ISLAMIC ACCOUNTING FRAMEWORK IN RELATION
TO WAQF ACCOUNTING AND ACCOUNTABILITY
Hisham Yaacob
Abstract
The Islamic accounting is very much in the early stages where many scholars are still discussing its theoretical framework. The most obvious is the dichotomy in the objectives of the Islamic accounting as compared to the conventional accounting. There had been a need to put in place a proper Islamic accounting framework, as it is vital for the Islamic institutions to adopt proper Islamic accounting standards. The article discusses some of the main issues in the accounting for waqf namely the recognition of assets and income, measurement and valuation, disclosures and the historical versus the current cost accounting. Finally, the article is also trying to propose a model for the waqf accounting and accountability based on the Islamic accounting accountability model by Shahul and Hisham (2006) with some modification to suit the Malaysian waqf environment.
Keywords: Islamic accounting, waqf accounting, accountability, current cost accounting
Introduction
Waqf (Islamic endowments) is one of the Islamic economic mechanisms that could ensure an equitable distribution of wealth. It has been proven through history of the formation of various waqf foundations i.e. waqf of Umar al Khattab and other sahabah, and the waqf al haramayn (Hoexter, 1998). Waqf history is traced back to the Holy Prophet (s.a.w.). The Shari'ah has also provides the guidelines on waqf. However, in the absence of an Islamic accounting, current waqf administration is still using the conventional accounting to record waqf transactions, which are argued as defeating the maqasid (objective) of waqf. This article is presented in the following order. The next section provides a brief review of the background and issues in the Islamic accounting theoretical framework. The issues will be linked to the concept of accountability in the Islamic perspective. It provides the ground for this study to propose the waqf accounting and accountability model and framework for waqf best practices. The fundamentals of Islamic accounting and also the unsuitability of conventional accounting are also discussed. The article ends with a conclusion.
Waqf Accounting Framework and Issues
The lack of Islamic Accounting framework presents the basis for the issues under discussion (Baharuddin, 1998; Abdul Rahim et al. 1999). Many Accounting scholars acknowledged that there is an impending need for one standard for accounting on waqf that is vital for its improvement in terms of operational and financial accountability (Siti Alawiyah, 2004). This paper further discusses the needs of Islamic Accounting by discussing some of the issues in the Islamic accounting framework (see also Shahul, 2000; Hisham, 2006). This is, indeed, important when we put forward our suggestions and recommendations for the waqf accounting best practices later.
It is known from the earlier research that the present management and administration of waqf, especially in Malaysia, is not in a satisfactory order. Partly it is due to several reasons such as the lack of accounting procedures for waqf and incomplete databases (Abdul Rahim et al. 1999). Many of the important issues like the recognition, measurement and valuation of waqf assets, the reporting of the waqf transactions and transparency are still in the development process. The lack of monitoring and control, in addition to an absence of proper accounting standards, also contribute to this negative scenario. The accountability and responsibility of the waqf managers and also the accounting practioners and standard setting bodies are needed to ensure proper system are in place. The accounting standard will promote accountability and transparency among the SIRCs' waqf, which later may be used to determine and measure the performance of each waqf, as in Malaysia, the State Islamic Religious Council (SIRC) is deemed the sole trustee of waqf under the State Islamic Enactments.
It is also sad to mention that while many of the Islamic countries, especially those of the Organization of Islamic Conference (OIC), follow the Islamic code closely in many areas of life; they continue to adopt the essential features of the Western accounting practices. This shows that Muslim thought and perceptions are still being dominated by Western secularism, separating the sacred and the profane (this is one of the pillar of secularism, separation of worldly matters and the religion). Syed Othman (1986) argues that this is the result of past colonization and Western secular education. A few Western imperialists, namely, the Portuguese, Dutch and British from 1511 until 1957, for instance, had colonized Malaysia.
In view of this, Baydoun and Willet (2000) developed a theory about the form and the content of the financial information that should be contained in Islamic financial statements. They further argue that a balance sheet should be a comprehensive statement of historical values and current values (agreed by Mirza and Baydoun, 2000, who suggest the use of historical cost with periodic revaluations based on current market price) and a Value Added Statement (VAS) should replace the Income Statement with the Income Statement being relegated to the notes to the accounts. This will enhance the informativeness of the financial reports. This study argues that current value balance sheet may be valuable for waqf accounting; however, the VAS is more suited to the profit-oriented Islamic firm and waqf is a not-for-profit institution.
