Shariah Audit

Fact – What is Shariah Audit?

• Shariah audit is a systematic, independent and objective evaluation of whether the operations, activities, contracts and financial practices of an Islamic financial institution (IFI) comply with Shariah principles. jmifr.usim.edu.my+8IIUM Journals+8UKM+8

Elaboration

• It is part of Shariah governance, together with:

  • Shariah committee / Shariah Supervisory Board (SSB);
  • Shariah risk management;
  • Shariah review and research. jmifr.usim.edu.my+4Journal Portal+4UKM+4

• Objectives:

  • Ensure products, contracts (murabahah, ijarah, musharakah etc.) and operations comply with Shariah;
  • Provide assurance to stakeholders that income is halal and free from riba, gharar and maysir;
  • Support public confidence in Islamic finance. IIUM Journals+2UKM+2

Scope

• Review of:

  • Financing and deposit contracts;
  • Investment activities (e.g. no investment in haram sectors);
  • Processes for purification (cleansing non-compliant income);
  • Reporting and disclosures specific to Shariah. emerald.com+4researchgate.net+4Malaysian Institute of Accountants+4

Challenges

• Shortage of qualified Shariah auditors who understand both fiqh muamalat and modern auditing/IFRS. UKM+1
• Lack of uniform international Shariah audit standards, though AAOIFI, BNM and IFSB provide guidance. IIUM Journals+3Malaysian Institute of Accountants+3researchgate.net+3
• Different Shariah opinions across jurisdictions. jmifr.usim.edu.my+1

Example

• An Islamic bank offers a murabahah financing product.

• Shariah audit checks:

  • Was the asset actually purchased by the bank first?
  • Was the profit rate and terms in line with Shariah?
  • Are any late payment charges treated according to Shariah rules (e.g. donated to charity)?

• If non-compliance is found, the auditor recommends rectification and purification of income.