Beruflich Dokumente
Kultur Dokumente
com/my
Shariah Audit:
industry insights
Malaysia continues
to strive towards
Best Practices in
the global Islamic
financial services
industry.
Contents
04 Foreword
22 Moving forward
25 Contact us
26 Useful references
2 PwC 2011
Shariah Audit: industry insights 3
Foreword
Over the last decade, Malaysia When it was implemented in
has made bold and progressive January this year, we ran a Shariah
strides to advance as a major audit survey to better understand
Islamic Finance hub. current Shariah audit practices and
to identify areas where our IFIs
The development of Islamic can improve. The survey results
Finance in Malaysia has been indicate that there is a strong
supported by firmly established need to expand the talent pool of
financial institutional structures Shariah auditors, to enhance the
and a robust regulatory comprehensiveness of Shariah audit
framework. Among the recent coverage and to improve Shariah
regulatory building blocks audit methodologies, including risk
implemented by Malaysia’s central management.
bank, Bank Negara Malaysia is the
Shariah Governance Framework We hope this publication will
for Islamic financial institutions offer good insights on IFI’s current
(IFIs). Shariah audit practices, challenges
and what Shariah governance
A key pillar of the Shariah best practices can be effectively
Governance Framework is the implemented.
Shariah audit – it has a vital role in
providing public assurance on
the governance of Shariah
products and services.
Mohammad Faiz Azmi
Islamic Finance Leader
PwC Malaysia
4 PwC 2011
Islamic
finance in Globally, Islamic finance Within this fast growing global
Islamic finance (IF) community,
Malaysia has fast developed into Malaysia has emerged as a leading
a significant alternative hub. Benchmarked against other IF
financial services centres in the world, Malaysia has
the:
industry with over
• largest Islamic capital market for
300 Islamic financial both sukuk and Islamic equity
institutions (IFIs) and • second largest Islamic unit trust
(mutual fund) and takaful market
an industry asset size of
• second largest IF education
more than USD1 trillion. provider, and
• third largest Islamic banking
market.
6 PwC 2011
1983 2003
Islamic Banking Act (IBA) 1983 Bank Negara Malaysia (BNM) BNM guidelines on Introduction
was enacted in Malaysia. The guidelines on Outsourcing of of New Products.
first full-fledged Islamic bank Islamic Banking Operations. (18th May 2009)
was established in Malaysia. (23rd June 2003)
BNM guidelines on Introduction
1984 2004 of New Products for Insurance
Takaful Act 1984 was enacted BNM guidelines on Directorship Companies and Takaful
to provide regulation for for Takaful Operators. Operators. (1st July 2009)
Takaful business in Malaysia. (8th November 2004)
2010
1996 2005 Launch of the new Shariah
Amendment to Section 124 BNM guidelines on the Governance Framework by BNM.
of Banking and Financial Governance of Shariah (effective 1st January 2011)
Institution Act (BAFIA) Committee for Islamic Financial
allowing conventional banks Institutions. BNM guidelines on Internal
in Malaysia to offer Islamic (1st April 2005) Audit Function of Licensed
banking products through Institutions. (1st July 2010)
Islamic windows. BNM guidelines on Financial
Reporting for Licensed Islamic BNM guidelines on Financial
1998 Banks.(1st July 2005) Reporting for Takaful Operators.
Interest-free Banking Scheme (23rd December 2010)
(SPTF) was upgraded to 2007
Islamic Banking Scheme BNM guidelines on Corporate 2011
allowing conventional banks Governance for Licensed Islamic By 30 June 2011, IFIs are
to open full-fledged Islamic Banks. to comply with the Shariah
banking subsidiaries. (24th January 2007) Governance Framework.
8 PwC 2011
Chart 1: Shariah Governance Framework model for IFIs
Shariah as overarching
principle in Islamic Finance
10 PwC 2011
Chart 2: Shariah audit approach - three levels
1. 2. 3.
Audit of IFIs’ Compliance audit Review on
financial on organisational adequacy of
statements structure, people the Shariah
and processes governance process
Survey background
After the announcement The survey, conducted
of Malaysia’s new Shariah over November to December
Governance Framework in 2010, was segmented into five
October 2010, PwC ran a survey areas:
of 15 Malaysian-based IFIs
(including foreign financial • Organisational readiness
institutions) on current Shariah • Talent pool and
audit practices. competencies
• Working practices
• Communication
• Technology
12 PwC 2011
Survey objective Survey timings
To review, analyse and provide 12 November to 31 December 2010.
insights on current and future
practices of Shariah Governance Respondents profile
by IFIs in response to the new SGF. 10 of the 15 IFIs representing 67% of
Malaysian-based FIs responded:
Survey methodology and sample • Three full-fledged Islamic banking
Semi-structured questionnaires institutions (standalone)
were forwarded to Chief Internal • Six full-fledged Islamic banking
Auditors or Heads of internal audit subsidiaries
(including Shariah audit) units/ • One bank with license to operate
departments of the Malaysian- Islamic windows
based IFIs.
Target respondents were Chief
Internal Auditors of the IFIs.
60%
Full fledged IB 30%
subsidiaries Full fledged IBs
14 PwC 2011
Strategy, roles and
responsibilities
The majority or 80% of respondents As Shariah auditors have a unique role and
agree that the Shariah audit strategy is position in the operational assessment of
designed to fulfill a Shariah compliance banks, their role in providing feedback on
role. But only 60% agree that the strategy can be enhanced. Shariah auditors
Shariah audit strategy is designed to can add more value to the organisation by
fulfill a Shariah consultative role. providing consultative recommendations
which enhance the Shariah audit
processes.
Disagree 20%
Strongly disagree
10% 10%
60%
Need to expand Agree
knowledge
competencies Chart 7: Professional development and training
In terms of professional Our Shariah audit staff Our Shariah audit staff
development and training, are adequately trained in are adequately trained in
banking operations and Shariah-related audit risks
there appears to be a need financing products and issues
to enhance knowledge of
Shariah-related audit risk Strongly Agree 20% 10%
and issues.
Disagree 20%
Not Applicable
Scope
While 60% of respondents Chart 8: The scope of Shariah audits are comprehensive enough
indicated that the scope of to cover all the relevant processes in the bank
Shariah audits are comprehensive
20%
enough to cover all the relevant Strongly Agree
30%
processes in their financial
Disagree
services, a significant 30% of
respondents disagreed.
10% 40%
Not Agree
Applicable
Survey responses also Chart 9: Areas that are covered in the scope of the Shariah audit
indicate a number of areas
which lack coverage in Which areas are covered in the scope of Percentage of Respondents
the Shariah audit?
Shariah audits. A particular YES NO N/A
area of concern is risk Financing
management. Credit admin
Treasury 90% 0% 10%
Treasury operation
The scope Settlements/disbursements
of Shariah Finance
60% 30% 10%
audits needs Shariah fatwa process
Human Resources 50% 40% 10%
to expand to Recovery 80% 10% 10%
cover all aspects Legal 70% 20% 10%
70%
Agree
When presented with a list Source: PwC Shariah Audit Survey, December 2010
of events which may lead to
Shariah non-compliance risk, Chart 11: Specific type of Shariah risk events which the
most IFI respondents agree audit is designed to address
that these events have been
Please describe the specific type of Percentage of Respondents
adequately addressed in the Shariah risk events which the audit is
YES NO N/A
Shariah audit process. designed to address
However, the role of Shariah Shariah approval of financing products
risk in the risk management Trade sequencing
framework can be improved.
Legal agreements and product
90% 0% 10%
documentation
Shariah audit Valid commodity vendors
coverage in the Staff awareness on Islamic Finance
70%
Agree
The majority of respondents Chart 13: To identify the level of involvement of the Shariah scholars
do not perceive that the Shariah in the Shariah audit as being practiced in the bank, a closed-ended
scholars have significant involvement question was put forward
in the Shariah audit process – this What is the level of involvement of the Percentage of Respondents
is an interesting point as Shariah Shariah scholars in the Shariah audit?
YES NO N/A
committee members are expected to
Provide general guidance and strategy
sign the Shariah audit opinion and it 20% 70% 10%
during the audit planning stage
is reasonable to expect that they have
Facilitate the audit fieldwork process
significant involvement in this area. (e.g. perform inquiry, observations on
behalf of Shariah auditors) 10% 70% 20%
Shariah scholars’ Assist in the preparation of audit report
involvement in and help recommend action plans
Review audit report and perform follow
the Shariah audit up queries with management
30% 50% 20%
20%
For an Not Applicable
effective 30%
Shariah Yes
Governance
process, the
Shariah 50%
dispute No
resolution
process should
be further Source: PwC Shariah Audit Survey, December 2010
developed
20 PwC 2011
Technology
IT system
While 70% of respondents agree the bank’s
IT systems are sufficient to assist them in
assessing data and information to complete the
audit process, some 20% disagree.
10%
IT systems Not Applicable 20%
Disagree
can be
improved 20%
Strongly
to provide Agree
Shariah
auditors with
50%
necessary Agree
information
to perform the
audit Source: PwC Shariah Audit Survey, December 2010
22 PwC 2011
Survey - current state of
Shariah audits, and next steps
The result of this survey indicates Enhancing Shariah audit With the rapid
the need to expand the talent methodology
pool and roles of Shariah • Need for a structured and expansion of
auditors, and having a structured methodical approach to Islamic finance,
Shariah audit methodology. Shariah audit.
• Improve coverage of risk it is integral for
Expanding talent and roles management and legal aspects. the IFI industry
• Need to expand the talent pool
of Shariah auditors. Moving forward, senior to maintain its
• Need to enhance the role of
Shariah auditors in adopting
management need to ensure
sufficient investments are made
distinctiveness.
a consultative approach and in increasing the talent pool and
add value to Shariah audit knowledge base for Shariah audits
processes. to be performed effectively.
A robust Shariah
Governance
Audit framework
will help make
this possible.
24 PwC 2011
Contact us
PwC Malaysia
Level 10, 1 Sentral
Jalan Travers
Kuala Lumpur Sentral
P O Box 10192
50706 Kuala Lumpur
Malaysia
26 PwC 2011
www.pwc.com/my
© 2011 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” and/or “PwC” refers to the individual members of the
PricewaterhouseCoopers organisation in Malaysia, each of which is a separate and independent legal entity. Cs03866
28 PwC 2011