LINKING ACCOUNTING, REPORTING AND ACCOUNTABILITY IN THE ISLAMIC CONTEXT: THE CASE OF WAQF Hisham b. Yaacob Department of Accounting and Finance, Faculty of Economics, Business and Policy Studies, University Brunei Darussalam (
[email protected]) Hairul Suhaimi b. Nahar Accounting Section, School of Management, Malaysia Science University. 11800 Minden, Penang, Malaysia (
[email protected])
Abstract The concept of Islamic accounting (IA) is very much at its infancy stage whereby scholars are still discussing and debating its theoretical framework while users are still contemplating on its application. Nevertheless, increasing calls had been made to put in place a proper IA framework with the aim of facilitating Islamic institutions like awqaf (Islamic endowment) to achieve its Shari’ah driven objectives. This article offers insights into the position of accounting, reporting and accountability in Islam. Contributing to the stream of debate and thus, the body of knowledge in IA, it also proposes a model for waqf accounting, reporting and accountability based on the Islamic accountability (Taklif) model developed by Shahul and Hisham (2006) with some modification to suit the Malaysian waqf environment. Keywords: Islamic accounting, waqf accounting, accountability
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INTRODUCTION Awqaf (plural of waqf–Islamic endowments) is derived from the word “Waqafa” which literally means “confinement and prohibition” or causing a thing to stop or stand still (Hassan, 1984). Linguistically, it takes the meaning of “stand still, hold still, not to let go” (Ahmed, 2004 p. 2). Operationally, it is defined as the assets ownership meant for specific charitable purposes determined by the waqif(s) by dedicating the assets’ usufruct to identified beneficiaries (Hashmi, 1984; Hassan, 1984; Kahf, 1998). Waqf conceptually subscribes to the concept of charity in Islam and constitutes part of the Islamic economic mechanisms that ensure equitable distribution of wealth. This has been proven throughout the Islamic history with the formation of various waqf foundations such as waqf of Umar al Khattab and other sahabah and the waqf al haramayn (Hoexter, 1998). Waqf history could be traced back to the Holy Prophet (PBUH) to which Shari‘ah (the Islamic law) provides general guidelines on its operations. Consistent with waqf operations, the concepts of accounting, reporting and accountability are also deemed as inseparable and ingrained with that of the religion of Islam through Shari‘ah. We discuss and argue normatively in this article that accounting, reporting and accountability is deeply intertwined with Islam and waqf transactions present appropriate framework to contextualize such claim. ACCOUNTING, REPORTING AND ACCOUNTABILITY IN ISLAM The conventional, non-Islamic perspective suggests two broadly roles of accounting and reporting. First, accounting and reporting function as an instruments in assessing managerial accountability and stewardship (e.g. Lehman, 2010; Watkins, 2007) arising from the separation of ownership and control (Sloan, 2001). Second, accounting and reporting function as a guiding device for accounting users in making related economic (e.g. Arnold and Cooper, 1999; FASB Concept Statement) and other decisions including social (e.g. Gray, 2002) and environmental decisions (e.g. Buhr, 1998; Hopwood, 2009). These identified roles drawn from the secular viewpoint are essentially limited to only for worldly aims and purposes when it is evaluated within the context of an Islamic paradigm. Islam technically extends the role of accounting and reporting within the acute context of accountability by pushing the boundary drawn in the secular context to transcend beyond the worldly concerns (Baydoun, 2000). This is conceptually done by considering the three elements (accounting, reporting and accountability) as being deeply intermingled and are rooted from the concept of Islam being more than just a mere religion–rather it is a complete way of life (AlBuraey, 1990). This necessitates for worldly activities including (but not limited to) accounting and reporting to also find its position and relevance in Islam and its functions should transcend beyond that of worldly purposes. Additionally, Islam places both accounting and reporting in a much important position, attached with wider functions. As defined by Shahul-Hameed and Yaya (2005), accounting and reporting in Islam are the necessary processes through which the appropriate (non)financial information could be supplied to the stakeholders of an entity, thereby enabling them (stakeholders) to ensure (1) the entity’s continuous conformance towards Shari’ah requirements; and (2) the entity’s ability to achieve Shari’ah objectives.
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The above definition effectively draws the demarcation line between accounting and reporting in the secular and the Islamic contexts, premising on three important points. First, the accounting and reporting find its position in Islam as being religiously important, unambiguous and functional. This is consistent with the word “hisab” or “account” been repetitively mentioned by Allah in the Holy Qur’an by more than eighty times in various verses (Askary and Clarke, 1997). The word “hisab” is the root word of “Al-Muhasabah” in Arabic which refers to “accounting”. The word “account” in Islam relates to human’s obligations as Allah’s vicegerent to “account” to Allah on all matters pertaining to their endeavours (Ros-Aniza and Abdul-Rahim, 2003), in view that humans are primarily trustee (or steward) to Allah and therefore, agree to assume the responsibility of being vicegerents on earth in covenant with Allah (Abdul-Rahim, 2003). Secondly, the nature of human as Allah’s vicegerents describes the concepts of accounting, reporting and Islam as inextricably intertwined. This is in view that Islam demands for all economic aspects in human life to be structured and directed towards achieving the Shari’ah objectives of Falah (success), Hayyatan Tayyibah (blessed life) and Al-Adl (justice) (see Haniffa and Hudaib, 2002). Accordingly, all economic activities including its auxiliary processes of accounting and reporting are therefore warrant to be religiously and morally directed towards the achieving of those objectives. Thus, the process of accounting and reporting upon economic activities in Islam requires for ethical and religious values to be regarded as norms and economic relationship as moral relationship with spiritual attachment (Abdul-Rahim, 2003). Third, the intertwined nature of religion and all worldly activities are parallel to the anti sacred-profane dichotomy whereby Islam does not recognize the separation between sacred and secular (AlAttas, 1993; Chapra, 1992; Elmessiri, 1996), necessitating for worldly activities including but not limited to accounting and reporting to be shaped and guided by sacred (religious) aims and to be regarded as an act of worship (ibadah). This ensures accounting and reporting in Islam to operate in line with the spirit of Shari’ah, paving path for the systematic attainment of Falah, Hayyatan Tayyibah and Al-Adl. Consistent with the above nature of accounting and reporting in Islam, the locus of accountability thus forms a central element in the Islamic faith given the prevailing dual accountability structure of (1) towards Allah (primary accountability); and (2) the society (secondary accountability) (Hisham and Shahul-Hameed, 2006), which are pillared by the Tawheedic principle. While the former relates to human’s spiritual relationship with Allah, the latter constitutes social relationship with fellow humans (Mohamed-Adnan and Sulaiman, 2006). Such framework causes Islamic accountability to be contrastingly different from that molded by the Western, non-religious scholarships. Tawheedic principle primarily provides that every human is accountable for his/her (in)actions (Faruqi, 1992), as duality of life in Islam necessitates for the existence of the “Day of Judgment” whereby all human beings will be resurrected, judged and accordingly rewarded (or punished) in the hereafter for their (in)actions in this world (see Quran, 75:13; 78:21-36; 88:1-16). Thus, viewing the link between accounting, reporting and accountability from the Islamic lens enables us to infer that Islam views accounting and reporting as devices through which humans are able to evaluate their level of sacred accountabilities–accountabilities to both fellow humans and God. These are the essence of the new paradigm in the accounting and reporting framework, 3
commonly termed as the “Islamic Accounting” (IA), which was initially coined during the early resurgence of Islamic banking and finance. While the previous focus of IA was on catering the unique features of Islamic financial and banking transactions, later development transcend beyond such acute domain to include transactions done by other Islamic institutions which operate within the Shari’ah parameters. Thus, compared to the secular framework, IA is argued to carry a more holistic and wider function and having a position well attached to sacred aims of achieving the Shari’ah objectives. ACCOUNTABILITY ROOTED IN ACCOUNTING AND REPORTING FOR AWQF Accountability is conceptually defined as a process of giving account to specified authorities for one’s (in)actions (Roberts, 1991; Williams, 1987). Such process of giving account involves interrelated activities of explaining and taking responsibility for the (in)actions through providing and requesting relevant reason(s) for (mis)conduct (Roberts and Scapens, 1985). Accountabilities are fundamental in charitable environment premising on three specific issues. First, as charitable entities (including awqaf) practically operate in the environment of low value conflict and high trust, accountability conceptually becomes a substitute to such accommodative environment (see Laughlin, 1996). This is consistent with public concerns with regards to accountability and governance of charitable sectors arising from various scandals and unethical behaviors (e.g. corruption, efficiency and effectiveness) inflicting trustees in those organizations (Moore and Ryan, 2006). Second, the highly reliance of charitable entities on public confidence and trust in ensuring continuous flow of material (financial) support necessitates accountability in such organizations to become extremely imperative for their survival (Sinclair et al., 2010). Third, accountability is a foundation for measuring, evaluating and reporting trustees’ performance (financial or otherwise), given the unobservable fiduciary, moral and economics relationship between charitable organizations and their donors in the public domain (Cutt and Murray, 2000). Primarily, accounting and reporting for awqaf transactions are reflecting accountability dimensions (Laughlin, 1990) in view that the common mechanism through which accountabilities in charitable entities could be discharged is by way of exercising sound accounting and reporting practices (Connolly and Hyndman, 2004; Steccolini, 2004; Van-Staden and Heslop, 2009). This could be specifically achieved by providing timely, relevant and consistent (non)financial information to stakeholders (Keating and Frumkin, 2000). Therefore, proper waqf accounting standard would reinforce accountability and transparency among mutawallis (waqf managers) while simultaneously enabling the Ummah (Muslims) to determine mutawalli’s performance which in the case of Malaysia, is the State Islamic Religious Council (SIRC) as they are the sole trustee of waqf under the Malaysian State Islamic Enactments. SIRC’s performance would ultimately determine the survival of waqf practices and institutions being religious based economic and social instrument as Ummah’s willingness to participate in waqf practices is largely determines by their level of confidence towards mutawallis’ accountability in managing waqf assets. ACCOUNTING, REPORTING AND ACCOUNTABILITY: THE FRAMEWORK Given the intertwined nature of accounting, reporting and accountability in Islam, it is therefore feasible to have an illustrative framework linking these elements within the parameters of Islam,
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focusing specifically on waqf. Using Shahul and Hisham (2006) model that relates Islamic accounting to the concept of accountability, we modify such framework to suit waqf context in Malaysia. Figure 1 below depicts the concept of man is Khalifah (vicegerent) who is accountable to Allah (s.w.t) being the primary source of accountability. Thus, the waqif, mutawalli, the Ummah and the regulators are accountable directly to Allah (s.w.t.). In waqf process, the waqif enters a waqf deed (waqf contract), causes the mutawalli to become accountable to both the waqif and waqf beneficiaries. The secondary accountability in this model is based upon the physical relationship between the mutawalli, the waqif, the waqf Department (in Prime Minister’s Office) and the Ummah (beneficiaries). The mutawalli should then use proper accounting and reporting system in discharging his/her duties as waqf manager and also Allah’s vicegerent. Therefore, in the context of waqf, the waqif and particularly the mutawalli have been made accountable to some amount of wealth or resources as an amanah or a trust, and this accountability is obviously multi-dimensional. The need for all parties to this accountability web to observe accountability is further reinforced by the Islamic concept of Adalah which means justice whereby Allah has commanded all His servants to be fair in worldly dealings, including the management of waqf activities (Quran, 2:279). Figure 1: Framework Linking Accounting, Reporting and Accountability in Waqf (Adapted from Shahul and Hisham, 2006)
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