INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA KULIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES BACHELOR OF ACCOUNTING

ACC 4562 ACCOUNTING, AUDITING AND GOVERNANCE FOR ISLAMIC FINANCIAL INSTITUTIONS SECTION 1

SUMMARY REPORT

International Accounting Harmonization, Banking Regulation, and Islamic Banks

PREPARED BY:

MOHAMAD MUAZ BIN RAMLI RABIQ MURADI BIN DJAMALULLAIL `UMAR BASHIR BIN A.AZIZ

0820813 0833531 0824265

The article of Rifaat Ahmed Abdel Karim titled International Accounting Harmonization, Banking Regulation, and Islamic Banks basically tells about the harmonization between the commercial bank and Islamic bank, whether is it realistic to see it happen and the possibility to harmonized between those two different system. Rifaat in his article firstly characterized and differentiate between the commercial bank and Islamic bank. He explained that the commercial bank basically rely on IASB for their standards and regulations in presenting and accounting their information. While Islamic bank established AAOIFI which to assists the accounting and presentation of Islamic banking and to support the uniqueness characteristic of Islamic banking and finance. Rifaat claimed that during in 1990s the commercial bank separate and made a firewall between commercial banking and investment banking due to the risk and conflict of interest and reinforced based on conservatism and cartelization. While the Islamic banking is a universal banking and have their own special characteristic and uniqueness to compare with the conventional banking which it main characteristic is not complying with the interest and prohibition gambling and uncertainty. The problem is there are a lot of approaches used by different Islamic bank in different countries. These can be lead to noncomparable of financial statement because of different approach applied by them. These include promulgating Islamic banking acts to regulate Islamic banks, subjecting to existing fiduciary laws, and regulating Islamic bank by the laws that govern all banks. In our opinion, the convergence between AAIOFI and IFRS should take place in these recent years. This convergence will benefit the users of financial statement due to the comparable information provided. Without this uniformity, it is surely will be hard for the users to make decision based on noncomparable information. However, there is lack of appreciation by those agencies that are responsible for enforcing the same accounting standard. Perhaps every related agencies and specialize regulatory bodies will cooperate together to achieve harmonization. In a nutshell, harmonization in accounting standards would increase the ability to compare similar industries and make investment decisions less risky through better decision making. Another potential benefit from the harmonization of international accounting standards would be the reduced costs associated with multi-national corporations who must reconcile their accounting information for multiple accounting standards. (Diaconu 2007)