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The Differences of Conventional and Islamic Accounting. Prof. Sofyan S. Harahap Trisakti University, Indonesia. Corporation and Society.
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Prof. Sofyan S. Harahap
Trisakti University, Indonesia
There is a judgment day in which mankind pay responsibility during his/her life before the God
There is hell and heaven fulfilled by mankind
OccidentPower hold by mankind (ratio)
No judgment day, world is the end of life. No judgment day.
No heaven and no hell
Individual welfareOccident Vs Islam
Based upon modern commercial law-permissive rather than ethical
Limited disclosure (provision of information subject to public interest)
Personal accountability (focus on individuals who control resources)
Based upon ethical law originating in the Qur’an (Islamic law, As-Sunnah)
Full disclosure (to satisfy any reasonable demand for information in accordance with the Shari’a)
Public accountability (focus on the community who participate in exploiting resources)Conventional Vs Islamic Accounting
Survival of fittest
(Ec. rationalism: the desire to stand apart from others, to compete, to manipulate and to amass surplus”)
Unity of God
Relative ownershipConventional vs Islamic Accounting:(Boudyn and Willet, Islamic Corporate Reports, Abacus, Vol. 36, No.1, 2000).
Society – oriented
Focus on society aspect
Basically Al Qur’an & As Sunnah (Shariah)
Religious (must responsibility to God at the Judgment Day)
Individuality – oriented
Focus on individuality aspect without consider any social aspects
Accounting Law and Ethics
SecularToshikazu Hayashi, “On Islamic Accounting, IMES Working Paper Series No.18.
No differentiation between Normative and Descriptive Accounting (They always going simultaneously)
In operational, they do everything in boundaries of Islam (Shariah)
Measure as saleable value
Market (selling) price rather than historical cost
The normative accounting always influencing descriptive accounting or individuality interest
In operational, they permit everything to reach the highest profit
Measure as highest possible profit
Historical CostHayashi (Continued)
[going concern] Business continues forever
[Accounting period] Periodical measurement of performance
[unit of measure] Monetary Value
[Full disclosure principle] Decision making process
[objectivity] Reliability of measurement
[Materiality] Relative importance of information for decision making
[Consistency] Consistency based on GAAP
[Conservatism] Use least favorable impact on owners
Firm doses not have separate financial obligation (I.e profit sharing scheme)
Depend on contractual agreement between party
One lunar year for zakat calculation
Quantity based and monetary based (zakat calculation)
Importance for fulfillment of duties and obligation to God, society and individual.
Clear conscience with God in fulfilling all duties.
Consistence to shariah rules
Most favorable to society (justice)Haniffa and Hudaib (2001)
I hope this discussion may help us to establish our own system comply with our traditional culture and believe, not interfered by other believes.
See you in other occasions