THE DIFFERENCES BETWEEN ISLAMIC ACCOUNTING AND CONVENTIONAL ACCOUNTING
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Transcript of THE DIFFERENCES BETWEEN ISLAMIC ACCOUNTING AND CONVENTIONAL ACCOUNTING
BWFS 3023: ISLAMIC ACCOUNTING GROUP ASSIGNMENT
1.0INTRODUCTION
The debating between the best practice either the Islamic accounting or conventional accounting
in the accounting line still being non-ending issue until today. Even in the Muslim countries such
as Malaysia, this country still not fully practice all parts of Islamic accounting guidelines which
was proved by the conducting of dual accounting system, Islamic accounting and conventional
accounting in the same time.
It’s reality of existing Islamic accounting and conventional accounting division practices
also caused by the formation of non-halal business such as prostitutions and pornography in a
one country at the same time mixed with the halal business activities, besides the lack of deep
understanding among the people about these two differences accounting and also caused by the
non-serious stressing by government to implement non dual accounting method in the Muslim
country.
As for common understanding, accounting is the process of measuring, processing and
communicating of financial information of business entity or it is also known as “the language of
business”. Refer to Abdul Rahim Bin Abdul Rahman (2010), “ the better you understand the
language, the better you can manage the financial aspect of business”. Accounting also basically
involved the quantitative and qualitative methods which used in economy to get the useful result
in business for the judgements and decision making by the economy users.
However, when refer to the Islamic accounting, mostly people especially the non-Muslim
community, they are actually was misunderstood by judging and assuming it’s concept was
duplicate from the conventional accounting. They assuming the Islamic accounting and
conventional accounting both are the same things with the different names. Moreover, in the real
scenario, it still have some Muslim, frustratedly, also in misconception by stated that Islamic
accounting only serve for Muslim, not allowed to non-Muslim.
According to this problems arise, it is important to highlight and explain the differences
between Islamic accounting and conventional accounting to show a lot of contradict aspects
among these two accounting practices. So, to differentiate, the deeply focus will be rely to the
source, aim, accountability and disclosure of these both accounting.
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BWFS 3023: ISLAMIC ACCOUNTING GROUP ASSIGNMENT
2.0SOURCES
To differentiate between these two accounting practices, firstly, a deeply look should be put on
the actual sources grounded by them. For Islamic accounting, it is the only accounting practice in
this world which made all accounting process guided from the religion sources. However, for the
conventional one, the development of this science only based to the human law besides deserting
some ethical value.
"And O my people, give full measure and weight in justice and do not deprive the people of their
due and do not commit abuse on the earth, spreading corruption.
"What remains (lawful) from Allah is best for you, if you would be believers. But I am not a
guardian over you.
Al - Quran (Surah Hud,verses 85-86)
“And I did not create the jinn and the mankind except to workship Me”
Al-Quran (Surah Adh-
Dhariyat:verse 56)
Based to the above verses in the Surah Hud and Surah Ad-Dhariat, the clarity of Allah
SWT commands was used as the argument in the Islamic accounting, so that all the accounting
users act fairly, justice and without break the law of Islam besides realize the duty of humankind
even in accounting line to be a vicegerent of Allah SWT.
However, for the conventional accounting, the law in this accounting only created based
to the human experience, knowledge and thinking. Richard Brown (2004) “The art of
numeration, or the method of counting, whether by words or signs or symbols goes back to the
dawn of intelligence among human beings, though it can hardly be said to begin with the
moment when one things can be distinguishable from another”. So, as the result, the system only
monopolized by the those who have big power and interest to control it until causing injustice
and exploitation in the field.
The conventional accounting which dominated by Christianity and Buddhism shown
clearly that they are not impose their religion prohibited such as immoral conducts or defraud in
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delivery accounting information, and not put the real religion, ethical or right principal matter or
abstain it all in the accounting line as well.
So, the source of accounting was bringing a big impact to accounting conduct. If the
ground of accounting was rely purely to religion basis as Islam, the real welfare not only
achieved by a few people who empower and control the economy, but also share to all part of
person in the line.
3.0AIM
The third one is about their aim or objective. It is also important to determine of why the existing
and the functioning of these both accounting are different from each other. Basically, the
conventional accounting’s aim only to fulfill the interest of influential person in the field but for
Islamic accounting, it wide’s aim is more than that.
For Islamic accounting, all the activities were aim to get a blessing from Allah SWT. It is
also to achieve al- falah, which is not only limited in the in the world but also in the hereafter. To
make it possible, the accountant must ensure the accounting activity and process follow the
principal of Syariah which the information detail in accounting must show a clear and separately
with the prohibited earning and expenditures either in the business or government. Some part of
asset in business wil be used to pay the zakah to clean the shubhah items which found in
accounting information beside as an obligation toward Allah SWT.
In contrast, the conventional accounting objective only based to the certain part of the
individual interest. It may lead to the neglect and suppression on public welfare such as
permitting higher interest in loan to gain higher profit and stopped reporting the information of
subprime borrowers to protect the customers picked by other competitors which actually will
make the customer difficult to borrow from other institutions that he want.
So, as we seen, the Islamic accounting aim is preferable to be a best example and to be
followed in the real world rather than conventional accounting. Even the aim is to achieve higher
profit, it is impermissible to neglect the public interest.
4.0ACCOUNTABILITY
To differentiate the Islamic accounting and Conventional accounting, also can be see through
the accountability between both of them.
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BWFS 3023: ISLAMIC ACCOUNTING GROUP ASSIGNMENT
For the Islamic accounting, actually, the accountability is involve with the essential goal
in Islam because the belief is that resources are provided to an individual from God in the form
of trust. So, from this, everyone will be accountable for their action as a trustee to Allah s.w.t.
Futhermore, accountability also means the accountability to the community which is ummah or
society at large. This is because, in Islamic thoughts, individual or organizations are expected to
feel socially responsible for others in community especially for those who are needy people.
Meanwhile, for the conventional accounting, many of the accounting practices are most
control the resources that is absolutely do not seem to be relevant to the types of accountability
required under Shari’ah. Through this also, the accountability for conventional accounting, had
seek to address pattern of inequality and marginalization that are globally present and it
strategies aimed at challenging power resonate with poor people experiences. This will
absolutely violated the poor and needy people in the accounting and business.
So, from the explanation, the accountability for Islamic accounting is more to the action of
individual himself which is difference from Conventional accounting.
5.0 DISCLOSURE
Last but not least, the differences between the Islamic accounting and Conventional accounting
is disclosure that had been make by this two accounting, which can provide more deeply
information about both accounting.
For Islamic accounting, the term of disclosure actually has related with the concept social
accountability in Islam which is involved with the principle of full disclosure. This can be prove
when in the al- quran, which is in surah al- baqarah, verses 71, had stated about the meaning of
“relevance” that referred to the disclosure of all facts. Therefore, if the purpose of the accounting
information is to serve the public interest, and it also follows the Islamic context, then, the
community or the ummah has the right to know about the consequences of the operations in
organization on its well being and to be advised within the requirements of Shari’ah.
Meanwhile, for the conventional accounting, the disclosure is only emphasizes on users
requirement of information, which is mean only limited disclosure provision of information
subject will be provided for the public interest . According to this concept, all the information
relating to the organization should be disclosed completely in the financial statement without
any clarification from the accountants. Moreover, in the conventional accounting, many of the
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BWFS 3023: ISLAMIC ACCOUNTING GROUP ASSIGNMENT
disclosure in annual reports are manipulated to provide a favorable impact of business
operations.
So, through this, we can concluded that, the Islamic accounting disclosure relate with the
social accountability which is involved with the principle of full disclosure, which really
different with conventional accounting that is more to private sociability and limited disclosure.
6.0 OVERVIEW
Basically, there are many contradicts between Islamic accounting and conventional accounting
that should be understand by the users including the layman. As to educate the public and to give
the best explanation about the best accounting that should be applied, the government who is the
lawmaker should change the accounting education system by giving the emphasis about this two
types of accounting starting from school education besides aggressively applied only one type of
accounting, which is Islamic accounting in the economic system because of the wide advantages
to everyone.
7.0 CONCLUSION
So, regarding to the elaborations of differences between Islamic accounting and conventional
accounting in this assignment, it shown that Islamic accounting actually serve a wide and
comprehensive welfare to the accounting users rather than the conventional accounting which
contains injustice or desertion elements to some minor influential parties in the arena.
So, as a part of muamalah connection in Islam, Islamic accounting should be a way of
best accounting practice especially in the Islamic countries since the guidelines itself was parallel
with the government function which is to provide a public welfare which is not only in the
education and social scope but also in the economy.
The conventional accounting, even it is progressively profitable for some users while
conducting by mostly users in the world, should be remember that it methods still contains some
weakness because of human-made law in it conduct. Humankind was not prohibited to earn and
enjoy the wealth, but at the same time, any negative conduct in conventional accounting must be
varnished.
Finally, it is necessary to encourage the business organization to practice Islamic
accounting in their work as not only limited to Muslim, but also non-Muslim would willingly to
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practice it. Islamic accounting also should not be seen as divisive but as the alternative to set the
actual ethical practicing to replace the disability of conventional accounting which only
benefiting one side of party in economy.
7.0 REFERENCES
Internet
The History of Accounting, retriviewed at 10.58pm, 14 April 2014, from
http://www.library.unisa.edu.au/about/exhibitions/historyacc.aspx
Accounting, retriviewed at 10.34pm, 16 April 2014, from http://en.wikipedia.org/wiki/Accounting
What is Objective of Islamic Accounting, retriviewed at 9.54pm,17 April 2014, from
http://wiki.answers.com/Q/What_is_objectives_of_Islamic_Accounting?#slide=33
Kabir Tahir Hamid, IBF 8211 Accounting for Islamic Financial Institutions, retrieved at 9.32 pm,
18 April 2014, from
http://www.academia.edu/2027832/IBF_8211_Accounting_for_Islamic_Financial_Institutions
Farhan Zaheer, Breaking New ground : Setting Misunderstanding Aside, Islamic Banking
Grow Rapidly, published in April 25, 2013, retriviewed at : 5.46pm, 20 April 2014, from
http://tribune.com.pk/story/540161/breaking-new-ground-setting-misunderstandings-aside-
islamic-banking-grows-rapidly/
Misconceptions About Islamic Finance, retriviewed at 5.49pm, 20 April 2014, from
http://www.inceif.org/islamic-finance/misconceptions/
Al -Quran, Surah Hud, chapter 11 verses 85-86, retriviewed at 10.45 pm, 3 Mei 2014, from
http://quran.com/11
Al-Quran, Surah Adh-Dhariyat, chapter 51, verse 56, retriviewed at 10.57 pm, 3 Mei 2014, from
http://quran.com/51
Book
1) David Crowther ( 2008 ) “Culture and Corporate Governance”, page 209- 210
2) Mohamed Ariff, Munawar Iqbal, Edward Elgar Publishing (Jan 1, 2011) “The
Foundations Of Islamic Banking : Theory, Practice and Education”, pages 91
3) Abdul Rahim Abdul Rahman (3rd Print 2012 )”An Introduction To Islamic
Accounting Theory and Practice”, CERT Publications Sdn. Bhd , page 4, 10 and 11
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4) Peter Newel and Joanna Wheler (August 7, 2006) “Rights, Resources and The
Politics of Accountability”, pages xiv- 4.
5) Robert Anthony Rayman ( January 26, 2013) “A Multi- Gear Strategy For Economic
Recovery” page 153.
6) Richard Brown (2004) “A History of Accounting and Accountants” Cosimo Books
Inc, New York, page 3
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