Abstract
Shariah audit functions within Islamic Financial Institutions were imposed by Bank Negara Malaysia (BNM) with the issuance of Shariah Governance Framework in 2010. During the early stages of the implementation, the approach for this shariah audit function was only focused on shariah compliance. After ten years, the shariah audit function became mandatory, where this function was expected to be well-developed and able to achieve its primary objective. The role of shariah audit should go beyond Shariah compliance as it should serve as an independent assessment of internal control for any shariah compliance risk. Shariah audit also is one of the crucial elements in the Shariah governance framework. However, the lack of specific guidelines for shariah audit became a challenge for auditors to carry out a comprehensive shariah audit procedure. Therefore, this study aims to provide an in-depth explanation of the process of shariah audit, particularly on planning, executing, reporting and follow up, which emphasises on the application of risk-based internal audit (RBIA) approach. The study adopted a qualitative methodology by using multiple case studies involving Takaful Operators in Malaysia. The detailed explanation of the current shariah audit process is expected to contribute to the provision of valuable detailed information for the Takaful Industry as well as other Islamic financial institutions. The information could benefit Islamic Financial Institutions by assisting in developing a strategy to provide a robust internal control for reducing the occurrence of shariah non-compliance risk.
Highlights
Malaysia can be considered as a leading country in the development of Islamic finance
Each of the Takaful Operators have developed their own shariah audit process based on the available guidelines, which includes International Professional Practices Framework (IPPF) issued by the Institute of Internal Auditor (IIA), Shariah Governance Framework (SGF) issued by Bank Negara Malaysia (BNM) and Committee of Sponsoring Organizations (COSO)
The findings of this study indicate that the preparation of the audit plan and audit program for Takaful Operators is justified by a risk-based approach
Summary
Malaysia can be considered as a leading country in the development of Islamic finance. Whether it is research, product development, regulatory frameworks, or practical steps, Malaysian Islamic finance industry has always been a step ahead from the rest of the world. The development of the Islamic financial system in Malaysia started with the establishment of a pilgrimage fund (Tabung Haji) in 1963 as the first Islamic savings institution. As for non-banking financial service institutions, the first was the establishment of the first Takaful or Islamic insurance company under the Takaful Act in 1984 known as Syarikat Takaful Malaysia Berhad. The Takaful sector has become a major contributor to Malaysia's financial system as a whole since the establishment of the first Takaful Operator in Malaysia. The combination of ethical investment strategy, considerable growth potential, and cost competitiveness are among the reasons that attract of the non-Muslim country for this business
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