PS501 – ACCOUNTING FOR ISLAMIC FINANCIAL INSTITUTION

TOPIC :DIFFERENCE BETWEEN CONVENTIONAL ACCOUNTING

AND ISLAMIC ACCOUNTING

SESSION: JUN 2015

• Both the Islamic and conventional accounting is in the business of providing information.

• The differences lie in the following:

• The objective of providing the information

• What type of information is identified

• How is it measured and valued, recorded and communicated, and

• To whom is it communicated (the users)

• Objectives

Conventional Accounting Islamic Accounting

• Aims to permit informed decisions whose ultimate purpose is to efficiently allocate scarce resources available to their most efficient.

• Hopes to enable users to ensure that Islamic organizations abide by the principles of Shariah in is dealing.

• Types of information

Conventional Accounting Islamic Accounting

• Concentrates on identifying economic events and transactions.

• Must identify socio-economic and religious events and transactions.

• Valuation

Conventional Accounting Islamic Accounting

• Mainly uses historic cost (or lower) to measure and values assets and liabilities.

• From an Islamic point of view, at least for the purpose of computation of Zakah, current valuation is obligatory.

• Users

Conventional Accounting Islamic Accounting

• Seems to be serving an elite group of financers.

• Serves the whole gamut of stakeholders.

• Example: market players, banks and other financial institution.