Islamic Accounting

Sharia prohibitions on interest,
usury and speculative share
dealing are well known. What
key principles underlie sharia
accounting and auditing?
The basic principles of sharia are
the same whatever the area, and
are drawn from the five basic
principles of Islam, particularly
belief in God. It is how you
manifest those beliefs and
principles in your everyday life
that makes a difference. You
may approach a particular
activity in the conventional way,
but there are additional things
you need to be concerned
about.
In accounting, you carry out the
same basic activities of recording,
reporting, measuring and,
subsequently, auditing. But the
difference with sharia accounting
is that you need to take special
care over how you record things.
And, if there is a transaction
between parties, you need to
have a proper contract that
makes it very clear what is going
on, how much you are paying
for something, and how much
profit each side stands to make.
Take house purchase, for
example: you need to know the
exact price and the profit to the
other party. And all must be
properly recorded and
documented.
You also need to measure it
properly because with creative
accounting you can always
manipulate the figures. So from
the Islamic perspective, you have
to be very careful when you're
buying the assets.
Our source for these principles is
firstly the Koran and then the
Hadith [a supplement to the
Koran and a basis for Islamic
jurisprudence]. The Koran is the
final revelation from God and
the Hadith is based on the words
and deeds of the prophet
Mohammad and both are
sources for Muslims to follow,
including business activities. A
third source is use of analogy
and past experience from which
you can make a judgement
about how to apply the
principles to contemporary
issues.