Archives Des Sciences

Vol 65, No. 6;Jun 2012

Islamic Audit form Current to Expected Status in Iranian Supreme Audit

Court
Mahdi Salehi (Corresponding author)
Assistant Professor of Accounting, Ferdowsi University of Mashhad, Iran, E-mail:mahdi_salehi54@yahoo.com
Bizhan Abedini
Assistant professor of Management Department, Hormozgan University, Iran
Nasrin Baharvand
Boroujerd Branch, Islamic Azad University, Iran

Abstract
Islamic law is very vital for Muslim countries. In this regard all function must meet the Islamic law. Considering
that Islamic audit is a key factor, the difference calls for cooperation between all actors to fill the gap between
current and expected Islamic audit. The main recommendation of the research is to define standards and patterns for
Islamic audit, for more transparency and quality financial services in public. However, the results of the study
depicted that there is a hug gap between current auditing practice and Islamic auditing practice from the participant
view points.
Key Words: Islamic law, Auditing, Iran
1. Introduction
Islamic accounting and auditing are recently raised issue in Islamic countries academic societies, the debates are
rooted in natural differences between Islamic and Western ideology. From Islamic viewpoint, man is only a trustee
of properties trusted to him by God, and God is the only true landlord. In this way, Muslims find themselves
respondents to God. On the other hand, people are unlimited owner of properties is Western viewpoint. Moreover,
maximizing profit, individualism, individual interests are the bed rock of economic system of the West, while
Islamic economy is founded based on reasonable profit, common interest and fairness. These deep differences are
the basis of Islamic and western accounting on presenting different accounting pattern and financial statements;
naturally, Islam is a set of moral guidelines; the guidelines, which are ruling individuals personal and public life. It
is believe of some religious leaser that economic activities in Islam are based on two pillars: fairness and charity.
These are fundamental values for are aspects of life. Islamic economic activities therefore should be conduced based
on such values [1].
Islamic financial system for the first time emerged following Islamic Civilization blossom. However, later it
underwent major changes under effect of modern economy. Reacting to new era, Islamic economic reemerged as a
basis or public way of life. Although Islamic economy has identically economic function, there are always
differences between fundamental rules between the two economic systems. In fact, Islamic economy is featured with
honesty, fairness, justice and balanced society based on Islamic moral codes [2].

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Islam religion is a way of life with programs for every aspects of life including commerce and transaction. Islamic
rules are not just about religious rituals but daily life issues such as economy, politics, banking, commerce and
transaction and public matter are also answered in Islam. Muslims are recommended to observe Islamic rules in their
business. Private ownership in Islam should be in observance of moral codes. Islam encourages overseas
commercial transactions through a fair interaction. It is read in the Holy Quran: O you, who have believed, when
you contract a debt for a specified term, write it down. And let a scribe write [it] between you in justice. Let no
scribe refuse to write as Allah has taught him. So let him write and let the one who has the obligation dictate. And let
him fear Allah, his Lord, and not leave anything out of it. But if the one who has the obligation is of limited
understanding or weak or unable to dictate him, then let his guardian dictate in justice. And bring to witness two
witnesses from among your men. And if there are not two men [available], then a man and two women from those
whom you accept as witnesses - so that if one of the women errs, then the other can remind her. And let not the
witnesses refuse when they are called upon. And do not be [too] weary to write it, whether it is small or large, for its
[specified] term. That is more just in the sight of Allah and stronger as evidence and more likely to prevent doubt
between you, except when it is an immediate transaction which you conduct among yourselves. For [then] there is
no blame upon you if you do not write it. And take witnesses when you conclude a contract. Let no scribe be harmed
or any witness. For if you do so, indeed, it is [grave] disobedience in you fear Allah. And Allah teaches you. And
Allah knows of all things.
And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken. And if one of you
entrusts another, then let him who is entrusted discharge his trust [faithfully] and let him fear Allah, his Lord. And do
not conceal testimony, for whoever conceals it - his heart is indeed sinful, and Allah knows of what you do. These
verses commercial transaction need to be recorded by trustworthy individuals in observance of moral codes and
fairness [3].
More emphasize is placing on moral issues in West day be day, for moral atmosphere of Enron company is
illustrated by Senator Lion; it wasnt break of rules and regulation that happened in Enron, but death of values,
emotions and ruling culture [4].
2. Responsiveness by paying Zakat
Results of researches by Adnan and Gaffikin [3] showed that the main objective of Islamic accounting information
representation is being responsive to the true owner God. Therefore, responsiveness is realized in practice when it is
conducted to cover Zakat obligation. By accepting Zakat as the primary goal, no one may adopt conning and
representing false information, as God is the permanent present witness. Accounting information in Islamic system
therefore is to meet both users demand and social responsibility. They suggest that Islamic institution should be ran
Zakat-centered not interest-centered. It means that profit is not the basis of evaluating performance, and the whole
process is aimed to fulfill Zakat. This approach leads to empowerment of Islam in organizational setting. To this end,
there is a need to transfer from profit-centered to Zakat fulfillment-center approach. When fulfillment of Zakat is the
first priority, all organizational policies should be based on Islamic religious. In long-run this ends in a balance
between personal and public issues, as observance of Zakat leads individuals toward observance of religious code.
This approach encourages economic entities to redeem people from economic, social pressure and to put an end to

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exploitation of people. It is believed that Zakat is just one of many main tools to achieve these goals. Islamic
economic system should meet religions goals which prosperity both in earthy and heavenly world.
Accounting phenomena statement notes the meaning of current liquidity, debts, and controlled investment, however
its application is not recommended due of lake of enough tools. In practice, historical end price and current equity
are used as supplementary information. Islamic bank therefore apply historical end price data. Thus, Islamic
accounting holds on twofold system for liquidity assessment. The theory is established based on the assumption that
an Islamic commercial body should observe contractual obligation and Zakat as well. Since, contracts imply for past
transaction and in contrast, Zakat implies for current liquidity. We need a standard of measurement for each one
these purposes.
3. Research Objective and Problem Statement
This study is not an introduction of new debate between Islamic accounting and Western accounting. Indeed, due to
significant and several differences between Western and Islamic economy, many of English American accounting
technique are useless for Islamic economy. Such differences have been sources of many problems for Muslims all
around the world. Thus there is a clear need for Islamic accountant to improved Islamic accounting in coordination
with Islamic rules and needs. General objective of this study is to perform a survey on Islamic risk accounting and
audit for its current and expected status in Iran Supreme Audit Court and evaluating observance of Islamic codes in
this regard. As an Islamic country, Islamic codes are observed when codifying accounting standards and rules, thus
we can consider Irans system of accounting as an Islamic system. This research sheds lights to Irans Islamic audit
from state calculation employees viewpoint, and not surprisingly, the results have nothing to do with audit of the
council.
4. Research Problems
Is there a divergence between current and expected Islamic audit?
Is there a meaningful difference between standards of current and expected Islamic audit?
Is there a meaningful difference between reporting standards of current and expected Islamic audit?
Is there a meaningful difference between current and expected Islamic risk based audit?
Is there a meaningful difference between evidences of current and expected Islamic audit?
Is there a meaningful difference between affidavit of current and expected Islamic audit?
Is there a meaningful difference between moral values of current and expected Islamic audit?
Rahman and Mohamed [5] conducted a research on 100 companies in Malaysia stock market and introduced 8
hypotheses and finally concluded that none of that factor in the study is effective on management and manipulation
of profit.
Pomeranz [4] introduced an article moralities: toward globalization and conclude that accountants want to know
about history and place of Islamic accounting and Islamic morals to reestablish moral principles and cultures.
Napier [6] and Blair [7] concluded that: critical viewpoint on accounting and demands for accountability,
transparency, clearness, and responsibility of companies have led to wide range of debates on what should be called
as audit.
6. Research Methodology

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From its nature and application viewpoint, the research is a surveying and descriptive study. Surveying researches
rely on sampling from study society to identify frequency and distribution of sociological, psychological and
educations variables and relations between them. Study group on the research in comprised of 170 employees of
Iran Supreme Audit Court. 118 of participants were elected.
6.1. Hypotheses
Main hypothesis: there is a difference between current and expected Islamic auditing.
Secondary hypotheses

There is a meaningful difference between standards of current and expected Islamic auditing.

There is a meaningful difference between reporting standard of current and expected Islamic auditing.

There is a meaningful difference between current and expected Islamic risk based auditing.

There is a meaningful difference between evidences in current and expected Islamic auditing.

There is a meaningful difference between affidavits of current and expected Islamic auditing.

There is a meaningful difference between moralities of current and expected Islamic auditing.

The research utilizes field study and questionnaire for data gathering. Questionnaires with 36 questions ask
respondents to answer about current and expected status. Data gathered from the questionnaire was analyzed using
Likerts five scales (very low to very high). Descriptive statistics were used in the study to express features of the
gathered data. The study is mainly based on deductive statistics. The hypotheses of the study were tested using
Cronbachs Alfa test for stability of the data and Mann Whitney U Test (non-parametric statistics) for differences
between two variables of T test and two independent samples in parametric statistics.
6.2. Data Analysis
Description statistics
Results show that men and women comprise 74% o and 26% of sample group; 35% of participants are between 2535 years old, 42% between 36-45, 30% between 46-55 and 3% older than 56; 10% hold Bachelors degree, 28%
M.A and 2% PhD. 40% have a degree in accounting, 26% in management, 15% in economics and 28% have degree
in other fields. 12% of participants have 1-5 years work experience, 22% between 6-10, 19% 11-15, 47% more that
16 years, which shows high experience of participants.
Frequency percentage and relative frequency were calculated for each question and hypothesis.
For data analysis and studying differences between current and expected status the six secondary hypotheses were
tested by Mann Whitney U Test to describe test ranks for each hypothesis. For example:
There is a meaningful difference between current and expected Islamic auditing.
H0: there is no meaningful difference between standards of current and expected Islamic auditing.
H1: there is a meaningful difference between standards of current and expected Islamic auditing.
Table 1. Results of first hypothesis
Meaningful level

Mann Whitney U Test

000.0

-042.16

324

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It is easy to conclude from the table that Mann Whitney U Test is meaningful at 1% level; this means that H0 is
rejected and H1 is confirmed. Therefore, there is a meaningful difference between standards of current and expected
Islamic audit. Results of the test on other hypotheses are listed in Table 2.
Table 2. Results of testing of hypotheses
Hypothesis

Meaningful level

Mann Whitney

Result

Tests Value
Hypothesis 1

0.000

-16.042

324

Rejected

Hypothesis 2

0.000

-16.09

258

Rejected

Hypothesis 3

0.000

-15.63

720

Rejected

Hypothesis 4

0.000

-15.59

761

Rejected

Hypothesis 5

0.000

-15.81

561

Rejected

7. Conclusion and Recommendations

The fact that all the hypotheses were confirmed leads us to conclusion that there is significant difference between
current and expected status of Islamic audit in Iran. Considering that Islamic audit is a key factor, the difference calls
for cooperation between all actors to fill the gap between current and expected Islamic audit. The main
recommendation of the research is to define standards and patterns for Islamic audit, for more transparency and
quality financial services in public. In addition, it is recommended to form a committee with the same nature of
jurisprudence committee in Stock market supreme council under the title of Jurisprudence committee of audition
and banking.
8. References
[1] Abu-Tapanjeh, A. 2009. Corporate governance from the Islamic perspective: A comparative analysis with OECD
principles, Critical Perspective on Accounting, (20): 556-567
[2] Salehi M., A. Mansouri, and Z. Azary, 2008. Islamic Banking Practice and Satisfaction: Empirical Evidence from
Iran, ACRM Journal of Business and Management Research, 3(2): 35-41.
[3] Adnan, M. and A. Gaffikin, 1997. The Shariah, Islamic banks and accounting concepts and practices.
Proceedings of the International Conference 1: Accounting Commerce and Finance: The Islamic Perspective.
Sydney, Australia.
[4] Pomeranz, F. 2004. Ethics: toward globalization, Managerial Auditing Journal, 19(1):8-14.
[5] Abdul Rahman, R., F. Mohamed Ali, 2006. Board, audit committee, culture and earnings management:
Malaysian evidence, Managerial Auditing Journal, 21(7): 783-804.
[6] Napier, C. 1997. Intersection of law and accountancy: unlimited auditor liability in the United Kingdom,
Accounting, Organizations and Society, 23(1): 105-128.
[7] Blair, I. 1990. The audit expectation gap widens as the failures grow, Company Director: 39.

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