What is objectives of Islamic Accounting?

Answer 1

Accounting in Islam is accountability; the main purpose of Muslim is to achieve falah from Allah (SWA), for achieving falah and getting reward from Allah accounting is the means to achieve this ends but not the means of the Muslim person. So, accountant must be fair and justice between human beings whom benefiting from accounting transactions. On the other hand, the preparers of financial information must know common information needs of users of financial reports (Abdul Rahim Abdul Rahman Introduction Islamic Accounting, 2010). because, to use economic resources with harming environment and other human beings, full information is in need, and also to fulfil its obligations, by paying Zakat to the poor people.

According to AAIOFI, Islamic Accounting objectives are:-

a. Fair and justices between all contractual parties.

For example; in the case of mudharabah, profit sharing between partners must be justice and fairness, based on their PSR agreement. So, to have fair and justice, their agreement must be clear and have at least two men witnesses or three women. On the other hand, employer must pay to his/her employee based on his/her work he/she done. In addition to that, profit distribution in mudarabah contract, the entrepreneur (ISLAMIC BANK) or mudarib, must be fair, and deduct indirect expenses after distributing profit, and for the direct expense which has direct relation to the project will deduct before distributing profit to be fair both of the rabbul mal and mudarib.

b. Recognition and valuation of the assets must be proper to all contractual parties.

For example; the contract which is based on musharakahthe profit will be distributing by profit sharing ratio (PSR) based on the agreement between parties, and for lose it will be sharing by capital contribution ratio (CCR), so, musharakah mutanaqisa or diminishing musharakah, which is kind ofmusharakah contract which the ownership of the property is depends on the rights of the assets. In this contract, one of the partners will reduce his/her rights (usufruct) of the assets by getting payment from the other partner based on their agreement. So, to insure that both parties are in justice and fair with their agreement proper accounting is required, (Abdul Rahim Abdul Rahman, introduction to Islamic Account, 2010). Furthermore, for transferring the rights to real owner (Islamic Bank) in murabaha contract, this asset will appear in the bank's balance sheet as account receivable, because it is obligation to customer to pay it to the bank, and also it is the rights of the bank to get payment from the customer.

Answer 2

Under Shari`a Law, charging interest is forbidden. Therefore, to properly represent the time value of money and still provide the essential services for capital investment and business financing, transactions must be structured as asset-backed leasing arrangements and other devices. It is a complex and highly-specialized field and requires Accountants who are not only familiar with the various Islamic contract structures but also the requirements of the Shari`a boards that certify them. While many financial instruments, such as mortgages, have been standardized, more complex financial products must be re-engineered to comply with Islamic regulations. This means that accountants must be specially trained to work with unconventional contractual arrangements and must be able to present their data in terms that are acceptable in the Islamic financial world.