Financial Accounting:
Financial
accounting plays an essential role in Islamic banking in setting and
establishing a peaceful integration among different parties concerned in
banking transactions. Islamic accounting gives the information which users of
the financial statements of Islamic banks depending on assessing the Islamic
bank’s extent of compliance with Shari’ah and defining rights and obligations
of all interested parties under the principles of Shari’ah.
Similarities between Islamic Accounting and Conventional
Accounting:
There
are numerous similarities between Islamic and conventional accounting services in Dubai,
as both are about presenting useful economic information to permit users to
make wise decisions by facilitating comparisons and thereby lowering the cost
of assessing alternatives investments. However, the nature of transactions in
Islamic organizations that deal within a Shari’ah framework is different, as
Islamic organizations have to contribute to socioeconomic justice and
stability.
Differences between Islamic Accounting Conventional Accounting:
1. Events:
Conventional
accounting is based on economic activities and transactions, while Islamic
accounting is based on socioeconomic and religious events and transactions.
Traditional accounting mainly uses historical cost to measure and value assets
and liabilities, which limits this model due to assumptions of the monetary
unit and its inflation.
2. Modern Commercial
and Ethical law;
Conventional
Accounting is based upon current commercial law, Islamic accounting is based
upon moral code founding in the Qur’an and Sunnah which ultimate goal is to
assure that Islamic organizations abide by the laws of the Shari’ah in their
dealings.
3. Information:
Information
provided by conventional accounting focuses on individuals who command
resources, while Islamic accounting information focuses on the community who
participate in misusing funds. They aim at increasing efficiency, leadership,
and commitment to justice. The differences also lie in the type of information
needed in both types of accounting and how it is estimated and valued,
recorded, and reported.
4. Islamic Point of
view:
From
an Islamic point of view, both commercial and non-commercial measures
concerning the specific events and transactions are measured and communicated.
Assets require to be measured in new terms and not in traditional cost to
calculate the amount of Zakat. The dual system of asset valuation, utilizing
both historical value and market selling prices are likely to facilitate
Islamic organizations to accept contracts and to discharge their social
obligations. For that end, Islamic accounting may also need different
statements that to overcome the focus on gains by the income statement
presented by conventional accounting.
5. Users of Information:
Another
difference between traditional accounting and Islamic accounting is in the
users of the knowledge. The administration of Islamic corporations is
accountable not only to the shareholders; it is responsible for the Society as
a whole. These users require to evaluate that the Islamic corporation makes
money in an ethical way and accordance with Shari’ah principles, and profitably
deploy its resources.
Islamic
organizations should disclose additional information to their reporting, such
as the liquidity, solvency, risks taken, and contribution in fulfilling social
responsibilities, such as protection of the environment and participation
toward charitable activities. Apart from the emphasis on the profit and loss
statement, balance sheet, and cash flow statement, a considerable amount of
further information would be provided. It would include a value-added statement
and disclosure about the social performance activities of the firm.
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