Far 600 Essay

June 2012 (QuestionAi) Fundamental Differences between conventional and Islamic Accounting: Differences| Conventional Accounting| Islamic Accounting| 1 - Far 600 Essay introduction|
Ai) Fundamental Differences between conventional and Islamic Accounting: Differences| Conventional Accounting| Islamic Accounting| 1. Users of Accounting Information| Conventional Accounting verified the information to all users but focus on providing information to the shareholders and creditors only, ie providing funds to the company. | In contrast, Islamic accounting focus on providing information to all users, ie socially responsible (individual, management, society, state and people)| 2. Asset valuation| Use historical cost. But current accounting standards are adopting fair value measurement.| Use current cost. The reason is that one of the main objective of financial reporting from Islamic perspective is calculation of zakat. | 3. Objective of financial reporting| Focus on facilitating company to assess their performance based on profit maximization, ie efficient resource allocation by the company.| In contrast, Islamic accounting focus on providing information that companies are abiding Shari’ah principles in relation to their transaction. In addition, Islamic accounting still focuses on profit maximization as well as other stakeholders, ie achieve socio-economic objective encouraged by Islam | 4. Accounting Jurisprudence| Focus on human-made Law, ie Common Law| In contrast, Islamic accounting focus on abiding Shari’ah principles. Promote equality and justice to all stakeholders.| 5. Type of information| Focus on identifying economic events and transaction.| In contrast, focus on both economic and socio-economic events and transaction. Therefore, more holistic in their reporting, ie include financial and non-financial information in the reports.| 6. Presentation of reports| Focus on giving information to main providers of finances, ie shareholders and creditors.| While in Islamic accounting, need additional statement, ie value added statement in reflecting financial and non-financial information.|

Aii) Difficulties faced by the accounting profession in introducing the concept of Islamic Accounting in the development of Accounting Standards. 1. Not able to get acceptance from various parties due to differences in religious beliefs, ie Islamic accounting is not relevant to business transaction. 2. There is lack of main driver in promoting the development of accounting standards. 3. Lack of extensive research with regards to theoretical and conceptual development for Islamic accounting. 4. Difficult to incorporate dual accounting perspective into the national accounting standard. B) Importance of history to accounting pedagogy, policy and practice. Practice – Accounting history allow comparison between previous method and current method. Therefore, propose improvement can be made in current method. Policy – Formulation of current policy can be improved from previous problems in accounting policies. Pedagogy – Evolution of accounting history help better understanding in accounting field.

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April 2011 (Question 1)

Ai) Meaning of Islamic Accounting.
Islamic Accounting can be defined as:
* The “accounting process” which provides appropriate information * Accounting information include financial and non-financial accounting information * Provide information to all stakeholder to facilitate them to assess that business is operated in accordance to Shari’ah principles. * Focus is on achieving socio-economic objectives.

Aii) Islamic accounting is considered more holistic in nature because: * Include financial and non-financial information, ie corporate social responsibility. * Provided to all stakeholders, not only investors and creditors. B) Zakat system acted as the impetus for the development of Islamic accounting in the early Islamic state. * Zakat is compulsary payment imposed on the wealth of the Muslim. * Calculation and payment of zakat is based on income derive in accordance to Shari’ah principles. Therefore, arriving at this calculation, it is necessary to develop Islamic accounting. * Hence, there is relationship between zakat system and development of Islamic accounting.

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