Journal of Islamic Accounting and Business Research

Emerald Article: The two Ws of Islamic accounting research Roszaini Haniffa, Mohammad Hudaib

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To cite this document: Roszaini Haniffa, Mohammad Hudaib, (2010),"The two Ws of Islamic accounting research", Journal of Islamic Accounting and Business Research, Vol. 1 Iss: 1 pp. 5 - 9 Permanent link to this document: http://dx.doi.org/10.1108/17590811011033370 Downloaded on: 12-02-2013 References: This document contains references to 8 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 3058 times since 2010. *

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Roszaini Haniffa, Mohammad Hudaib, (2010),"The two Ws of Islamic accounting research", Journal of Islamic Accounting and Business Research, Vol. 1 Iss: 1 pp. 5 - 9 http://dx.doi.org/10.1108/17590811011033370 Roszaini Haniffa, Mohammad Hudaib, (2010),"The two Ws of Islamic accounting research", Journal of Islamic Accounting and Business Research, Vol. 1 Iss: 1 pp. 5 - 9 http://dx.doi.org/10.1108/17590811011033370 Roszaini Haniffa, Mohammad Hudaib, (2010),"The two Ws of Islamic accounting research", Journal of Islamic Accounting and Business Research, Vol. 1 Iss: 1 pp. 5 - 9 http://dx.doi.org/10.1108/17590811011033370

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EDITORIAL

The two Ws of Islamic accounting research

Roszaini Haniffa
Bradford University School of Management, Bradford, UK, and

Islamic accounting research 5

Mohammad Hudaib
Nottingham University Business School, Nottingham, UK
Abstract
Purpose The purpose of this paper is to introduce the new journal and articles in the rst issue. Design/methodology/approach The paper attempts to introduce the journal by answering the two W questions what is Islamic accounting and why Islamic accounting research is important. In doing so, it indirectly highlights the need for a specialist journal like Journal of Islamic Accounting and Business Research ( JIABR) and the potential research areas. Findings Islamic accounting research is still at the infancy stage compared to Islamic banking and nance. One of the reasons is due to lack of exposure of research conducted in the area at international level, ending up with only a few issues getting attention. Similarly, the lack of a platform where researchers interested in the area could showcase the diverse range of research as well as network and get support on their research hindered the progress of research in this area. Hence, JIABR could be the leading journal in the area of Islamic accounting and business research if all papers related to it are channeled in this specialist journal. In this way, researchers in the areas of accounting and business would be more aware of the development and contemporary issues to take the research forward. Originality/value This paper is useful to new readers of the journal around the world who are interested but have limited knowledge in the area, and also those who wish to submit to the journal, in that it highlights some potential areas for research. Keywords Islam, Accounting, Accounting research, Auditing, Corporate governance Paper type Research paper

Introduction Welcome to the inaugural issue of the Journal of Islamic Accounting and Business Research ( JIABR). We are both pleased to be involved in the launch of this journal and to see the rst issue in print. As an international journal committed to encouraging and publishing quality work from researchers and practitioners around the world in the area of Islamic accounting and business, we believe JIABR will make an important contribution to the elds of accounting, nance and management. We hope for the journal to not only showcase the diverse range of research in this eld but also to provide researchers and practitioners a platform to discuss pertinent issues that has wider implications on various stakeholders. In this rst editorial, we attempt to introduce the journal by answering the two W questions: what is Islamic accounting and why Islamic accounting research is an important eld. In this way, we hope both readers and potential contributors would be able to appreciate the difference in the aim and scope of the journal compared to other journals in similar elds. We will also introduce the contents of this rst issue.

Journal of Islamic Accounting and Business Research Vol. 1 No. 1, 2010 pp. 5-9 q Emerald Group Publishing Limited 1759-0817 DOI 10.1108/17590811011033370

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What is Islamic accounting? The term Islamic accounting may be interpreted in many ways. Indeed, Napier (2009, pp. 123-4) highlights various meanings that can be attached to it:
First, Islamic accounting could be understood in a religious sense [. . .]. The term Islamic accounting can also have a temporal and spatial implication.

In a religious sense, Islamic accounting refers to a coherent body of ideas and practices based on the Islamic religion. Hayashi (1989, p. 42) denes Islamic accounting as [. . .] theory which thinks how it could allocate the resources justly [. . .] and Haniffa and Hudaib (2002, p. 8) dene it as an assurance function that seeks to establish socio-economic justice through its formalised procedures, routines, objective measurement, control and reporting in accordance with shariah islamiiah principles. From the two denitions, it can be discerned that Islamic accounting plays two important roles to: (1) provide assurance to users of accounting information through proper recordings and disclosure that transactions do not contravene sharia principles; and (2) ensure that resources are allocated fairly through proper measurements and recognition of assets, liabilities, revenues, and expenses. The word sharia comes from an Arabic word that literally means the way or the path to the water source. In the context of Islam, sharia refers to the clear and straight path that would lead humans to al-falah happiness in this world and in the hereafter. Sharia principles are derived from two main sources: the Quran, which is considered by Muslims to be the exact words of revelation from God to Prophet Muhammad, and the Sunnah (the acts and sayings of the Prophet as transmitted through traditions known as Hadith). Sharia places great emphasis on the issue of measurement because they are related to distribution of wealth. It is stated in the Quran:
Woe to those that deal in fraud - those who, when they have to receive by measure from men, exact full measure, but when they have to give by measure or weight to men, give less than due (Al-Mutafn 83:1-3).

As an assurance mechanism, keeping proper records is deemed important as part of the fair determination of rights and obligations:
O ye who believe! when ye deal with each other, in transactions involving future obligations in a xed period of time, reduce them to writing and Let a scribe write down faithfully as between the parties (Al-Baqarah 2:282).

Closely related to the assurance function is the concept of accountability (masuliyyah), which is broader than that present in Western societies (Baydoun and Willett, 1997). In Islam, primary accountability is to God as all of ones actions (good and bad deeds) in life will be accounted for on the Day of Judgement:
Allah takes careful account of all things (An-Nisa 4:86).

The fear of God in private and in public should help in establishing justice, and empowering the rightful owner to know, demand and receive his rights as well as deter

those entrusted with power from abusing their position in overseeing socio-economic justice:
O ye who believe! Fear Allah, and (always) say a word directed to the right (Al-Ahzab 33:70).

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In short:
Islamic accounting from a religious sense will have implications on the practice of accounting and the conduct of accountants as well as other related parties such as the Shariah supervisory board, audit committees, investment analysts, regulators, trustees, etc. in various Islamic nancial institutions.

On the other hand, as suggested by Napier (2009, p. 124), the temporal and spatial meaning of Islamic accounting may imply accounting in parts of the world where Islam is the majority religion during periods when Islam has been dominant and it could also mean the current practice of accounting in Islamic countries. In this sense, Islamic accounting refers to issues related to how accounting is being practiced by Muslim societies in different parts of the world at different time. Therefore, given the various possible interpretations of Islamic accounting, JIABR welcomes papers not only on accounting, auditing, and corporate governance but also capital market-based research that uses accounting numbers. It also welcomes papers on historical research into Islamic accounting and economic activities during the Golden Age of Islam and current accounting and business practices in Islamic countries. Why Islamic accounting research is important? All accounting activities will have an impact on the welfare of society in one way or another, i.e. having social-economic consequences. The emergence of Islamic banks as a signicant force in several countries in the late-1970s has prompted researchers to consider the accounting implications. Islamic accounting is almost unheard of until Abdel-Magid (1981) in his seminal paper highlighted the need for accounting practices based on sharia principles to cater for Islamic banks that began to emerge at that time. The growth of Islamic banking in the early 1990s resulted in more scholarly research into Islamic accounting but they are either not written in English, and the English-language literature tends to be published in non-mainstream accounting journals (Napier and Haniffa, 2010)[1] or the internet. The early researchers raise many important issues, e.g. the need of a framework for Islamic accounting, accounting policy choice, corporate reporting, need for Islamic accounting regulations, etc. but did not get the attention they deserve as they got buried among the huge accounting literature and also hidden within their local domain and not getting international exposure. When Islamic nancial institutions (IFIs) entered the period of going global and offering more innovative nancial products in the last ve to six years, it attracted the attention of researchers interested in knowing this alternative model of business without interest. As a global player, IFIs need to compete and offer products that the market would be interested in. Various Islamic juridical concepts were applied to give them an Islamic appearance (Tripp, 2006), hence the use of the term sharia-compliant rather than sharia-based. The products offered start replicating their conventional counterparts which used complex schemes of nancial engineering often by getting around accounting standards, loading hard to understand numbers in the nancial

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statements and unloading risks off balance sheet. The sophisticated structures of the contracts may well serve the sharia compliance aspect but not much thought nor attention given to the accounting aspects. It is difcult to accept that all is well with nancial modeling when the conventional model has proven its weakness in the nancial crisis. Hence, Islamic accounting research is important and needs to develop in tandem with the development of new Islamic nancial structures. Accounting systems are embedded in a countrys economic and legal framework, much of which is shaped by political processes (Leuz et al., 2005). The politics of accounting suggest that all parties that can impact or be impacted by accounting activities will lobby to protect their own interest. Hence, it is not surprising to nd Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the standard setting body for IFIs, being caught up in the political process. There are many economic and political questions that need answers: for instance, how can Islamic accounting standards be enforced; what is the role of auditing for IFIs; how does lobbying affect the political process of standard setting for IFIs, etc. From the brief discussion above, there is no doubt that Islamic accounting research is important not only due to development of IFIs that gave rise to many accounting, auditing, and governance questions that beg answers but also its potential in providing alternative measures and solutions through sharia principles to overcome some of the weaknesses of the conventional model in the recent nancial crisis. Contributions in this inaugural issue We now turn to the articles in this inaugural issue. We are delighted that the four articles in this issue demonstrate the diverse range of research papers that JIABR wishes to publish to raise awareness and to encourage debates among researchers on issues that have signicant implications on various stakeholders. The rst two papers address AAOIFIs accounting standards FAS 6 and FAS 17. In the rst paper, Simon Archer, Rifaat Karim and Vasudevan Sundararajan tackled a vital issue on how to measure and manage the risk characteristics of one of the major sources of funding of IIFS, prot sharing investment accounts (PSIA). They provide a methodology to estimate alpha, which is the fraction of the assets funded by PSIA included in the denominator of the capital adequacy ratio. The value of alpha has signicant implications for asset-liability management, product pricing, and optimal capital structure for Islamic banks. The next stage is to test it using data from IIFS but this could only be done if such data are disclosed. The second paper by Bill Maurer addressed an important point on the politics of accounting. Bill highlights how lobbying affects the political process of accounting standard setting bodies, specically the position of AAOIFI, using recent sukuk issuances as examples. Bill raises interesting questions in the paper related to one particular AAOIFIs accounting standard FAS 17. The challenge for other potential contributors is to scrutinize the impact of other accounting standards on the nancial statements of IFIs. The next two papers are related to investments. The paper by Mervyn Lewis described the status quo of Islamic investment funds. Mervyn highlights the differences in the screening and purication process adopted by different Islamic indices and how the over-emphasis on the prohibitions and neglecting the other positive aspects limits the opportunities to reach other ethical investors. Mervyn proposed a number of

recommendations on how Islamic funds can raise their prole and enhance their global reach. Given the increasing attention on climate change and sustainability, Islamic funds have much to offer to investors and more research is needed in this area. The fourth paper by Ruzita Abdul Rahim and Othman Yong is an empirical study comparing initial return patterns of sharia and non-sharia compliant status of Malaysian IPOs and conclude that the returns are driven by the size and type of offers in the case of the former, and by risk, for the latter. We trust there is much in this inaugural issue to inspire future researchers and potential contributors and we look forward to receiving your contributions. We hope you enjoy reading this issue!
Note 1. This book is a collection of some of the most signicant English-language contributions to the literature of Islamic accounting classied under six themes: conceptual framework of Islamic accounting, accounting ethics and social responsibility, corporate reporting, accounting practice and zakah, and auditing and Islamic history of accounting. Also see Napier (2009) for review of early research in Islamic accounting. References Abdel-Magid, M.F. (1981), The theory of Islamic banking: accounting implications, International Journal of Accounting, Vol. 17 No. 1, pp. 79-102. Baydoun, N. and Willett, R. (1997), Islam and accounting: ethical issues in the presentation of nancial information, Accounting, Commerce & Finance: The Islamic Perspective Journal, Vol. 1 No. 1, pp. 1-25. Haniffa, R. and Hudaib, M. (2002), A theoretical framework for the development of the Islamic perspective of accounting, Accounting, Commerce and Finance: The Islamic Perspective Journal, Vol. 6 Nos 1/2, pp. 1-71. Hayashi, T. (1989), On Islamic Accounting: Its Future Impact on Western Accounting, The Institute of Middle Eastern Studies, International University of Japan, Minami Uonuma. Leuz, C., Pfaff, D. and Hopwood, A. (2005), The Economics and Politics of Accounting: International Perspectives on Research Trends, Policy, and Practice, Oxford University Press, Oxford. Napier, C. (2009), Dening Islamic accounting: current issues, past root, Accounting History, Vol. 14 Nos 1/2, pp. 121-44. Napier, C. and Haniffa, R. (Eds) (2010), Islamic Accounting, Edward Elgar, Cheltenham. Tripp, C. (2006), Islam and the Moral Economy, Cambridge University Press, Cambridge. Corresponding author Roszaini Haniffa can be contacted at: r.haniffa@bradford.ac.uk

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