The term Shariah Audit is relatively a new term in Shariah Islamic tradition introduced hisbah which lies with the concept of ”‘‘enjoining the good and forbidding the evil’’
HisbahHisbah was institutionalized in the early days of Islam,but not focusing on economic and commercialactivities only. Instead it was an integral part of ajustice, economy & societyAll the Sources of the Hisbah are from the Quran &Sunnah (primary)In fact, the 1st to hold the position of Hisbah in thehistory of Islamic civilization was? Any ideas Bro & Sis..
Objective of Hisbah:To assist human-being in worshipping Allah (ibadat)Those relates to the right of AllahThose relates to the right of other human beings –including Islamic financial transactions
Hisbah -The Foundation of Shariah Auditing Reporting to Allah Reporting to Authorities Reporting to Shareholders Reporting to the public
Hisbah – Shariah Audit Hisbah Shariah Audit True and fairGeneral purpose (al- implementation of amr bilma’ruf wal Shariah rules and nahyu an almunkar) principlesAgainst government Against IFI and public Financial statementWider scope (+ non- (reflect the economic/Financial) operation)+Shariah compliance Established ShariahMunicipal function decisions Regulatory function
Shariah Rule on Hisbah & Shariah Auditing There are two major views on the Shariah rule on hisbah which is based on the discussion of al-amr bil’ma’ruf wal-nahyu ‘an almunkar. 1. Fardh kifayah, but if everyone is ignorant of it, it is fard ‘ayn – Views of the majority of Scholars (Shafi’yyah, Hanabilah and Hanafiyyah). 2. The duty is wajib on everybody – Malikiyyah e.g. Imaam Ibn Abi Zayd al Qayrawaani Many Quranic verses and ahadith supported the first view
Audit in the QuranThen he who is given his Record in his right hand, Soon will his account betaken by an easy reckoning, And he will turn to his people, rejoicing!
For Alex infoSamra bint Nuhaik al-Asadiyyah – female auditorUmar ibn al-Khattab – laid the foundation of Al-Hisbah& also appointed her to continueIbn al-Jawzy – confirmed the above facts.
Todays Shariah AuditIn the present context of the Islamic financial servicesindustry, the regulatory organs of the state refer tothe statutory bodies enacted under the Ministry ofFinance or equivalent, which vary among jurisdictions.Periodical assessment conducted from time to time,to provide an independent assessment and objectiveassurance designed to add value and improve thedegree of compliance in relation to the IFI’s businessoperations, with the main objective of ensuring asound and effective internal control system forShariah compliance.
Shariah Audit cont…….this refers to the financial authorities such as theCentral Banks, Monetary Authorities, SecuritiesCommission and other relevant institutions that arevested with the power to implement the legislationthrough guidelines and requirements, monitorstatutory compliance through supervision, physicalinspection and examination of premises anddocuments, enforcement of the act as well asprescribe punitive measures for non-compliance.
Shariah Audit Cont…This is done by ensuring effective internal control systemas well as risk management system that providereasonable assurance in the form reports, opinions andcommunications that promote transparency and marketdiscipline.Internal Shariah review is independent department or partof internal audit examining and evaluating extent ofcompliance with Shariah rule, fatwas, instructions etcissued by the IFI’s Fatwa and Shariah Supervisory Board(SAB)
Annual Audit BudgetPreparing the annual budgetRevisit the objectivesArea of auditCost & pricing of the audit
Letter of EngagementConfirms the auditors acceptance of appointmentObjectives & scope of auditAuditors responsibility to the clientReport to be provided by the auditors
Audit objective & criteria of shariah audit Shairah audit focuses on attesting the true and fair view of the financial statements in accordance to the shariah principles and requirements. Financial audit is conducted in a consideration that financial activities and financial reporting is compliance with shariah requirements and principles.
Auditing & ASIFIObejctive of shariah audit according to para 2 of ASIFINo.1; the objective of an audit of financial statementis to ensure the statement are prepared inaccordance with shariah rules and principles, theaccounting standards of AAOIFI and relevant nationalstandard in which the IFI operates.
ESSENTIAL PRINCIPLES GOVERNING THE AUDITOR To attain the audit objective, the auditor is expected to comply with code of ethics for professional accountants . The audit should be conducted in shariah manners and in accordance to basic principles and essential procedures given ASIFI. The auditor should understand pertinent shariah rules and principles.
Scope of Audit Paragraph 7 of ASIFI No. 1 is stated as follows: “The scope of audit refers to audit procedures deemed necessary to achieve the audit objective. The procedures required to conduct an audit having regard to the requirements of appropriate Islamic rules and principles, ASIFIs, relevant professional bodies, legislation, regulations which do not contravene Islamic rules and principles, and whereappropriate, the terms of audit engagement and reporting requirements.International Standards of Auditing (ISA) shall apply in respect of matters not covered in detail by ASIFI provided that these do not contravene Islamic principles”
Scope of Audit (2)In order to formulate the audit procedures necessaryto accomplish the specific audit objectives, it isnecessary for the auditors to define the scope ofaudit taking into account various aspects such as thetype of activities the IFI is involved in and the relevantregulations and requirements on these activities.
Scope of Audit (3)Functions of auditor that relate to scope and defined in the letter ofengagement include: To conduct the audit in accordance to standards and requirements as specified by the scope of audit. To understand and assess the adequacy of the accounting system as basis of preparations of financial statements of IFIs. To obtain relevant and reliable evidence to enable them to draw reasonable conclusions therefrom. To determine the nature and extent of audit procedures to be adopted in lieu of the assessment of the internal control system. To plan an audit that allows reasonable expectation of detecting material misstatements or errors in the financial statements or accounting records. To provide for sampling error and level of confidence in testing the sampled information when conducting the audit.
Change of terms of engagement Auditor will indicate in the letter of engagement on matters pertaining to recurring audit on whether the terms of engagement are to be revised or reaffirmed. Any changes will affect the scope, role of auditors as well as the budget and fees.
Change of terms of engagement cont.Possible sources of change for the terms of engagementare as follows: Changes in processes whether business or institution processes Misunderstandings as to nature of audit related service originally requested Restriction on scope of engagement imposed by management or by any other circumstanceShould these changes not affect the professional conductof due care and diligence of the auditor and the auditorsagree with reasonable justification then these changes canbe made. Else the auditor should withdraw.