

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