Islamic Accounting
The Principles of Islamic Accounting
Definition and discussion of some accounting principles and how they are fit into Islamic framework to furnish an accounting system and procedures for Islamic Financial institutions will be considered here. The plan to study accounting principles From an Islamic perspective is to review these principles from the viewpoint of the Major Islamic principles which govern financial dealings and contracts, as mentioned In the Qur 'an. These are:
1- Realization of fairness and justice.
2- Preservation of the rights and dues of all parties.
3- Paying Zakah (that necessitates having accurate and just financial statements.
Which represent accurately and truly the financial position of the entity).
The first two Islamic principles are emphasized by the Holy Quran. It is instructed that measure and weight should be given with justice and without withholding from people what is theirs (Qur 'an, 6:152, 7:29, 11:85, 17:35, 55:9, 57:25). Muslims also are asked, when dealing in financial transactions involving further obligation (debt), to write down faithfully and precisely this obligation (Qur 'an, 2:282). Therefore, Accounting which helps to keep and record the rights and dues of all parties ' is required in Islam. It represents an integrated part of the just system which Islam Requires. Therefore accounting principles in a Muslim Community should be formulated so as to provide fair and just information.
On the other hand Zakah is one of the five pillars of Islam. Qur 'an requires Muslims with a specified minimum wealth (Niscib) to pay Zakah (12:41, 78; 24: 56; 33: 33; 58:13). The rate of Zakah varies according to the type of wealth. Zakah revenue is earmarked to be spending on certain items detailed in the Qur 'an (9:60).
2.1 The Objectivity Principle
The usefulness of financial information depends heavily on the reliability of the measurement procedure used. Because ensuring maximum reliability is difficult, Accountants
Definition and discussion of some accounting principles and how they are fit into Islamic framework to furnish an accounting system and procedures for Islamic Financial institutions will be considered here. The plan to study accounting principles From an Islamic perspective is to review these principles from the viewpoint of the Major Islamic principles which govern financial dealings and contracts, as mentioned In the Qur 'an. These are:
1- Realization of fairness and justice.
2- Preservation of the rights and dues of all parties.
3- Paying Zakah (that necessitates having accurate and just financial statements.
Which represent accurately and truly the financial position of the entity).
The first two Islamic principles are emphasized by the Holy Quran. It is instructed that measure and weight should be given with justice and without withholding from people what is theirs (Qur 'an, 6:152, 7:29, 11:85, 17:35, 55:9, 57:25). Muslims also are asked, when dealing in financial transactions involving further obligation (debt), to write down faithfully and precisely this obligation (Qur 'an, 2:282). Therefore, Accounting which helps to keep and record the rights and dues of all parties ' is required in Islam. It represents an integrated part of the just system which Islam Requires. Therefore accounting principles in a Muslim Community should be formulated so as to provide fair and just information.
On the other hand Zakah is one of the five pillars of Islam. Qur 'an requires Muslims with a specified minimum wealth (Niscib) to pay Zakah (12:41, 78; 24: 56; 33: 33; 58:13). The rate of Zakah varies according to the type of wealth. Zakah revenue is earmarked to be spending on certain items detailed in the Qur 'an (9:60).
2.1 The Objectivity Principle
The usefulness of financial information depends heavily on the reliability of the measurement procedure used. Because ensuring maximum reliability is difficult, Accountants
References: 2-a) R.L. Watts & J.L. Zimmerman, Positi~.eA ccounting Theory, Prentice-Hall, Inc., Englewood Cliffs, New Jersey, 1986, pp. 4.-7, 14. b) K.S. Most, Accounting Theory, Grid Publishing, Inc., Columbus, Ohio, 1982, pp. 4-16, 52. 3- M.W.E. Glautier & B. Underdown, Accounting Theory and Practice, Pitman Publishing, London, 1986, Reprinted 1987, 1988, pp. 9, 11 4- G.R 5- R.R. Sterling, "Conservatism: the Fundamental Principles of Valuation in Traditional Accounting", in: S.A. Zeff andT.F. Keller (eds.), FinuncialAccounting Theory, McGraw-Hill, Inc., N.Y., 1973, p. 536. b) W.A. Paton and A.C. Littleton, an Introduction to Corporate Accounting Standards, Edwards Brothers, Inc., USA, 1967, p. 7. e) C.P. Mill, "Protecting the Standard-Setting Process", in: M.J.R. Gaffikin (ed.), Contemporary Accounting Thought, Prenlice-Hall of Australia Pty. Ltd., Sydney, 1984, pp. 323-4, 345. 7. 7- E.S. Hendriksen, Accounting Theory, Richard D. Irwin, Inc., Homewood, Illinois, 1982, p.61. 8- B. Newman and M. Mellman, Accounting Theory: A CPA Review, John Wiley & Sons, Inc., N.Y., 1967, p.7. 9- a) M.W.E. Glautier & B. Underdown, op cit., 1986, pp. 53-5. b) A. Belkaoui, op cit., 1985, p. 220. 10- S.M. al-Darir, AI-Gharar wa Atharuhufi al- 'Oqood,fi al-Fiqh al-Islcimi (Uncertainty and its Effect on Contracts in Islamic Jurisprudenc,e), Dar Nashr wal-Thaqafa, Cairo, 1967, p. 1.