And Auditing Organization For Islamic Financial Institutions Research Articles

Analytical Study of the Implementation of AAOIFI’s Ethical Standards in the Algerian Islamic Banking System: Assessment and Recommendations

Purpose ‒ The application of ethical requirements is a key way for all stakeholders in the Islamic financial industry to build trust and promote integrity. This study aims to assess the extent to which the Algerian banking system has adopted the ethical standards for Islamic financial transactions issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Design/Methodology/Approach ‒ This study conducted an analytical reading. It utilised the descriptive approach to present the study's variables and employed the analytical approach to discuss the various concepts and legal regulations that govern the banking sector and to provide recommendations that would help to build a solid foundation for the banking system. Findings ‒ The findings revealed that the Algerian monetary authority is committed to gradually promoting Islamic banking regulations in a thoughtful manner. However, the study also found that there is a lack of clarity regarding the adoption of regulatory laws in Algeria for the ethical standards issued by AAOIFI, even within the 2023 Monetary and Banking Act. Originality/Value ‒ To the best of the authors’ knowledge, this paper is the first study to assess the extent to which the Algerian banking system has adopted the ethical standards for Islamic financial transactions issued by AAOIFI. Research Limitations/Implications ‒ The primary limitation of this research is its exclusive focus on the Algerian banking system and its reliance on secondary data. Practical Implications ‒ This research offers valuable insights for those in decision-making roles. It recommends the establishment of a committee of experts to develop standards tailored to the Algerian Islamic banking environment. The committee should be financially independent and under the supervision of the monetary authority. Additionally, the study suggests the issuance of a code of ethics to govern the professional conduct of Islamic banks (IBs) and Islamic financial institutions (IFIs) in accordance with Sharīʿah.

Jurisprudential Conditioning of the Takaful Insurance Contract: A Case Study of Islamic Insurance in Jordan

This study aims to elucidate the reality of Takaful insurance, its juristic adaptation, and the impact of this adaptation on Islamic legal rulings. It also seeks to assess the extent of compatibility of the practical applications of Takaful insurance carried out by the Jordan Islamic Insurance Company with the decisions of the Islamic Fiqh Academy and the Sharia standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). To this end, the research begins by presenting the reality of Takaful insurance, highlighting its differences from commercial insurance, and discussing its major juristic adaptations. The study also examines the juristic opinions regarding the Sharia rulings on the applications of Takaful insurance. Since the Sharia rulings on Takaful insurance are based on its juristic adaptation and its application in Islamic insurance companies, the research attempts to uncover the mechanisms for implementing this contract in the Jordan Islamic Insurance Company. This is done through a specific questionnaire developed based on AAOIFI standards and the decisions of the Islamic Fiqh Academy, distributed to managers and employees of the Islamic insurance company, as well as experts, academics, and clients of the Islamic insurance company with extensive experience in this field. The research concludes, after juristic discussions, that the best juristic adaptation for the Takaful insurance contract is mutual consideration with minimal permissible excess, and that there is no difference between Islamic insurance contracts and commercial insurance if both are applied in an Islamic company.

The Implementation of Islamic Accounting Standards and Its Impact on the Performance of Qatar Islamic Banks: A Case Study of Qatar Islamic Bank

This research paper aims to assess the impact of applying Islamic accounting standards on the performance of Islamic banks. Several of these standards have been identified, and various indicators have been used to measure the performance of Qatar Islamic Bank as a case study. The importance of the research paper lies in guiding the financial and regulatory policies of Islamic banks towards the significance of adhering to the application of Islamic accounting standards and making sustainable managerial decisions to enhance the performance of these banks , The study's findings, analyzing the performance of Qatar Islamic Bank and identifying discrepancies in the application of standards by understanding their effects, serve as recommendations and a practical guide for other Islamic banks. This aids in recognizing the consequences of implementing these standards and addressing potential irregularities ,The study found that Qatar Islamic Bank relies on Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), modified by the Qatar Central Bank, in preparing its financial and accounting reports. Results indicated the bank's adherence to the standards of Mudarabah, Murabaha, and Ijarah ending with ownership. Analysis of financial statements showed a strong performance by the bank, accompanied by an increase in profitability. The study recommends diversification in other forms of Islamic financing, particularly in Mudarabah and Partnership.

The Role of Accounting And Auditing Organization For Islamic Financial Institutions (AAOIFI) in Sharia Statement Of Fiancial Accounting Standards (PSAK)

This research is intended to provide an understanding of Islamic financial accounting standards. In carrying out its sharia principles, sharia banks must also uphold the values of justice, trust, partnership, transparency and mutual benefit for both the bank and for customers which are the pillars in carrying out muamalah activities . With the rapid growth rate of Islamic Financial Institutions in the world, an appropriate standard is needed in presenting financial reports to overcome differences in the preparation of each country. The role of AAOIFI in this regard has greatly contributed in terms of the formulation of standards, although in practice there are many obstacles to its application, moreover the standard that is widely used by countries is IFRS and it is not easy for countries to adopt AAOIFI standards in a short time . Most of the standards used by Islamic banking follow the AAOIFI standards adopted in the Sharia PSAK but in relation to IFRS standards are also applied as long as they do not conflict with sharia principles and values.

Comparative analysis of accounting standards in the Islamic banking industry: a focus on financial leasing

Purpose This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple accounting standards in Islamic banking, examine the need for private accounting standards and assess international financial reporting standards (IFRS) compatibility with Islamic banking and analyse financial leasing accounting in Islamic banking compared to IFRS 16. Design/methodology/approach A combination of comparative theoretical analysis, physical examination, and semi-structured interviews has been used as a research methodology. These methods are interconnected and complement each other to provide a comprehensive approach to address the research questions. Findings Islamic banks in various countries show varying compliance with AAOIFI accounting standards. Some fully comply, while others adopt a hybrid approach combining AAOIFI and IFRS. Differences in accounting treatments can result in conflicts, asset inflation and financial statement discrepancies. Challenges and criticisms faced by AAOIFI standards include violating the matching principle and lacking faithful representation. Collaboration among academics, standards-setting bodies and organisers is crucial for guiding the reporting of Islamic financial statements. Practical implications The research identifies gaps in implementing Islamic accounting standards and proposes strategies to enhance compliance, improve performance and increase transparency in Islamic financial institutions. It highlights the importance of a harmonised and universally accepted accounting framework for Islamic banking, considering the compatibility between IFRS and Islamic principles. Social implications Social implications have arisen regarding the global acceptance of Islamic finance, which leads to an increase in socially Islamic finance exchange. Originality/value This research examines the consequences of using multiple accounting standards in the Islamic banking industry and discusses the need for private accounting standards and compatibility with IFRS.

An Exploratory Study of Manfaʿah (Usufruct) in Ijārah Accounting from the Sharīʿah Perspective

Purpose — The recording and reporting of usufruct in ijārah (lease) financing is a major issue in both conventional and Islamic accounting standards. The International Accounting Standard (IAS-17) was revised and replaced by the International Financial Reporting Standards (IFRS-16) to address this issue. In response, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) revised and issued a new ijārah Financial Accounting Standards (FAS-32). Considering this ongoing issue, the aim of this study is to explore māl (asset) and milkīyah (ownership) as the two significant Sharīʿah dimensions of manfaʿah (usufruct) in ijārah accounting. Design/Methodology/Approach — This study adopts the qualitative research methodology and uses the content analysis technique whereby secondary data was collected from the related books of Islamic fiqh (jurisprudence) as well as from the accounting and Sharīʿah standards of ijārah. Findings — The study found that manfaʿah is a māl and as per the milkīyah structure, the lessee can represent legal ownership of the leased assets under his possession, and accordingly, manfaʿah could be registered in the lessee’s name. Originality/Value — To the best of the researchers’ knowledge, this study constitutes the first of its kind in the existing literature that focuses specifically on the Sharīʿah perspective of usufruct in ijārah accounting. Practical Implications — The findings of this study contribute to help financial and Sharīʿah experts and Islamic financial institutions (IFIs) in their understanding of manfaʿah and the adoption and implementation of the new ijārah accounting standard. This study will also help researchers in their future research.

Shariah governance framework for Islamic banking in Pakistan: a critical review and comparison with AAOIFI

Purpose The study aims to critically review the Shariah governance framework for Islamic banking prevailing in Pakistan and provide a comparison with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Design/methodology/approach It analyzes 16 circulars issued by the State Bank of Pakistan (SBP) since 2002, including three Shariah governance frameworks in 2014, 2015 and 2018. Additionally, the study compares the SBP and AAOIFI Shariah governance standards to evaluate the soundness of the SBP framework against international benchmarks. Findings Pakistan’s Shariah governance model is centralized, with the SBP’s Shariah board having ultimate authority. The SBP has provided a comprehensive Shariah framework, which includes among others, the criteria for the qualifications and conflict of interests of Shariah members. Both AAOIFI and SBP Shariah governance frameworks have similarities and differences in terms of the tenure of Shariah Supervisory Board (SSB) members, reporting line of SSB, number of SSB meetings, minimum experience of SSB members, primary duties of Shariah board, code of ethics and conduct for SSB and management and requirement of publication of SSB report in the annual report of Islamic banks. The frameworks differ in terms of the delegation of SSB powers, assessment and appraisal of SSB effectiveness and outsourcing of Shariah Compliance Department and Internal Shariah Audit Unit. Practical implications The study recommends expanding the qualification criteria for Shariah advisors to include additional degrees and qualifications, upholding stringent criteria for conflict of interests and promoting stakeholder consultation through exposure drafts. Originality/value To the best of the authors’ knowledge, this is the first of its kind which critically review and compare the Shariah governance framework prevailing in Pakistan.

How to improve the financial performance of Islamic banks in the MENA region? A Shariah governance perspective

PurposeThe purpose of this study is to investigate the impact of Shariah Advisory Board (SAB), Audit committee (AC) and board of directors (BD) characteristics on the performance of Islamic banks (IBs) in the MENA region.Design/methodology/approachThe paper employs a quantitative approach, utilizing both ordinary least squares (OLS) regression and panel data analysis (random effects models) to examine the relationship between corporate governance variables and the performance of IBs. The sample consists of 50 IBs from 10 countries, spanning a seven-year period (2010–2016), with the exclusion of the Covid-19 pandemic period. To ensure the robustness of the results, various sensitivity tests were conducted, including pooled regression OLS and subsample analysis based on adhering to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards.FindingsThe study's findings suggest that the size of the SAB and the membership of at least one member of the SAB on the AAOIFI have a notable adverse effect on the performance of IBs. On the other hand, the AC independence has a positive influence on bank performance. However, there was no significant impact observed for AC size, meeting frequency and BD characteristics on bank performance. The research also revealed nuanced relationships between governance variables and bank performance when analyzing the sample based on AAOIFI adoption. Among banks not adhering to AAOIFI standards, SAB size and CEO duality negatively affected return on assets, while AC independence positively impacted it. For AAOIFI-compliant banks, AC independence significantly improved bank performance, whereas AC meetings exhibited a negative effect. Furthermore, there were no significant relationships observed for return on equity among banks not adhering to AAOIFI standards, whereas AAOIFI-compliant banks experienced positive impacts from AC independence. These results offer valuable insights into the intricate connection between governance attributes and bank performance, particularly in the context of AAOIFI standards adoption.Practical implicationsThe study's findings have important practical implications for various stakeholders in the Islamic banking industry. For bank practitioners and management, the study highlights the significance of enhancing the independence of AC to improve decision-making and risk management, leading to better bank performance. Moreover, careful selection of SAB members can mitigate potential negative effects on performance. Policymakers may consider promoting AAOIFI standards to shape the relationship between governance and bank performance. Investors can use the insights to make informed decisions, and banks with stronger governance may attract more investments.Originality/valueThrough quantitative analysis and AAOIFI-based sample division, this study adds to the growing literature on corporate governance and the performance of IBs by examining the impact of multiple corporate governance variables on the performance of IBs in the MENA region. To provide a theoretical basis for this relationship, three theories, namely agency, stewardship and stakeholder theories, are employed and discussed.

Intellectual capital disclosures (ICD) of Islamic banks under IFRS versus AAOIFI regimes: an international evidence

Purpose The purpose of this paper is to examine and compare the trend of intellectual capital disclosures (ICD) of Islamic banks under the International Financial Reporting Standards (IFRS) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) regimes over a seven-year period (2012–2018). Design/methodology/approach A self-developed checklist was developed to measure the extent of ICD practices of Islamic banks in both regimes. Findings The results revealed a moderate increase in ICD practices over the period of the study. However, there is no significant difference in ICD between the two financial reporting regimes i.e. IFRS and AAOIFI-based banks. In fact, most of the IFRS-based banks have better ICD than AAOIFI-based banks throughout the analysis period. This study contributed to the ICD literature by introducing Shariah capital as a new category of information to disclose besides the common disclosure on human capital, relational and structural related information by the Islamic banks. Practical implications It is important for Islamic banks to distinguish themselves from conventional banks and ICD can be a conduit to show their uniqueness. The introduction of Shariah capital in this study reflects the main objective of Islamic bank’s existence, and it should become an important element in ICD. In fact, some form of guidelines or policy by regulating agencies could facilitate the ICD by Islamic banks and reflect the truth about their ability to capitalize on Intellectual capital and disclose about these practices to their stakeholders. Originality/value The introduction of Shariah capital as a new component to the existing components (i.e. human capital, structural capital and relational capital) of intellectual capital brings a new perspective to the research on ICD of Islamic banks. This paper further contributes to the scarce evidence of ICD of Islamic banks globally.

Reconstructing lease-to-own contracts: A contemporary approach to Islamic banking standards

The Palestinian Monetary Authority issued decision No. 15 of 2019 demanding Islamic banks to act according to Islamic standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Among the essential financial services, Islamic banks offer Ijārah Muntahiyah bi-t-tamlīk contracts (lease-to-own), which share a similar purpose with financial leasing contracts. This decision places Islamic banks in a challenging predicament, caught between the modern doctrinal orientations of AAOIFI standards and the traditional orientations provided in Al-Majjahllah Code. The formation of Ijārah Muntahiyah bi-t-tamlīk contracts relies on a promise of sale issued by the bank to the tenant, contingent on the complete payment of agreed-upon installments. The first challenge arises because the general rules do not recognize the unilateral promise as a source of legal obligations, thus rendering it without legal value. The second issue stems from several contract clauses that contravene AAOIFI standards by burdening the tenant with most of the bank's obligations. Despite the importance of resolving these contradictions, no comprehensive review has been undertaken to date. This research introduces specific recommendations to ensure the consistency of these transactions with Islamic standards and relevant legislative provisions as provided in national law. By bridging this gap, the study seeks to enhance the effectiveness and compliance of lease-to-own contracts in Palestinian Islamic banks, fostering a more robust and Sharia-compliant financial system.

VIABILITY OF EXTERNAL SHARIAH AUDIT PRACTICE:

The current trend in Shariah governance and assurance has now gone beyond internal Shariah audit to external Shariah audit (ESA). At the international level, the move towards enhancing Shariah governance in Islamic financial institutions (IFIs) were made by mandating ESA function by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in its auditing standards in year 2019. Then, in year 2023 Islamic Financial Services Board (IFSB) jointly collaborate with AAOIFI on issuing an exposure draft on Shariah governance framework which suggested as best practice for ESA to be conducted not just for IFIs but also for Islamic capital market. As there is increasing number of institutions offering Shariah compliant products and services, there is also the need for ESA to provide assurance in sectors beyond IFIs. Besides big audit firms, the supply of ESA can be offered by small and medium audit practitioners (SMPs) as well. A focus group discussion was held to study this issue with 17 SMPs on the viability to venture into the Shariah audit industry. The findings indicate challenges to SMPs as there is no regulatory requirement for the conduct of ESA in Malaysia; there is debate on the audit scope and a need for human capital development to develop required skillset for external Shariah auditors that includes knowledge in Shariah principles, Shariah compliant contracts, Shariah risk management and Islamic capital market related products and services.

Islamic corporate governance quality and value relevance of accounting information in Islamic banks

Purpose The study aims to investigate the Shari’ah governance quality effectiveness, at the bank and national levels, on the value relevance of Islamic banks’ (IBs’) earning per share and book value per share. Design/methodology/approach Quantitative analyses are conducted using a panel of 40 listed IBs from 12 countries during 2012–2019. Data were retrieved from the Refinitiv Eikon database and banks’ annual reports. Findings The findings suggest that Shari’ah supervisory boards’ attributes negatively influence the value relevance of accounting information while the internal procedures positively impact it. The results also provide evidence of a complementary effect between Shari’ah governance mechanisms at the bank and national levels on the value relevance of accounting information. Practical implications IBs’ boards and managers need to be more aware of the role of Shari’ah governance and its impact on value relevance. The observed complementarity between Shari’ah governance systems at the bank and national levels may incite regulators to include comprehensive Shari’ah governance regulations in their best practices. Strengthening collaboration between regulators and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is also required to create an enabling environment for investors to rely on the AAOIFI accounting standards in their investment decision-making process. Originality/value Existing studies tend to ignore the effectiveness of Shari’ah governance quality at the bank level on value relevance. There is a similar lack of empirical research on the effectiveness of the centralized Shari’ah governance scheme on accounting issues.

Ensuring The Compliance of Islamic Finance Applications with Shariah Principles in Ethiopia: The Way Forward

The notion behind Islamic finance is providing alternative Shariah-compliant financial services and products for those who do not willing to access conventional finance as it contravenes Shariah principles. Currently, Islamic finance is expanding throughout Muslim and non-Muslim countries. One of the most critical challenges of the Islamic financial sector is the extent of the compliance of Islamic finance practices with Shariah principles. Therefore, there should be a control mechanism for ensuring the compliance of the products and services provided by Islamic financial institutions with Shariah principles. Scholars argue that a Shariah governance framework should be applied by institutions engaged in Islamic finance in countries where Islamic finance is being practiced. Shariah governance framework is mainly categorized into two approaches centralized and decentralized Shariah governance framework. The availability of a centralized Shariah governance framework is essential in ensuring the application of Islamic finance in accordance with Shariah principles. Ethiopia is one of the countries that accommodated the application of Islamic finance through exclusively interest-free banking windows by conventional banks in 2011 and fully-fledged interest-free banks in late 2019. However, the National Bank of Ethiopia (NBE) did not specify any Shariah governance framework in any of its legislations. The unavailability of an established Shariah governance framework may expose the sector to Shariah non-compliance risk. This study investigates how to ensure Ethiopia's Islamic finance applications' compliance with the Shariah principles. Semi-structured interviews and document studies were conducted with 15 respondents, including experts in Islamic finance, Shariah scholars, and Islamic finance practitioners, to collect the needed data for this endeavor. The findings indicate that interest-free banks, especially interest-free banking windows, do not give the necessary attention to the issue of the Shariah governance framework. The presumed manifestations of Shariah compliance in Ethiopia are having Shariah advisory committee, using Arabic words and names for their products and services, declaring they are following the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) standards, and participating in corporate social activities. However, these claims are insufficient to argue that their products and services are Shariah-compliant, as long as an external authorized body should oversight and control their application. In addition, the results indicate that adapting the AAOIFI standards to the extent of industry development is recommended to ensure Shariah compliance in Ethiopia. Besides, considering responsible stakeholders in ensuring Shariah compliance, government/NBE and financial institutions engaged in Islamic finance are identified as primary stakeholders. On the other hand, the Ethiopian Islamic Affairs Supreme Council (EIASC), religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions are considered secondary stakeholders. In addition, the findings also indicate that the policymakers' approaches of Türkiye, Malaysia, Kenya, and South Africa to the Islamic finance industry could be the best model for policymakers in Ethiopia. Establishing a centralized Shariah advisory committee under the NBE is recommended to ensure the compliance of interest-free finance applications with Shariah principles in Ethiopia. To this endeavor, all stakeholders such as government/NBE, financial institutions engaged in the Islamic finance industry, EIASC, religious scholars and institutional Shariah advisors, interest-free professional associations, academicians in Islamic economics and finance, and educational institutions should play a significant role by fulfilling their respective responsibilities.

Development and validation of a performance measurement system based on Islamic principles

The infamous malfeasance of corporate giants and the collapse of a financial system with global reverberations have further pressured the need for greater ethical discipline and consideration in business and finance. This study explored the motivations within firms as driven by their performance measurement systems (P.M.). Then, the study developed a newly proposed P.M.S. with greater ethical emphasis based on Islamic principles to be a foundation for augmented Sharia-compliant screening criteria for Islamic equities. Discourse analysis of the Islamic religious texts was used, followed by validation through interviews with scholars and practitioners. Results indicate that improving the current Sharia screening criteria is possible by expanding the qualitative and quantitative assessments to include indicators that consider shareholders, the board of directors and top management, business dealings and products, employee relations, community issues and environmental protection. This study has implications for regulators such as Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) and Sharia-compliant screening criteria users such as the Dow Jones Islamic Market (DJIM), Financial Times Stock Exchange (FTSE) and Standard and Poor's (S&P) that may consider expanding their current equity screening criteria which mainly depends on the issuer's business activity and narrow quantitative measures. This version: June 28, 2022.

The effect of compliance with AAOIFI standards on financial performance of Islamic banks

Purpose This research study aims to examine the effect of the compliance with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards on the performance of Islamic banks. Design/methodology/approach The sample consists of 628 bank-year observations from eight countries that adopt the AAOIFI standards during the period 2009–2020. Findings The findings reveal a significant positive relationship between the overall compliance level with AAOIFI standards and the two performance measures in Islamic banks. Practical implications The findings are useful for various groups of preparers and users of Islamic banks’ annual reports, such as academics and researchers, accountants, management of Islamic banks and national and international organizations. Originality/value This research provides new empirical evidence on the effect of compliance with AAOIFI standards (accounting and governance) on Islamic banks performance. In addition, the findings reveal that the examination of compliance level should not be restricted to an overall compliance index that contains all the AAOIFI standards, but should rather take into consideration the different types of these standards (accounting and governance).

The Adoption of AAOIFI Standards by Islamic Banks: Understanding the Microeconomic Consequences

This study seeks to measure the microeconomic consequences of the adoption of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards on the conservatism, financial performance (FP), and earnings management (EM) of Islamic banks (IBs). The study draws on data from 122 IBs across 22 countries over a period of eight years (2014–2021), using the generalised method of moments (GMM). The results indicate a positive impact of AAOIFI adoption on financial performance and conservatism compared to non-adopters. Our results further show that IBs that adopt AAOIFI are less involved in EM. After applying robustness checks (corporate governance, inflation, and mandatory adoption of AAOIFI in some countries), our results remain the same. The implications of the study are potentially valuable for those setting accounting standards (such as AAOIFI and International Accounting Standards Board (IASB)), central banks, financial market regulators, investors, governments, and any adopting or non-adopting Islamic financial institutions (IFIs) through identification of the effects of AAOIFI adoption.

Comparing the value-relevance of AAOIFI versus IFRS accounting numbers in the Takaful industry

PurposeThis study aims to compare the value relevance of accounting numbers prepared under the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards with those produced under the International Financial Reporting Standards (IFRS) for Takaful companies (TC).Design/methodology/approachThe authors assess the value relevance of accounting numbers using the Easton and Harris (1991) and Ohlson (1995) return and price models. They also use 54 insurance companies from 10 developing countries in Asia and the Middle East from 2006 to 2015.FindingsThe analysis shows that book value is significantly related to stock price under AAOIFI and IFRS. It also shows that TC adopting AAOIFI accounting standards have a more significant effect on stock price. This suggests that AAOIFI standards are more value relevant than IFRS.Practical implicationsTC and their stakeholders can use the findings to determine which accounting standards (IFRS or AAOIFI) produce the more relevant accounting information. This study is useful for investors that consider Islamic ethical practices to make their investment decisions for the standards-setting bodies that focus on establishing accounting standards for the Takaful industry.Originality/valueThe authors investigate a new aspect of the topic of value relevance. To the best of the authors’ knowledge, they believe this is the first paper examining the value relevance of TC’ accounting information prepared under AAOIFI and IFRS.

Further evidence on the effect of financial performance and governance on the Islamic banks' disclosure

PurposeThe purpose of this study is to investigate the effect of financial performance (FP) and governance on the accounting and auditing organization for Islamic financial institutions (AAOIFI) disclosure for the Islamic banks.Design/methodology/approachThe authors used the generalized least squares (GLS) estimation for 47 MENASA (Middle East, North Africa and Southeast Asia) Islamic banks (IBs) between 2012 and 2019. In this regression, disclosure is the endogenous variable. The performance and governance measures are the explanatory parameters. The authors use bank's size, leverage and age for control parameters. The robustness of results is verified via generalized method of moments (GMM) estimation method.FindingsThe findings indicate that performance measurement has weak effects on AAOIFI disclosure. Only the net interest margin (NIM) measure has a significant positive impact. The return of assets (ROA) and the return on equity (ROE) have a significant negative impact. Furthermore, all Shariah Governance measures have significant effects. Finally, the findings of this study support the governance's positive contribution to the disclosure in IBs.Practical implicationsThrough including the whole issues allied to AAOIFI and their impacts on the banks' value, this study provides a significant summary for IBs, policymakers, regulators, AAOIFI and connected authorities across countries. In addition, the findings linked powers between jurisdictions with recommendations on growing the present AAOIFI practices.Originality/valueThis paper offers an original contribution to the accounting professionals and stakeholders who investigate the relationship between disclosure, performance and governance. It is considered as a basis for future studies in the simultaneous relation between these variables. It is crucial for accounting professionals, researchers and stakeholders interesting in the financial disclosure (FD) in IBs.

Impact of Cultural and Environmental Factors on the Adoption of AAOIFI Accounting Standards in MENA Countries: Logistic Regression and Neural Networks

The purpose of this study was to investigate the effect of cultural and environmental factors on the decision of adoption of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in MENA countries. Precisely, we empirically diagnosed the impact of culture, the origin of the legal system, economic growth, the presence of National Shariah Council and the political freedom on the adoption of AAOIFI. Data from 44 countries belonging to the MENA region was used and compared between 26 countries adopting the standards of AAOIFI and 18 not adopting during the period 2007-2017. The paper used a Logit regression analysis to model the binary decision to adopt the AAOIFI or not. Additionally, neural networks were performed to test the robustness of the results of the logistic regression. We found that all macroeconomic factors affected the decision of adoption. Furthermore, the neuronal model showed that the level of education and the political freedom were the most important factors influencing the adoption of AAOIFI. Keywords: AAOIFI standards, culture, legal origins of law, political freedom, economic growth, logistic regression, neuronal networks.

Tahkim dalam Standar Syariah dan Urgensinya terhadap Penyelesaian Sengketa Ekonomi Syariah di Indonesia

The practice of sharia economics is growing and diverse, which has resulted in the emergence of various sharia economic disputes. This requires the development of alternative dispute resolutions, as has been done by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) by presenting Sharia Standards that specifically discuss tahkim. This paper aims to explain the provisions of tahkim in the Sharia Standards of AAOIFI and the urgency of resolving sharia economic disputes. Using the content analysis method by collecting various relevant references, this study found that various provisions must be met when carrying out a tahkim contract in the settlement of sharia economic disputes, including those relating to the pillars and requirements of tahkim, the object that is the authority of the tahkim contract, provisions for the appointment of judges, and the power of judges' decisions. The application of the tahkim contract in the settlement of sharia economic law disputes has several advantages, namely that it is fast, cheap, efficient, energy and thought-efficient, fair, and fulfills the benefits of the disputing parties, so the development and application of tahkim as an alternative economic dispute resolution is very important.