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.

They have a good point in disclosing the historical and current costs. On the accounting for waqf, it will increase the informativeness of the waqf financial reporting. However, the additional costs must be taken into account as to whether its benefits out weigh the costs. For waqf investments assets, it may be suitable to include the current market value as it directly affects the value of waqf investments in decision-making purposes, for example, to analyze the efficiency of earnings generated.

Recognition of Assets and Income Issues

Recognition is the process of incorporating items into the financial statements. The main objective of a financial statement is to provide useful information for decision making to investors and creditors (conventional accounting). Relevance and reliability is the main criteria for deciding on the recognition of an item. According to AAOIFI (1997), relevance means the existence of a close relationship between financial accounting information and the purposes for which this information is prepared. To be useful, financial accounting information should be relevant to one or more decisions of the users of that information. So, the information is capable of making a difference in user decisions. AAOIFI (1997) further elaborates that reliability is the characteristic, which permits users to depend upon information with confidence; however, this does not mean absolute accuracy since accounting information by necessity reflects estimates and judgments. In order to fulfill reliability, the information should be representationally faithful, objective, verifiable and neutral, that is free from any bias. However, items that do not meet the appropriate level of reliability are not recognized in the financial statement but may still be considered for disclosure in the notes to the accounts or the footnotes (Sloan, 1999). A problem arises as to what economic events should be considered to value an asset, for example, choosing the past transactions (historical costs) or current transactions which lead to market valuation (Liang, 2001).

For the waqf accounts, many assets especially the assets that are built for worship, i.e. a Masjid, are not recognized as fixed assets though they involve a huge amount of money to build. Much of the land on which the Masjid is built is waqf land. Presently, a Masjid is not recognized in the waqf account of the SIRCs in Malaysia unlike the recognition of churches and dioceses in the United Kingdom, where they are categorized under tangible fixed assets (functional assets). In Malaysia, only if they are old enough, they may be put under the heritage assets category. However, in the event that the related costs are difficult or impossible to trace, then the recognition is waived. Nevertheless, it will still be put into the notes to the accounts complete with an explanation to enhance public accountability. SORP 2005 requires that a functional asset be recorded and depreciated accordingly, where applicable.

For the purpose of this study, the recognition of waqf assets, liabilities, revenues and expenditure is the first issue to be considered. It is hoped that this study would provide some avenue as the solution, which will be evaluated through the input from the documents analyses, interviews and observations in the Federal Territory SIRC. As argued in Shahul (2000) and Shahul and Hisham (2006), the basis for Islamic accounting is in its dual accountability as compared to the accountability in conventional western accounting. This is because Islam does not separate religion from economic activities (Syafei et al., 2004), whereas conventional Western thought does. In fact, Islam covers all aspects of human life with its shari'ah.

The first objective of Islamic accounting is to benefit the Muslim Ummah as a whole in terms of socio-economics as mentioned in the five maqasid of the shari'ah. The shari'ah is the guideline that must be adhered to. Whereas in the Western conventional accounting, accounting is ultimately the tool for the capitalists to report their activities, which are profit oriented, mainly to their shareholders and creditors. Therefore, the Western conventional accounting ignores other stakeholders' relationship i.e. the environment and the interests of society (Tomkins and Karim, 1987).

Hence, in the consideration of accounting for waqf, the objectives and procedures must adhere stringently to the shari'ah and uphold the maqasid (objective) of the shari'ah to attain falah in this world and in the hereafter. Waqf accounts should be able to serve the various stakeholders and provide a true and fair view of the reporting of waqf affairs. Hence, it is argued that the non-profit bearing assets (functional assets) such as Masjid and Musalla should be recognized in the waqf accounts. It will better portray the fair value of the waqf assets. So, as what has been practiced by the conventional accounting standard body, a proposal and exposure draft must be tabled and discussed among the stakeholders to ensure the successful implementation and acceptance of any accounting standard by the practioners and society. This study will try to look into this problem and possibly point towards some solutions.

Measurement and Valuation Issues

The next issue is on valuation and measurement, the methods and unit of measure for which need to be determined. Measurement in accounting is the process of assigning meaningful quantitative monetary amounts to objects or events related to a business entity and obtained in such a way that they are suitable for aggregation (such as the total valuation of assets) or desegregation as required for a specific situation and they are always in monetary terms.

Conventional accounting uses a few methods for the valuation of assets and income, namely, the output value, input value or current equivalent value. An asset's value will depend on its ability to generate future cash flows by using three factors, (1) the amount of net cash flows; (2) number of years remaining; and (3) appropriate discount factor. Thus, there is a choice in the selection of methods. However, the question is which method complies with the Islamic shari'ah? Meanwhile, AAOIFI (1997) recommends that the measurements' attributes should be guided by the relevance, reliability, understandability and comparability of the information to be provided to the users (Abdul Rahim, undated).

On the issue of measurement and valuation in Islamic accounting, many studies agree that current value (as in zakat) is the most appropriate measurement and valuation tool. There are many verses in the Qur'an that imply that the valuation of assets must be made with full justice and equity, which means that the assets or liabilities must be measured according to their present value not their historical value. This enables the assets or liabilities to be computed accurately (not to undervalue or overvalue them) (see Askary and Clark, 1997; Shahul and Yaya, 2001; Syafei et al., 2004; Abdul Rahim, 2004). Although waqf do not pay zakat, the principle issue here is more on the accountability and transparency of the waqf managers.

In relation to the waqf accounts, their assets must also be measured accordingly, which means to say the assets should be measured just like the measurement of zakat assets. This will enable the fair value to be adopted and the waqf property is valued with full justice and equity by reporting its current worth.

However, revaluation for all waqf property should not be done every year (especially for the functional fixed assets), as this will involve additional cost and waqf is not a profit-oriented entity. Of course, it can be argued that zakat is directly mentioned in the Qur'an and waqf is not, but the real issue here is the fundamentals of Islamic accounting, the basis of the measurement and valuation must be uniform and subsequently make the practice desirable to the related parties who are the preparers of the accounts.

Issues of Disclosure

The final issue in this study is the disclosure of the waqf accounts, basically to answer the question of what is to be disclosed. Is financial information (quantitative) enough, or should non-financial information (qualitative) be included to make the waqf accounts more informative in order to satisfy various stakeholders? The methods of investment appraisal of waqf assets, for instance, are important to be disclosed. The public or interested parties can evaluate or question the effectiveness and efficiency of the SIRCs' economic decision-making process.

Baydoun and Willet (1997) promote four objectives of accounting disclosure for an Islamic firm, that is, to avoid riba', to pay zakat, to be socially accountable and to provide full disclosure (Abdul Rahim, undated). Full disclosure does not mean that everything must be disclosed. As long as the information is deemed relevant and reliable and if there is a need to disclose, for example, activities or income from non-halal sources, it should be disclosed together with the method of disposing of it. This enables the stakeholders to be aware of the activities in the business entity, which contravene the Islamic shari'ah. Sometimes it is unavoidable especially in Malaysia where the country practices a dual banking system i.e. conventional banking and Islamic banking. The implementation of shari'ah audit is desirable in this circumstance.

As a matter of fact, taklif or accountability is one of the very important concepts in Islam. Islamic scholars and jurists have from time to time stressed the importance of this concept for Muslims to apply. It may be one of the antidotes to bring about the betterment of the Muslim Ummah as the Islam Hadhari in Malaysia has pronounced.

Abdalati (1994), as cited in Siti Alawiyah (2004), states that accountability is a key Islamic concept that relates to the concept of khilafah, where human beings are entrusted as agents (trustee) of Allah (s.w.t.) to take care of the God's resources within the prescribed shari'ah guidelines so that they will not astray.

According to Abdul Rahim et al., (1999), taklif means everyone is accountable for his actions and inactions on the Day of Judgment. Shahul (2000), in addition, mentions that the concept of accountability prefers society to self. Hence, he argues that the main function of Islamic accounting is to provide the information that the management has performed their fiduciary duties according to the shari'ah principles, and in line with Islamic objectives and values (Syafei et al., 2004).

Historical Cost versus Current Cost

Accounting in an Islamic environment should be good for all interested parties or the stakeholders unlike the conventional accounting that focuses on a select few only. Many Islamic scholars are in agreement that the current costs accounting (CCA) is the nearest to the fulfillment of Islamic needs where the assets of the business are valued or evaluated according to the cash or the generalized purchasing power that could be obtained by selling each asset under conditions of orderly liquidation. So, the quoted market price for goods of a similar kind and condition is used in the balance sheet, as past prices (historical costs) are not relevant for future action (Akram Khan, 1994a). To date, waqf accounting still used the historical cost to record the waqf assets in Malaysia. In fact, this is being practiced in most Muslim countries.

Therefore, current costs accounting (CCA) will reflect the real-time value in the accounts on the balance sheet date (see Foo, 2006 on fair value accounting). It is argued that CCA will minimize the subjective judgments about the future (Chambers, 1966 as cited in Mirza and Baydoun, 2000) as in other types of measurement in the valuation of the assets.

Depreciation costs are forgone in current cost accounting as it is not an actual cost, rather an allocation of the whole amount of capital expenditures which may be subjected to management discretion, rather, current equivalent value promotes fairness and justice because it reflects the most reliable value, as the value of the assets are definitely increased or decreased according to time and must be accounted for to give the true state of wealth (see Mirza and Baydoun, 2000).

So, the focus is now shifted towards the perspective of wealth (more suited to waqf) rather than the profit or loss viewpoint of the business. This measurement is also in line with the measurement of assets for zakat purposes and it dispenses with the need for any inflation accounting as it has already incorporated inflation into the current price.

Determination of profit is made simple and objective where profit is derived from the differences between assets and liabilities. The adoption of current costs accounting (CCA) will forgo the accounting concepts of going concern and conservatism as used in the historical cost accounting. It will subsequently promote a true and fair accounting that is more desirable in an Islamic accounting environment as argued by Baydoun and Willet (1997).

From the conventional accounting point of view, historical cost is said to be very objective and reliable because the exact amount of costs incurred for each asset is used (Liang, 2001). Whereas, current cost depend on the independent valuation (current market value) and is very subjective in nature, unless it is done by a professional valuer. Critics of historical cost assert that the changes in the asset value during the entity's ownership must be recognized accordingly in the accounts especially due to the fact of inflation. Therefore, reporting of the assets and liabilities using historical cost is deemed as less relevant compared to current value especially in the decision making process (Foo, 2006). A problem will arise because some assets are unique and they do not have the replacement value in the market. However, getting the exit value in a closed market may solve this. The issue of who would bear the valuation costs would also arise (Akram Khan, 1994a).

Fundamentals of Islamic Accounting and the Unsuitability of Conventional Accounting

Islamic business characteristics do not merely comprise technical and moral conduct; rather ethical consciousness is a part of the package of true Islamic business practices. Thus, the concept of Adala (justice) and Ihsan (benevolence) should be incorporated as well (Shahul and Yaya, 2001). The upholding of justice is found in many verses of the Qur'an where Allah (s.w.t.) has commanded Muslims to be just in all circumstances. Meanwhile, according to Siddiqi (1979), benevolence (ihsan) is the good behavior or an act that benefits the other persons without any obligation.

There are several reasons for the unsuitability of conventional accounting. Firstly, the objective of conventional accounting to provide information to the existing and potential shareholders, investors, creditors and other interested parties is deemed not sufficient under Islamic accounting (Shahul, 2000; Shahul and Hisham, 2006). In fact, Islamic accounting has a much broader objective. Islamic accounting should provide useful information, financial and non-financial, for the stakeholders to make decisions. Shahul and Yaya (2001) cited Gray (1994) who asserts that conventional accounting has directed organizational growth at the cost of environment degradation. Briloff (1996) and Arnold and Cooper (1999) argue that conventional accounting has contributed to the concentration of wealth at the expense of the public in the hands of a few individuals only (Shahul and Yaya, 2001). Furthermore, the decision usefulness in the conventional accounting is argued to have deficiencies in the context of Islamic accounting in terms of its users' focus of its accounting information. Next, Gray (1996), as cited in Shahul and Yaya (2001), argues that conventional accounting operates under the assumed pristine liberal economic society where the gap between the poor and the rich is not questioned and there is no room for environmental, social responsibility and ethical values other than utilitarian self-interest. Moreover, Shahul (2000) asserts that conventional accounting is being used to enrich the shareholders and creditors only, without much concern even for their own employees (Shahul and Hisham, 2006).

Secondly, many of the conventional accounting objectives are irrelevant to Islamic accounting objectives. Adnan and Ghafikin (1997) give two examples of some of the accounting concepts that are

irrelevant to Islamic accounting such as the matching concept that leads to the preference of profit and loss orientation rather than the balance sheet approach. They argue that the objective of Islamic accounting is zakat. In fact, zakat is one of the many Islamic accounting objectives. Next, the objectivity concept that helps accounting users to make decisions not aligned with the primary objective of zakat.

Thirdly, conventional accounting is not sufficient to achieve Islam's socio-economic objectives. Quantitative information should be accompanied by qualitative information to enhance transparency and to achieve the concepts of truth and fairness. Some qualitative information is very crucial for the users to make decisions, for example, in the case of waqf, whether the distribution of the usufructs is made according to the waqf deeds and the performance efficiency of waqf assets' rental collection. So, it would be misleading if the waqf financial statements ignore such information. However, with conventional accounting, this type of information (non-financial information) is not mandated and users may have been deprived of this information "legally".

Henceforth, it is strongly argued that the present accounting system for waqf (which is based on conventional accounting) is not done according to the full shari'ah requirements. This should be noted and action must be taken to amend the situation. The discussion has also found that the historical cost basis is not in full agreement with the shari'ah and should not be followed. The historical cost valuation impairs the current value of waqf assets, where in the case of land; the value will always appreciate over time. For building and premises, though they are subjected to depreciation, their value may increase or decrease according to time, location and its condition. Therefore, there is a need for revaluation to determine its current value.

It is now clear that the theoretical framework of Islamic accounting is dichotomous to the conventional accounting (Shahul, 2000). Therefore, Islamic scholars should be able to derive the theoretical Islamic accounting frameworks, concepts, principles and rules specifically for Islamic accounting. It can be inferred from the arguments on the fundamentals of Islamic accounting and also the unsuitability of conventional accounting with all the issues that accounting for waqf should not be based on conventional accounting.

There should be a special set of accounting guidelines and procedures for the use of accounting for waqf, whereby the basic and fundamental concepts must be in compliance to the shari'ah guidelines and requirements (for example, an Islamic accounting for waqf).

As for the conclusion, Shahul and Hisham (2006) provide a model for Islamic accounting and accountability that relates Islamic accounting to the concepts of accountability with the view that man is the Khalifah; and is subsequently accountable to Allah (s.w.t) as the primary source of accountability (please refer to Figure 1 on the next page). In this instance, the waqif, mutawalli, the Ummah and the regulators are accountable directly to Allah (s.w.t.). In the due process of waqf, the waqif enters a waqf deed (social contract).

The mutawalli is responsible to other men as the beneficiaries through the waqf deed. The secondary accountability in this model is based upon the physical relationship between the mutawalli, the Waqf Department and the Ummah (beneficiaries). The mutawalli should use the Islamic accounting system in discharging his duties as the manager of the waqf and Khalifah of Allah (s.w.t). 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 in accordance with specific shari'ah guidelines (Siti Alawiyah, 2004).

Figure 1: The Waqf Accountability Model (Shahul and Hisham, 2006)

It is argued that the current basis of the waqf accounts as used by the SIRC is very much in question as to its compliance with the Islamic shari'ah. Furthermore, the objective of conventional and Islamic accounting differs greatly, which makes conventional accounting unsuitable in the Islamic institutional environment. A few issues such as waqf assets and income recognition, asset measurement and valuation and disclosures need to be resolved before a complete framework of Islamic accounting on waqf is ready.

It should be noted that waqf is more than just financial records and accounts; rather it has a few objectives in helping the Muslims in their social and economics well being such as the provision of public goods such as free education and healthcare. This article argued that proper waqf accounting framework should provide the much-needed platform for good governance and enhanced the accountability of the waqf trustee in discharging their duties.

 

Various studies have found that there are still an ongoing issue of accountability and transparency of the waqf trustees (Abdul Rahim et al. 1999; Siti Rokyah, 2004). In a recent study by Shahul and Hisham (2006), they argue that proper waqf accounting standard should be in place to address these issues. As a matter of fact, the Waqf Department of the Prime Minister's Department has already commissioned a committee to review the waqf accountability and transparency issues by studying and developing a standard for the waqf accounting. At the moment, all SIRCs practise their own accounting as the SIRCs are under the state's jurisdiction and furthermore the practices are not standardized.

Why Waqf Accounting Standard (WAS)

This article would like to incite response from the accounting practitioners and the public as the stakeholders (waqf is considered as a public goods) on the need for a WAS. As mentioned earlier, WAS could be a tool to partly resolved the issues faced by the waqf trustees to record waqf financial transactions objectively and efficiently. Currently, each SIRCs has their own accounting standard. Therefore there is no uniformity or standard of practices like what is practiced in the UK where they have a Standard of Recommended Practices (SORP) on Charity Accounting. The SORP provides guidelines and help charities in the UK prepare their financial statements for the annual report.

Why there is a need for a standard? A standard is defined as “an agreed, repeatable way of doing something. It is a published document that contains a technical specification or other precise criteria designed to be used consistently as a rule, guideline, or definition. Standards help to make life simpler and to increase the reliability and the effectiveness of many goods and services we use. They are intended to be aspirational - a summary of good and best practice rather than general practice” (source 2007).

One of the most obvious advantages of standard is its ability to be developed and maintained best practices. Apparently, this is what is needed in the waqf accounting.

WAS, could function as what the Charity Accounting did. It is argued that Charity should not use International Accounting Standards as its Generally Accepted Accounting Practices (GAAP) partly due to the nature of for-profit organizations. Furthermore, charity (non-profit) does not have profit, only excess of incomes or expenditures. This represents a totally different perspective for charity (Wells, 2006). WAS should be a guide for all SIRCs on the preparation of the waqf financial statements. So far, many SIRCs consolidate the waqf accounts into the SIRCs (Baitulmal) accounts, which are not proper as waqf should be put under a separate entity under the Shari'ah and should be govern accordingly (Shahul and Hisham, 2006). The disclosures of the waqf financial statement should cover the quantitative as well as the qualitative aspects of the waqf transactions. It is essential that both types of data be made available in the Islamic accounting environments as one of the objectives of WAS is to provide all necessary information to the stakeholders especially the waqif (person who endowed the property for waqf), beneficiaries and the public. Thus, it is argued that WAS will enhance the accountability and transparency of the waqf trustees. It will also promote uniformity and the performance of the waqf is comparable.

Rationale of WAS

The Charity Accounting in SORP for the charities in the UK is governed by the Charities Commission and acts as a GAAP for all charities in the UK irrespective of their sizes and amount of incomes generated. The objectives of SORP include providing guidelines for all charities on how to account for their assets and liabilities, income and expenditure and the preparation of the charity financial statements and annual report. The stakeholders are able to examine the charity accounts upon request and may complain to the Charity Commission if they found or suspects any irregularities or misconducts on the charities handling (Shahul and Hisham, 2006). This subsequently enhances the charities accountability and transparency for the public goods that they are managing. For the Malaysian context, the Waqf Department should be able to emulate the role of the Charities Commission.

The author strongly support the existence of WAS as it could provide a useful guidelines for the SIRCs, as they do not have adequate qualified personnel to handle the financial reporting aspects. It should also help the authorities and stakeholders to evaluate the performance of the trustees in dealing with the public goods.

Waqf accountability and transparency

Waqf are public goods and therefore it should be managed properly and professionally. The waqf trustee has the responsibility to ensure that the waqf could be sustained for years to come. The trustees should also ensure that the waqf objectives are met and being accountable for all their actions and inactions in discharging their duties.

In the early period of waqf (during the Prophets s.a.w and his companions), waqf managers are paid with the waqf income as it is argued that the waqf performance will have a direct impact on the managers compensation. Therefore, they will be more motivated to run the waqf efficiently. According to Hoexter (1998), the waqf managers in Algiers had all the waqf transactions recorded in a very systematic manner resembling a conservative (waqf) accounting system. From these records, the stakeholders may review the performance of the respective waqf and when the levels of trusts are high, more people are inclined to endow (waqf) their property. Wells (2006) held that if the charity lack of accountability, the public will hesitate to endow. Any misappropriations or mismanagement should be punished and the waqf manager is replaced.

Recently, the Federal Territory (FT SIRC) with the cooperation of the Pilgrims Board developed two pieces of waqf land near the KLCC that has been long due. It will be leased to the developer for a period of 25 years and afterwards it will be fully owned by the waqf. It is also estimated that the FT SIRC will receive some RM52 millions at the early stage. This is a huge amount of money and may have a significant economic impact to the Muslims in the country. However, the fund should be managed solely for the waqf purposes and the stakeholders should participate to realize the economic agenda. In this instance, the waqf accounting system should be able to help the SIRCs in the waqf financial reporting and being transparent of the fund utilized.

Conclusion

Currently, there are various accounting methods practiced by the SIRCs in Malaysia. For instance, the Federal Territory has their own in-house-developed computerized accounting software and the Penang SIRC has outsourced to a consultant to provide the accounting software. It has been found that there are many differences in the accounting treatments. Basically, there are two major types of waqf, the Waqf khayri or general waqf and Waqf khas. The two awqaf should not be consolidated as their objectives differ. There are also the assets of functional assets and investment assets. Functional assets do not generate income whereas the investment assets generate income for the waqf. Example of functional assets includes the Masjids and graveyards. Examples of investments assets are properties rented out and cash investments.

Although the functional assets may not be included in the financial statements at least it should be in the notes to the accounts or a specific reports on all the functional assets. The investments assets should be accounted for and properly recorded in the waqf financial statements. On the argument of the basis of valuation, the Islamic accounting prefers the current value rather than the historical cost as historical cost may distort the assets true value at a given time.

Lastly, the author would like to suggest that it is timely WAS be developed in order to help the SIRCs to record the waqf financial and non-financial transactions systematically and subsequently enhances the accountability and transparency of the waqf trustees. As waqf funds are public funds, the onus is on the trustees and its stakeholders to carry out their collective responsibility to ensure the future waqf growth and development.