Abstract
Seemingly, a formidable ethical challenge to financial reporting is the phenomenon of fallacious and discretional financial reporting as currently in practice. Such untruthful reporting intensified during the first decade of the 21st century when many of the personnel got involved to increase their personal benefits and the result was a wide-spread financial fiasco in the form of MCI WorldCom, Enron, Well Fargo, and Tesco accounting scandal, to mention a few. Most of the scandals were cause by false reporting, withholding information about financial troubles, revenue and earnings inflation, discretional revenue and expense recognition, use of off-balance-sheet items, artificial increase of cash flow and profits, backdating of sales contracts and accounting for vendors allowances and financing. The research in hand is an attempt to discuss such issues in the light of ethical and moral values that are not only recommended teachings of Islam, but also accepted business ethics in the civilized world. Islamic ethical guidelines for business encompass discipline and rules as enjoined in the divine sources of Shar¯ı‘ah - Qur’¯an and Sunnah (sayings of or the approved actions by the holy Prophet Muhammad PBUH). Implementation of these guidelines to make financial reporting ethical should be acceptable to the entire world, at personal, organizational, and society levels for broad based benefits of the mankind.
Highlights
Cropped up problems in various companies have raised many questions regarding financial reporting
Content from this work is copyrighted by Journal of Islamic Business and Management, which permits restricted commercial use, distribution and reproduction in any medium under a written permission
Section three of this research entails the model of Islamic Ethics containing three things, accountability and transparency, fairness and justice, and truthful reporting
Summary
Cropped up problems in various companies have raised many questions regarding financial reporting. Journal of Islamic Business and Management Vol 9 Issue 1 always look formal They are prepared using such accounting policies which are favorable for the entities themselves (Gowthorpe & Amat 2005), and signed by upper level management, while the audit firms are accountable to verify them to capture users’ attention. Over the past decade, accounting and financial reporting frauds harmed public trust, lost stocks’ wealth and caused worldwide recession (Lail, MacGregor, Marcum, & Stuebs, 2017). The area which needs attention in this perspective is the application of Islamic business ethics in financial reporting to eliminate injustice with stakeholders. Section three of this research entails the model of Islamic Ethics containing three things, accountability and transparency, fairness and justice, and truthful reporting.
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