The Current Perception and Practice of 'Shariah Auditing' in Bangladeshi Islamic Banks

Abstract

Almost all the commercial banks in Bangladesh are operating Islamic banking windows throughout the country to attract Muslims (90% of the population). To ensure shariah compliance, Islamic banks in Bangladesh currently use “Internal Shariah Review” which is basically the SSC’s supervision, monitoring and controlling ‘during’ and ‘after’ the banks’ operation. However, It does not cover a thorough and comprehensive audit to examine the transactions after executing the contracts. There lies a huge functional gap between shariah compliance and internal shariah review, which is obstructing Muslims from trusting these banks. The purpose of this research was to investigate the interpretations of “Shari’ah Auditing” in Islamic Banks by accounting academicians, audit practitioners and Shari’ah scholars in Bangladesh. This research tries to measure the respondents’ idea about establishing “Shari’ah Audit” as a discipline. It also investigates whether there should be a proper shariah audit side-by-side internal shariah review and how far Shariah audit would be worth implementing. Both primary and secondary data were used in this research. For collecting primary data a survey questionnaire, with both ‘open-ended’ and ‘close-ended’ questions, was designed and distributed among the accounting academicians, audit practitioners and Shari’ah scholars in Bangladesh. A combination of quantitative and qualitative method was used to get the result. Frequency distribution method was used to examine the pattern of the respondents (Positivistic approach) and Hermeneutic approach was used to interpret the views of the respondents. The respondents had varying experience of awareness about shariah auditing. However, most of the respondents opined that shariah auditing should be a separate discipline. While shariah scholars claimed that the internal auditor under the guidance of shariah supervisory committee should conduct shariah audit, other respondents opined that an independent professional body should conduct shariah audit. While the shariah scholars considered checking every single transaction should be the best way to ensure shariah compliance, others advocated for existing sampling method. While shariah scholars are quite satisfied, accounting academicians and audit practitioners are quite unhappy about the roles of Islamic banks in promoting shariah audit among the common people. However, most of the respondents opined that there should be a proper shariah audit side-by-side shariah review in the Islamic banks in Bangladesh. Almost all the respondents think that because of the involvement of huge transaction and monitoring costs, Islamic banks in Bangladesh are unwilling to carry out shariah audit instead of or along with shariah review. A unique set of standards for auditing Islamic banks maintaining Islamic shariah principles has to be developed. The existing Islamic banks should maintain a shariah compliance rating for their products and service.