Again, the contention is that Islamic Banking is no different from conventional banking; worse still it is claimed that Islamic Banking is more detrimental than conventional banking. How can this be?
There are many similarities between Islamic and conventional accounting, as both are about providing useful economic information to permit users to make rational decisions by facilitating comparisons and thereby minimising the cost of assessing alternatives investments.
Information provided by conventional accounting focus on individuals who control resources while Islamic accounting information concentrates on the community who participate in exploiting resources.
They aim at promoting efficiency, leadership and commitment to justice. The differences lies also in the type of information needed in both types of accounting, and how is it measured and valued, recorded and communicated. Conventional accounting is based on economic events and transactions, while Islamic accounting is based socioeconomic and religious events and transactions.
In fact, conventional accounting mainly uses historic cost to measure and values assets and liabilities; which restricts this model due to assumptions of the monetary unit and its inflation. From an Islamic point of view, both financial and non-financial measures regarding the specific events and transactions are measured and reported.
To calculate the amount of Zakat, assets need to be measured in contemporary terms, not in historical cost.
The dual system of asset valuation using both historical cost and market selling prices is likely to enable Islamic organizations to accommodate contracts and to discharge their social obligations.
For that purpose, Islamic accounting may also require different statements for that in order to reduce the focus on profits by the income statement provided by conventional accounting.
Another difference between conventional accounting and Islamic accounting is in the users of the information. The management of Islamic corporations is accountable not only to the shareholders it is accountable to the Society as a whole.
Apart from the emphasis on the profit and loss statement, balance sheet, and cash flow statement, a considerable amount of further information would be provided. This would include a value-added statement and disclosure about social performance activities of the firm.
Financial statements Financial accounting plays an important role in Islamic banking in regulating and establishing a harmonious integration among different parties involved in banking transactions.
Issue of taxation Unfair taxation of Islamic products is an important issue for Islamic banks. In fact, Islamic banking was build up in relatively tax free environment, and has now come to a maturity that made many countries adapt their taxation laws to include specific provisions for Islamic products and services.
One of these countries is the UK, where, as a rule any interest payments made by banks to its depositors is deductible from gross income before tax is calculated, but interest payments related to the profit made by a bank considered as dividend payments.
As a consequence, its amount is not allowed to be deducted from gross income and was considered as distribution of profit after tax. This resulted in a much higher tax charge for Islamic banks and made some banks such as IBB economically unviable. There was also an issue with double incidence of Stamp Duty on property financed using Islamic structures.
In fact, whenever property is purchased, the buyer is required to pay a government Stamp Duty. The Islamic bank that buys the property before selling it on to the customer had a double Stamp Duties payable.
This only impacts the specific structures of the products but not their principles. Profit and loss share agreements that are economically equivalent to conventional banking products, but are not interest or speculative returns are taxed no more or less favourably than equivalent finance arrangements involving interest.
Islamic deposits were taxed on the same basis as conventional deposits, and the profit payments made for Islamic deposits are treated for tax purposes as any interest payments.
The UK Finance Act defined the arrangements that give rise to profit share return in case of Islamic deposit based on Mudarabah, as follows: Powered by Create your own unique website with customizable templates.For that purpose, Islamic accounting may also require different statements for that in order to reduce the focus on profits by the income statement provided by conventional accounting.
Another difference between conventional accounting and Islamic accounting is in the users of the information.
Jan 05, · The concern of this project paper is to explore the differences between Islamic accounting and its conventional counterpart. The distinctions need to be addressed as both accounting is presently thought of many people as synonymous.
Islamic banks and other NBFIs who adopt Islamic modes of Financing can account for such transactions under Islamic Financial Accounting Standards which are different from conventional accounting.
Jan 05, · THE DIFFERENCES BETWEEN CONVENTIONAL AND ISLAMIC ACCOUNTING ABSTRACT. When both accounting manifested according to the origins of its respective economic systems, the accounting treatments are totally different to .
THE DIFFERENCES BETWEEN ISLAMIC ACCOUNTING AND CONVENTIONAL ACCOUNTING 1. BWFS ISLAMIC ACCOUNTING GROUP ASSIGNMENT 1 INTRODUCTION The debating between the best practice either the Islamic accounting or conventional accounting in the accounting line still being non-ending issue until today.
Nowadays, Islamic accounting is greatly discussed between the academician and professional personnel that have already did some research about the differences between conventional and Islamic accounting.