There has been much in the press recently about aspects of Shari’ah law being implemented in the UK and ahead of the UK Islamic Finance Investment Group Summit in London this week, I was reminded of the distance the West has to go in incorporating many Islamic principles.
This is certainly true in accounting. For some time, international accounting standards have been set by Anglo-American governing bodies, with little consideration given to the principles of Shari’ah or the economics of the Islamic states, in which interest payments and monetary speculation are prohibited.
Until recently, accounting methods adopted by Islamic banks have therefore been largely unregulated, and many Islamic financial institutions have had to develop their own accounting methods for contracts that govern their work. This process is inefficient, usually based on deliberation between the external auditor and management as well as, in many cases, the organisation’s in-house religious supervisors (Shari‘ahSupervisory Board).
I was therefore pleased to see that The International Accounting Standards Board (IASB) met with banks across the Middle-East last week to discuss how to bridge differences between accounting practices in Islamic and conventional finance. The London-based organisation’s International Financial Reporting Standards (IFRS) have a key role to play in major centres for Islamic finance such as Malaysia and Saudi Arabia.
With Islamic member firms in many areas across the world, the RSM network is supportive of a system that allows Muslim finance professionals and institutions to have a greater input into international accounting standards. With the IASB’s recent visit, and summits taking place in London and Dubai this week, the signs are that the industry is moving in the right direction.
For a good introduction into Islamic Finance, please refer to RSM’s Introduction to Islamic Law written by Dahman Awardh Dahman, Managing Partner of RSM Dahman in United Arab Emirates.