Issues and Challenges of Shari’ah Audit in Islamic Financial Institutions: A Contemporary View
Proceedings of 3rd International Conference on Business and Economics Research, 2012
11 Pages Posted: 14 Nov 2012
Date Written: March 10, 2012
The Islamic Banking and Finance is said to be the alternative to the conventional finance and banking system. Although it has been around for slightly more than forty years, the tremendous growth in Islamic Finance has seen the assets under management by the Islamic Financial Institutions (IFIs) have exceeded one trillion US Dollars. Inevitably, a proper system of audit is envisaged for the IFIs to continue growing and providing assurance that they are strictly following the shari’ah in all aspect (of their products, rules and procedures and contracts). Hence, failure to give reasonable assurance will dampen the objectives of the IFIs and the achievement of maqasid al shari’ah. This paper is trying to provide a contemporary view on the issues and challenges of shari’ah audit in IFIs. It looks at the actors in Islamic finance especially the shari’ah auditors, the regulators and standard setters and the Shari’ah Supervisory Board (SSB). Furthermore, the paper highlighted four of the pressing issues and challenges as discussed in extant literature on auditing in IFIs. This paper is trying to promote the institutions of Hisbah as one the possible solutions to the issues of shari’ah auditor’s independence and accountability. This paper also touches on the issue of lack of competency among the shari’ah auditors. This paper concludes that the IFIs are in dire needs of independent and accountable shari’ah auditors with high level of competency. History tells us that the institution of Hisbah has played a major role in ensuring the market comply to the shari’ah requirements and it is possible to revive this institution and improvised on its structure and mechanism not just to give reasonable assurance but to be very sure that the IFIs are shari’ah based.
Keywords: Shari’ah auditors, Islamic Financial Institutions, Shari’ah Supervisory Board, Hisbah, muhtasib
JEL Classification: M42
Suggested Citation: Suggested Citation