Principles of Islamic Accounting

CHAPTER 1The Islamic Accounting Environment

Learning Objectives

After studying this chapter, you should be able to:

1. Explain the governing principles of commerce and business in Islam.
2. Describe the history of Islamic accounting.
3. Explain the relationship between ethics and Islamic accounting.
4. Explain the Islamic principles affecting financial reporting.
5. Describe Islamic accounting and list its specialised fields.
6. Describe the types of business organisations in an Islamic economy.

Islam is one of the three ‘divinely inspired’ religions, the other two being Christianity and Judaism. It is monotheist, with a sacred book, the Qur'an, which calls for belief in God's revelation and the teachings of the Prophet Mohammed (pbuh)¹. With regard to business and commerce, this implies a certain type of ethical responsibility and accountability, which this first chapter will discuss. To a Muslim, religious and economic affairs are considered to be intimately connected. Accounting is more than a technical activity. It is a socio-technical activity, and in Islam religion plays an important part in moulding accounting practices.

In Islamic political economy, growth should result in social justice and equitable distribution of power and wealth in the society. The accumulation and monopolisation of wealth for its own sake without regard to its social consequences is considered undesirable, as it may result in social imbalance (Quran 59:7). An Islamic sense of accountability provides a framework ...