Internal Control Perspective Based on Islamic Worldview

Mohamad Djasuli

doi:10.21107/jaffa.v9i2.11992

Abstract

The purpose of the study is to explore and explain the perspective of internal control in the Islamic worldview. This research uses a descriptive qualitative method with Al-Quran and Al-Hadith and related references as research sources. Although the internal control framework model used is based on the COSO framework created in 1985, it has been implemented by Muslim leaders since the era of the Prophet Muhammad until the Abbasid era. The five elements of internal control established by the COSO framework include the control environment, risk assessment, control activities, information and communication, and monitoring. Indicators of control environment elements, researchers recommend adding spirituality and religiosity. The basic element of internal control is the control environment. If the control environment is functioning properly, it will minimize risk, control activities will be carried out simply, information and communication will run smoothly and internal control monitoring can be carried out regularly.

Highlights

The need for internal control is based on concerns (Hall & Singleton, 2007) over (a) the possibility of intentional errors in business processes causing organizational losses, (b) deviations from the applicable system by employees through collusion or other means, (c) management overrides, management is in a position to override all control procedures by personally distorting transactions or by directing subordinates to do so, and (d) risks both internal and external to the organization that could threaten the survival of the organization
Internal control which is known by the wider community today is an organized concept and has been known since 1985, namely a concept initiated by an international organization called the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which was established by 5 professional organizations, namely: American Institute of Certified (AICPA), American Accounting Association (AAA), Financial of Executive International (FEI), Institute of Internal Auditor (IIA), and The Institute of Management Accountants (IMA)
The elements of the COSO framework internal control were not yet known at that time, so they had not used the elements of the COSO framework in establishing internal control, but they used the instructions contained in the Al-Quran and Al-Hadith in carrying out internal control at each level and government activity

Summary

Introduction

The need for internal control is based on concerns (Hall & Singleton, 2007) over (a) the possibility of intentional errors in business processes causing organizational losses, (b) deviations from the applicable system by employees through collusion or other means, (c) management overrides, management is in a position to override all control procedures by personally distorting transactions or by directing subordinates to do so, and (d) risks both internal and external to the organization that could threaten the survival of the organization. History records that reforms in public organizations (government) have occurred simultaneously since the 1990s, named after the emergence of New-Public Management (NPM) in 1991 (Hood, 1991). The direction of reform is mostly related to governance, service quality, fund management, and regional autonomy and internal control (Albassam & Collins, 2017; Arena, 2013; Locke, 2001). The framework is a reference for the implementation of every internal control in many organizations or government institutions in the world, both profit-oriented or not. The COSO definition of internal control is a set of processes influenced by the board of directors, management and other staff designed to provide reasonable assurance of achievement and performance, in (a). The main purpose of internal control is to ensure that the main goals of the organization can be achieved Anderson & Eubanks (2015), or in other words that the achievement of organizational goals will protect the rights of the organization's stakeholders

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