BWFS3023 Islamic Accounting

1. INTRODUCTIONTechnically, accounting is the process of measuring, processing and communicating of financial information of business entity besides it is also known as “the language of business”. Maybe some of us, especially non-Muslims think that the term is same like the Islamic Accounting, just add word “Islamic”, so it looks more religious. Actually, there are many differences between both of them which we can see it all in the form of their accountability, users of information, disclosure and so on. However, the main differences that I think show a big contradiction between these two types of accounting are by their sources and objectives. So, in this assignment, I would like to describe about these differences.

2. MAIN DIFFERENCES BETWEEN ISLAMIC ACCOUNTING AND CONVENTIONAL ACCOUNTINGRationally, humans in this world create the law based to their experience, knowledge and thinking such as conventional accounting that is still used until now. It sources were taken from the culture and commercial law practice which actually made or conducted by people that have interest in the field. Basically, “conventional” is refer to the descriptive accounting or individuality interest that empower the law implemented in conventional accounting which sometimes causing the exploitation, uncertainty and manipulation cover all activities in accounting field. However, Islamic accounting is mere accounting system in this world that rely to the source of religion basis in implementing their stable accounting system which refer to the Al-quran and sunnah as the primary guidances. And to the Madyan (Midian) people (We sent) their brother Shu'aib. He said: "O my people! Worship Allah, you have no other Ilah (God) but Him, and give not short measure or weight, I see you in prosperity; and verily I fear for you the torment of a Day encompassing."And O my people! Give full measure and weight in justice and reduce not the things that are due to the people, and do not commit mischief in the land, causing corruption."That which is left by Allah for you (after giving the rights of the people) is better for you, if you are believers. And I am not set over you as a guardian.

Al - Quran (Surah Hud,verses 84-86)

Based to these ayah from the Surah Hud, Allah SWT was mention directly to the humankind in their muamalah including in accounting, to act in justice, not causing corruption, and always fear Allah SWT because everything of our actions will be counting during the Judgement Day soon. So, to make sure the accounting standard follow the Shariah compliance, nowadays, Muslims can refer or using the Islamic accounting standard provided by Accounting and Auditing Organizations of Islamic Financial Institutions (AAOIFI) or Malaysian Accounting Standards Board (MASB).

For the objective, Islamic accounting main focus is to get the blessing and achieve al-falah from Allah SWT. It only can be achieved by producing a healthy style of accounting activities. So, everyone involved in accounting framework must be justice, fair, sincere and can be trust in accounting line such as state the clear and complete statement of accounting transaction. Besides, we also must pay zakah to fulfill the

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BWFS3023 Islamic Accounting

obligation toward Allah SWT and to clean any transaction which containts any shubhah items. By that, the objective of to get al-falah actually also can give reward to the truth Islamic accounting practicers in this world and hereafter. In Malaysia, there are many Islamic institutions that implement Islamic accounting especially banks such as Muamalat bank, Bank Islam and Tabung Haji which established with the objective of Shariah. These institutions use Islamic accounting implementation to make sure the profit especially is

not for individual welfare only. However, for conventional accounting, their objective always reflect to the

controllers interest which are the individuals that empower the accounting activities. They are never care about the ethics or moral value by permitting higher interest, prepared limited company information to public and allow the unethical practices such as using historical cost to record the transaction which make it cost is lower than using current or market cost. This adoption used to ensure the repayment from the capital however, this historical cost has try to be limited by inflation accounting but was given up because of lack of objectively. So, basically, to achieve higher profit in their objective, they are only providing materialist profit-focused information and at the same time, permitting everything without care of public welfare.

3. CONCLUSIONAfter describing about these main differences of Islamic accounting and conventional accounting, I would like to state here that Islamic accounting is not created by human like the conventional one but it is actually a system which guided by the Lord, Allah SWT to make sure that the public welfare can be preserve without the exploitation of capitalist over the society and labor. The conventional accounting, even by rough view it gives a lot of advantages to one side, but it is actually not balance or fair because the other side must bear the hardship through the conventional law which only give benefits to providers of fund over the labor and public.

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