Audit Issue of Islamic Banking

Top 20 FREQUENT WORDS

shariah 96 islamic 61 compliance 59 ansari 48 ford 48 hyder 48 mustafa 48 partner 48 rhodes 48 sidat 48 omar 47 presentation 47 financial 42 institutions 26 audit 23 auditor 22 review 22 shari 20 issues 18 finance 17

DOCUMENT KEY POINTS

audit sharia compliance a issues in islamic banking and finance presentation by omar mustafa ansari partner ford rhodes sidat hyder co
member of ernst young global limited

role of auditors and accountants in islamic finance i allah swt says in quran that allah doth command you to render back your trusts to those to whom they are due and when ye judge between people that ye judge with justice
i according to the code of ethics for accountants and auditors of islamic financial institutions accounting duly including auditing a external as well as internal is one of the professions that is required by shariah as a fard kifaya

i one of the critical issues the industry is facing is the matter of purity in transactions which in longer run will ensure reliance of muslim ummah in this model of islamic finance and banking
purity of transactions and building reliance on islamic finance i islamic banking industry is presently growing at a very high pace

strategy to build reliance on islamic finance and banking i a three fold strategy may help out the industry to ensure shariah compliance on an ongoing basis
improved governance and shariah compliance assurance for islamic financial institutions and

standardization of shariah compliance regulations for islamic finance i standardization is necessary to ensure that all the matters of islamic financial institutions are dealt with within a framework which is acceptable for all musli miss i internationally there have been a lot of efforts for standardization of practices being followed by various islamic financial institutions
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

standardization of shariah compliance regulations for islamic finance i the most admirable job has been performed by i R the islamic fiqh academy of the organization of islamic countries and i R the accounting and auditing organization of islamic financial institutions aaoifi
i in respect of governance and risk management islamic financial services board has also performed a commendable job

i accounting auditing and governance standards aags are issued by aaoifi s accounting and auditing standards board whereas the shariah standards board issues the shariah standards
introduction to aaoifi i aaoifi was established in in algiers under an agreement of association between a number of islamic financial institutions ifis

i these boards have been established by choosing the experts of the fields from throughout the islamic world
introduction to aaoifi i these boards have to date performed a remarkable job by issuing accounting governance auditing and shariah standards for islamic financial institutions

i serves as an international standard setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the islamic financial services industry
i promotes the development of a prudent and transparent islamic financial services industry through introducing new or adapting existing international standards consistent with islamic shariah principles

pakistan s perspective i accounting and financial reporting i R the institute of chartered accountants of pakistan has issued islamic financial accounting standards for ijara and murabaha which are under implementation stages
these standards are approved by sbp and notified by secp

i R a shariah compliance inspection mechanism is being introduced and a shariah compliance inspection manual has been developed
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

pakistan s perspective i takaful i R takaful rules developed and now being reviewed for improvement
i modarabas i R all model agreements and products are being reviewed from shariah compliance perspective

it impacts the reputation of the islamic financial institution and deteriorates reliance of the depositors investors customers and other stakeholders in the long term and
shariah non compliance risk what why i shariah non compliance risk is a significant risk for an islamic financial institution from two perspectives

shariah compliance assurance for islamic financial institutions i rules regulations and standards might not work unless and until an effective network of check and balance is established to ensure compliance of the same in letter and spirit
i shariah compliance cannot be ensured merely on the basis of approval of products by the shariah supervisory boards and the shariah advisors

shariah compliance review report of shariah supervisory board or the shariah advisor may or may not be based on internal shariah review
shariah compliance audit by the external auditors of the islamic financial institutions

shariah compliance review by shariah advisor a issues i competence from assurance perspective i R without any disregard to the individuals and not as a generalized rule it needs to be realized that the jurists sitting on the board or working as shariah advisors possess little knowledge about the accounting and auditing and more importantly the operations of the financial institutions
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

shariah compliance review by shariah advisor a issues i R consequently their compliance review generally remains limited to the extent of assurance of the legal form of transactions ie vetting of agreements and documents etc
i R on the contrary the operational matters which include the substance of the transaction might remain unattended because it is not the core competence of these respectable jurists

shariah compliance review by shariah advisor a issues i management s attitude i R generally the management does not wish to bring each and every matter in the attention of the board or the advisor
i R accordingly unless they have enough time to review things on their own and they take reasonable interest in the same it is not possible for them to have a look on most of the operational matters

shariah compliance review by shariah advisor a issues i independence i R although we don t have any doubt on the personal independence and integrity of these respectable jurists they would themselves appreciate that the work performed under one s guidance should always be counter checked by an independent person
i R particularly keeping in view the human tendency of errors it cannot be advised that the person supervising and monitoring the transactions is also entrusted to recheck and audit the same

shariah compliance review by shariah advisor a issues i scarcity of resources time and skilled staff i R generally those on the shariah boards and on the seat of shariah advisors are busy guys
i R in addition they do not have sufficient budgets available for their departments nor an adequate number of skilled staff hired for the purpose of assisting them in the assurance work

shariah compliance review by shariah advisor a issues i R consequently you can easily imagine that it is humanly not possible for a single person to perform a comprehensive shariah compliance audit of the operations of a full fledged islamic financial institution which may even have a number of branches
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

shariah compliance audit by external auditors a issues i R according to aaoifi standards the auditor should to a limited extent ensure compliance with shariah requirements
but this is not being performed by external auditors as the rules do not provide any further detail

you would appreciate that if the auditor is not equipped with the necessary skills and knowledge the output of the assignment might not be as good as may be expected from an experience auditor and i R since the scope of the audit is pre defined and the matter of permissibility of a transaction is generally subject to the opinions and perspectives of the shariah supervisory board or the shariah advisor the independence of the exercise to some extent remains in jeopardy
shariah compliance audit by external auditors a issues i R since the external auditor is also entrusted with the task of performing the shariah compliance audit his expertise in islamic finance is not ensured

i R nevertheless since the results of such inspections are considered to be confined to the management of the bank and the state bank the benefits of such exercises cannot be forwarded to the general public
shariah compliance inspection by sbp issues i R this is a very good approach as it is independent and authoritative in nature

shariah compliance inspection by sbp issues i R moreover such exercise is limited to the islamic commercial banks and the islamic banking branches of conventional commercial banks and consequently other financial institutions that are governed by the secp including islamic mutual funds modarabas takaful companies housing finance companies investment finance companies and leasing companies shall remain out of ambit of such exercise
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

independent shariah compliance assurance by professionals i this approach is now being applied by a few islamic banks
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

shariah compliance rating of islamic financial institutions and products i R anyone having basic understanding of islamic finance would easily understand that generally all the products being launched by islamic financial institutions cannot be termed equivalent for shariah compliance purpose
i R there might be certain provisions in an ijara contract that may render it less desirable as compared to a similar ijara contract

shariah compliance rating of islamic financial institutions and products i R in addition to the products being launched by the islamic financial institutions that are subject to the approval of their respective shariah advisors and shariah supervisory boards there are certain islamic financial products that are launched by the conventional financial institutions or by various companies and even by the government
i R these products for example include the housing finance option offered by the house building finance corporation sukuks being issued by the government of pakistan and various government owned entities musharaka tfcs issued by the sitara energy and operating lease options offered by various leasing companies

shariah compliance rating of islamic financial institutions and products i R in view of the same it is imperative that a shariah compliance rating mechanism be introduced so that the general public may be able to differentiate between various products being launched
i R in addition this will encourage the financial institutions to continuously improve the purity factor in their financial products

i appointment composition and report i it is appointed by shareholders in agm upon recommendation of board of directors bod they may authorize bod to fix the remuneration of ssb
shari a supervisory board ssb i it is an independent body of specialized jurists in fiqh almua malat islamic commercial jurisprudence

shari a review i the objective of the shari a review is to ensure that the activities carried out by an ifi do not contravene the shari a
it is the responsibility of ssb to form and express an opinion on the extent of an ifi s compliance with the shari a

the primary objective of internal shari a review is to ensure that the management of an ifi discharge their responsibilities in relation to the implementation of the shari a rules and principles as determined by the ifi s ssb
it shall be carried out by an independent division or part of internal audit department depending on the size of an ifi

audit and governance committee agc i the importance of the agc for an ifi emanates from its role in i R achieving the fundamental objectives of an ifi by enhancing greater transparency and disclosure in financial reporting and i R enhancing the public s confidence of the ifi as genuine in its application of shari a rules and principles
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

objective and principles i objective to enable the auditor to express an opinion as to whether the financial statements are prepared in accordance with shari a rules and principles and the accounting standards of the accounting and auditing organization for islamic financial institutions aaoifi
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

objective and principles i principles the auditor should comply with code of ethics for professional accountants which include righteousness integrity trustworthiness fairness honesty independence objectivity professional competence due care confidentiality professional behavior and technical standards
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

auditor s report i the auditor should review and assess the conclusions drawn from the audit evidence obtained as the basis for the expression of an opinion on the financial statements it should contain a clear written expression of opinion on the financial statements taken as a whole
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

i the engagement letter documents and confirms the auditor s acceptance of the appointment the objective and the scope of the audit the extent of the auditor s responsibilities to the client and the form of any reports to be provided by the auditor
terms of audit engagement i the auditor and the client should agree on the terms of the engagement

testing for compliance with shari a rules and principles i when testing for shari a compliance the auditor shall obtain sufficient appropriate audit evidence that provides the auditor with reasonable assurance that the islamic financial institution ifi has complied with islamic shari a rules and principles the fatwas rulings and guidance issued by shari a supervisory board ssb constitutes islamic shari a rules and principles
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

fraud and errors i the fact that an audit is carried out may act as a deterrent but the auditor is not and can not be held responsible for prevention of fraud and error however the auditor shall be held responsible for negligence and misconduct
presentation by omar mustafa ansari a partner a ford rhodes sidat hyder co

what issues i have faced i as external auditor i R management is of the view that i have nothing to do in respect of shariah compliance even if i feel that it has something to do with the objects of the bank modaraba
i am independent and without any disregard he is a paid employee and a party to the transaction as he approved it

what issues i have faced i as internal shariah reviewer external shariah auditor i R top management and shariah advisor are on my side but the middle level management makes all efforts to fail the exercise
i R i am bound to follow the advice of the shariah advisor without any opportunity of being heard at any independent forum

what issues i have faced i as shariah compliance inspector i R management of the bank under inspection makes all efforts that either no inspection be carried out or if an inspection is inevitable then it should remain limited to whatever shariah advisor has approved
i R sbp s management is not sure as to what extent it may interfere into the matters of the bank with respect to shariah compliance

i R sbp s shariah board includes a member who was the government s advocate in the case against the declaration of bank s interest as haram and another member who is on a number of shariah boards and shariah advisor of a bank whose independence from this perspective is not ensured
what issues i have faced i R sbp s management changes its decisions with regard to the scope of inspection and the responsibility for inspection within various departments

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\takaful

KeyWords

taka islam insur malaysia productdeferred shariah countries muslim financial retakaful model growth custom partner developed service mutual bankable provided scheme

DOCUMENT REFERENCES

Number of Pages

54

Published Date

2016-09-17 01:17:20

Full Document

Read the Full Document

Audit Issue of Islamic Banking

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

RELATED DOCUMENTS

DOCUMENT REFERENCES

Number of Pages

Published Date

Full Document

Navigation menu

Personal tools

Namespaces

Variants

Views

More

Search

Navigation

Tools

Categories