Organization For Islamic Financial Institutions Research Articles

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.

Financing and returns of Shari’ah-compliant contracts and sustainable investing in the Islamic banking of Oman

The present study used quarterly data from 2014 to 2020 to analyse the financing and returns of Shari’ah-compliant contracts in Oman based on murābahah, ijārah muntahia bittamlīk and wakālah Islamic banking tools and their relationship to sustainable investing, which was measured using three pillars of governance: capital adequacy, asset quality, and risk sensitivity. The autoregressive distributed lag (ARDL) model results revealed significant negative short- and long-run relationships between the financing and returns of Shari’ah-compliant contracts and sustainable investing in Islamic banking in Oman, which was measured by asset quality, capital adequacy, and risk sensitivity except there was a significant positive long-run relationship between the financing of Shari’ah-compliant contracts and capital adequacy in the short run. Additionally, insignificant long-run relationships existed between the financing of Shari’ah-compliant contracts and capital adequacy. The study’s main conclusion is that Shari’ah governance practices in Oman may ensure and support asset quality and the capital adequacy ratio. Furthermore, the findings indicated that the capital-to-risk weighted assets ratio protects depositors and promotes financial comprehensive systems’ stability, credibility, and efficiency. The study’s main recommendation is that Oman should increase Islamic banking assets and enhance the legal and regulatory system to promote the development of Islamic banking services that are compliant with the standards of the Islamic Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions.

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).

Le operazioni sul mercato di debito nel sistema finanziario islamico: il caso dei sukuk

Debt market transactions in the Islamic financial system:the case of sukuk
 ABSTRACT: In recent years, the secondary market for sukuk has been booming with growth rates ranging between 10-12%. In this paper we intend to analyze the structure of investment certificates that comply with the rules and economic principles of the Shari'ah. The markedly legal aspects of this instrument are therefore highlighted, first outlining the general structuring of Islamic certificates, and secondly, analyzing the operational profiles of the different types of sukuk most widespread on the Shari'ah compliant market. Finally, the guidelines issued by the Accounting and Auditing Organization for Islamic Financial Institutions on the subject are examined and the essential features of difference between the sukuk and conventional bonds are analyzed from a comparative point of view. The finale highlights the unexpressed potential of sukuk, recalling the best strategies for expanding Islamic investments. The primary objective is to raise the awareness of the relevant financial authorities, which appear disinterested in the Islamic financial market despite the resilience of this segment even during the Covid-19 pandemic.

Saudi Banks Level of Compliance with Accounting Standards of Accounting and Auditing Organization for Islamic Financial Institutions

Saudi Banks Level of Compliance with Accounting Standards of Accounting and Auditing Organization for Islamic Financial Institutions

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.

Sharia governance standards and the role of AAOIFI: a comprehensive literature review and future research agenda

PurposeThe purpose of this study is to investigate the role of Auditing and Accounting Organization for Islamic Financial Institution (AOIFI) governance disclosure on the performance of Islamic financial institutions (IFIs) through systematic literature review approach.Design/methodology/approachThis study is based on the review of literature related to the AAOIFI accounting standards downloaded from Scopus database. This study includes review of 126 research articles, 10 review papers, 9 book chapters and 5 conference papers related to different roles played by AAOIFI in providing standards for accounting, auditing, governance and ethics for global IFIs.FindingsThe findings of this study suggest that AAOIFI has played a critical role in developing the accounting standards for the IFIs and contributed positively to the overall growth of the Islamic finance industry.Practical implicationsAAOIFI has played a critical role in issuing and development of accounting and auditing standards and has contributed positively to the financial performance of IFIs. Research gaps are identified, and there is a need to work on these gaps.Originality/valueThis study will contribute to the understanding the role of AAOIFI in issuing and development of accounting and governance standards and future research agenda based on a thorough review of literature.

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.

Collaborative Technology Commercialization in Malaysian Public Universities: Gaps and Solutions in Classical Shariah Frameworks

With the motivation to improve the commercialization rate of Malaysian public universities, this study aims to explore the collaborative elements found in the classical Shariah frameworks that can be adopted to develop a dynamic collaborative technology commercialization framework. To answer this question, literature review was conducted on commercialization strategies and frameworks, and collaborative elements in classical Shariah frameworks. Apart from modern literatures, the historical accounts of Ibn Khaldun in The Muqaddimah, the jurisprudence on partnerships during the Ottoman Empire in The Al-Majalla, and Shariah Standards for Mudarabah and Musharakah in The Accounting and Auditing Organization for Islamic Financial Institutions were also reviewed. This study finds that the protective approach in the Intellectual Property (IP) strategy commonly adopted by the Malaysian public universities limits the success and increases the gap in commercialization. Furthermore, there is a concern on the high redundancy and coordination cost of collaboration. It was found that IP strategies based on openness and connectedness offers solutions to the issues identified. This study also highlights the collaborative frameworks in Mudarabah, Musharakah and Shariah partnership structures that the universities can use that provide a clear collaboration outcome. In addition to the alternative frameworks, the parties involved also need to upskill in monitoring and managing commercialization in the best and most efficient way to fulfill commercialization in Malaysia, as captured in the Twelfth Malaysia Plan. The outcome of this study seeks to provide Malaysian public universities with a guideline in enhancing collaborative technology commercialization.

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.

Adoption of the COSO methodology for internal Sharīʿah audit

PurposeIslamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all relevant IFI regulations are in line with Sharīʿah rules and principles. Effective implementation of the Shariīʿah-compliance function will further promote stakeholder confidence, as well as the integrity of IFIs, by reducing Shariīʿah non-compliance risks. This study aims to examine the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and explore the extent to which it can be incorporated in the Sharīʿah-compliance function of IFIs.Design/methodology/approachThis study adopts a qualitative method of inquiry, utilizing the inductive method and content analysis to build comprehensive knowledge that will assist in exploring the framework of COSO methodology and the extent to which it can be adopted by IFIs.FindingsThe findings indicate that the existing frameworks of Sharīʿah governance, whether that of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or Bank Negara Malaysia (BNM), need to be further developed. Therefore, the adoption of COSO methodology in the internal Sharīʿah audit of IFIs, as suggested by AAOIFI, is not only possible but desirable. The study also finds that the COSO framework places the highest priority on risk management in that it makes it an integral part of the decision-making process in all the institution's activities. As a result, incorporating the comprehensive COSO risk management structure within the Sharīʿah-compliance function will enhance risk management in IFIs.Originality/valueThis study highlights the importance of the COSO internal control framework and examines its components, principles and the possibility of its adoption by IFIs. The findings of this study are expected to contribute to enhancing the Sharīʿah-compliance function of IFIs.

Communicated ethical identity disclosure (CEID) of Islamic banks under the AAOIFI and IFRS accounting regimes: a global evidence

PurposeThis paper aims to assess the ethical disclosure of Islamic banks (IBs) under different accounting regimes and to ascertain whether the adoption of an Islamic accounting standards (Auditing Organization for Islamic Financial Institutions [AAOIFI]) promotes the practice of ethical disclosure.Design/methodology/approachAn ethical identity disclosure index was developed to serve as a benchmark to assess the level of the communicated ethical identity disclosure (CEID) of 47 IBs over 18 countries using annual reports.FindingsThe findings suggest that, overall, there is poor ethical disclosure practices and even banks that had some initiatives towards disclosures had no proper reference to benchmark for effective implementation of ethical reporting standards and had no plans for ethical and socially responsible schemes. There was no evidence to suggest that IBs that adapted the religious-based accounting regime (AAOIFI) had better levels of ethical disclosure.Research limitations/implicationsThough poor practices of CEID are expected to increase reputational risks and the likelihood of loss of religious conscious customers and investors’ confidence and therefore market share and performance in the long-term, the current practice does not concur with this expectation. Furthermore, since there is no evidence to support the notion that the adoption of AAOIFI standards would support greater initiatives towards level of ethical identity disclosures, a mandatory requirement for effective disclosure through enforcement of AAOIFI’s financial reporting standards, specifically with regard to ethics and social and environmental commitment is needed.Practical implicationsIn addition to introducing commonly accepted regulatory and supervisory guidelines and best practices that cater for the specificities of Islamic banking could significantly improve the level of CEID of IBs. In addition, the standardization of ethical (non-financial) reporting practices of IBs through guidelines and key performance indicators will facilitate CEID practices of IBs.Originality/valueThis paper contends that for Islamic bankers, ethics is an entrenched part of the business practice and should mitigate unethical behaviour, more so with the additional filter of Sharīʿah supervisory boards. Even if there are such practices due to ineffectiveness of Sharīʿah committees, management pressure to meet performance expectations and competitive pressures from peers in the conventional banking sector, it will not be in the interest of the banks to report them.

Audit committee characteristics and compliance by Islamic banks with AAOIFI accounting standards

This study examines the effect of audit committee characteristics (size, independence, and expertise) on compliance with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI's) Financial Accounting Standards (FASs). Our sample consists of 372 bank-year observations from 2009 to 2015. Using panel regressions, our results provide evidence that compliance with AAOIFI's FASs is positively influenced by audit committee size. However, audit committee independence does not affect the compliance level. With respect to audit committee expertise, we find a positive and significant association between compliance with AAOIFI's FASs and accounting financial expertise. Moreover, our results reveal that audit committee members with accounting financial and culture expertise are positively and significantly associated with the level of compliance with AAOIFI's FASs. Interestingly, our finding suggests that an audit committee member with a combination of culture expertise (expertise in Islamic banking) and accounting financial expertise better improves the compliance level than an audit committee member with only accounting financial expertise.

Pengaruh Size, Return On Asset dan Leverage Terhadap Islamic Social Reporting (Studi Empiris pada Bank Umum Syariah di Indonesia Tahun 2015-2019)

Islamic Social Reporting Is a standard for reporting corporate social performance based on Islamic sharia. Born from reporting standards based on AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) an international Islamic financial regulatory institution which was later developed in various countries. In particular, this index is an extension of social performance reporting standards, not only the role of companies in a country's economy but also public expectations about social justice related to the environment, minority and employee rights and the role of companies from a spiritual perspective. There are several factors that influence Islamic Social Reporting, including company size, company profitability and company debt. Based on the results of the study, it can be concluded that partially, first, variable size has a positive influence on Islamic Social Reporting for Islamic Commercial Banks in Indonesia. Second, Return on Assets has no effect on Islamic Social Reporting for Islamic Commercial Banks in Indonesia. Third, Variable Leverage has an influence on Islamic Social Reporting for Islamic Commercial Banks in Indonesia. Meanwhile, the simultaneous issuance of Size, Return on Assets and Leverage has a positive and significant impact on Islamic Social Reporting for Islamic Commercial Banks in Indonesia.

Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks

PurposeRelying on the agency theory and the financial intermediation theory, the purpose of this paper is to examine to what extent risk governance would improve corporate governance and risk management effectiveness. The paper especially investigates the mediating role that would have the risk governance mechanisms in explaining both of the following relationships: the corporate governance–the banks’ performance, and the risk management–the banks’ performance.Design/methodology/approachThis research uses the Baron and Kenny’s (1986) approach to investigate the mediating effect of risk governance; besides, the study refers to structural equation modeling in carrying out the appropriate panel regressions. The data collection was based largely on Bank scope Database, but some missing qualitative data were gathered manually from the banks’ annual reports available on the banks’ websites.FindingsThe study findings illustrate the significant role of risk governance mechanisms in improving both corporate governance and risk management’s effectiveness. Especially, this paper finds that risk governance is fully explaining the corporate governance–bank performance relationship, but risk governance would explain partially the risk management–bank performance relationship. Further, findings suggest that the internal corporate governance mechanisms seem to be more relevant than the external ones in improving the sample bank performance, and that risk management mechanisms seem to impede rather the sample bank performance.Practical implicationsThe findings would make an important contribution to the current debate on the need to reinvent the optimal organization of the bank’s board and directorates and would allow readers to develop more cost-effective governance and risk-management thinking. Besides, the findings may help bank deciders and boards to rationalize costs and to focus only on the relevant corporate governance and risk management mechanisms. Finally, findings might illustrate to regulatory instance the importance of recommending risk governance in their coming corporate governance guidance.Social implicationsThe global credit crisis of 2008 caused significant difficulties to financial institutions, so it would be worth enlightening practitioners and policymakers, even regulators, on the importance of considering the level of potential risk and risk monitoring as a key component in the decision-making process, to strengthen the stability and resilience of banks in an increasingly uncertain environment.Originality/valueThe issues raised in the paper are important in that Islamic banking is an integral part of the global banking and finance industry. This paper extends the knowledge of the potential importance of the new concept of risk governance with specific reference to Islamic banking industry peculiarities. It also provides a telling illustration of the need for the enhancements of the Basel Committee’s prudential requirements as well as the accounting and auditing organization for Islamic financial institutions and Islamic Financial Services Board set out especially regarding the consideration of risk in the strategic decision process.

Conformity of Islamic Banks with AAOIFI Standards for General Presentation and Disclosure in Turkey and Bahrain

Islamic (participation) banks in Turkey are required to apply international accounting standards in their accounting and reporting practices, while their counterparts in Bahrain apply the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards. The main objective of this paper is to reveal the relation between Islamic and international accounting standards, discussed in previous studies, by comparing the compliance to AAOIFI accounting standards by Islamic banks in both Turkey and Bahrain. The source of information in this study is secondary data provided in the annual reports of the Islamic banks in Turkey and Bahrain for the year 2017. In order to measure compliance, an unweighted disclosure index was used. The outcomes of this study show that, since AAOIFI accounting standards are compulsory in Bahrain, the level of compliance with AAOIFI standards in relation to general presentation and disclosure in the financial statements of Islamic banks in Turkey is lower than the compliance achieved by their counterparts in Bahrain. Due to the average compliance level achieved by Islamic banks (using the unweighted disclosure index) in Turkey (54.6%), and since all banks in Turkey apply international financial reporting standards and international accounting standards, it is found that there is a relation between AAOIFI and International Accounting Standards Board standards even though they are different. Surprisingly, in the case of Bahrain’s Islamic banks, the standard deviation of the total compliance score is 8.66, which indicates an important difference among the Islamic banks in Bahrain in this regard. It is also found that the current practices of participation banks in Turkey do not adequately meet the financial statements and disclosure standards in accordance with the AAOIFI.

Characteristics of Islamic Corporate Social Responsibility (ICSR) Disclosures

The company’s CSR activities illustrate that, in addition to carrying out its operational activities, the company is also responsible for the sur-rounding environment. This sharia-based social performance reporting is assessed based on the sharia index developed by AAOFI (Accounting and Auditing Organization for Islamic Financial Institutions). The purpose of this study was to determine the effect of public share ownership, firm size, leverage, profitability, and corporate governance on the disclosure of Islamic Corporate Social Responsibility (ICSR). The sample was taken from 12 sharia companies registered in the Jakarta Islamic Index (JII) for the 2015-2020 period using a purposive sampling technique. The data were analysed using panel data regression analysis through the EViews 11 application. Firms and profitability affect Islamic Corporate Social Responsibility (ICSR) disclosures, and public share ownership has a negative effect on ICSR disclosures, while leverage and corporate governance variables do not affect Islamic Corporate Social Responsibility (ICSR) disclosures. Based on the results of this study, it is expected that elements in corporate governance can carry out their duties and responsibilities in carrying out their duties so that ICSR disclosure is carried out better.