Competency model for Shari’ah auditors in Islamic banks

Abstract

Purpose The purpose of this study is to identify the competencies required of Shari’ah auditor (SAR) in the Islamic banking environment. Design/methodology/approach A qualitative approach using a multiple-case study through the semi-structured interview was used. Data was gathered from a representative of Central Bank of Malaysia, and 30 other respondents consist of the Head of Shari’ah audit (HSA) and SAR from four types of banking institutions. A focus group discussion was later conducted to validate the model of competency proposed. Findings Results show a mixed practice on the recruitment of SAR. Most banking institutions prefer to use their existing internal auditors as opposed to recruiting fresh graduates or acquire experienced SAR from other financial institutions. Knowledge in Shari’ah, Islamic banking and Fiqh Muamalat is considered as the essential knowledge component for SAR, while auditing is revealed as the core skill that SAR should have to perform the Shari’ah audit effectively. The study also found that personal skills such as willingness to learn and teamwork as the complementing characteristics to the knowledge and skill components, as a package required for a competent SAR. Research limitations/implications The results of this study would have both theoretical and practical contributions to the regulatory bodies, academicians and professionals. Theoretically, this study made a concerted effort to enhance prior studies on the qualification aspect of Shari’ah audit literature, emphasizing the elements necessary to recruit competent SARs in the Islamic financial institutions (IFIs). The element of “time” has been infused to the existing effective job performance theory add dynamics to the model, recognizing the need for years of experience as part of elements necessary to become competent SAR. In practice, the competency model is recommended to the industry players in pooling competent talents in the Islamic finance industry (R4) and (B5). In spite of its limitation to confine only to the IFIs, it sheds light on human resource management within the Islamic organizations. Practical implications The study would contribute to the practitioners as a guideline to the Human Resource Department in recruiting their SAR and also for succession planning purposes. Originality/value A competency model for SAR was proposed focusing on building knowledge, core and personal skills that can be used as guidance in determining the criteria needed for a competent SAR, which is a new dimension for Islamic auditing literature. The sub-objective of determining the elements of competency, as well as understanding the current practice of recruiting the SAR became the input in the building of the competency model.

Shariah auditing: analyzing the past to prepare for the future

“…The empirical literature on this context has addressed several aspects, such as the SA association with Sukuk (Ahmed et al , 2019); professionalizing SA (Najeeb and Ibrahim, 2014); competency in Shariah auditing (Ali and Kasim, 2019; Mohd Ali et al , 2020); responsibilities of Shariah auditor (Yasoa et al , 2020b); Shariah auditor characteristics (Mohd Ali et al , 2018); challenges in Shariah practices (Puad et al , 2020); assess the implementation of the internal Shariah governance framework in selected Islamic banks (Aziz et al , 2019); the effectiveness of internal SA function (Ab Ghani et al , 2019; Shafii et al , 2013); external SA (Shafii and Salleh, 2010); SA labor market (Shafii et al , 2014a); students’ awareness of SA (Khalid et al , 2019); and Islamic legal maxims and SA practices (Abd Rahman et al , 2020). It has been reported that Shariah auditors play their roles as the third line of defense by giving assurance to the shareholders and stakeholders that all businesses and operations comply with Shariah precepts.…”

“…In Table 3, the investigation showed that the empirical quantitative approach was the most applied methodology in the sample studies with 19 articles (Ab Ghani and Abdul Rahman, 2015; Ahmed and Sarea, 2019), while the studies that used the qualitative approach were less with 14 studies (Alam et al , 2020; Khalid et al , 2018b). Thesis studies have discussed a variety of topics such as external SA and review committee (Alam et al , 2020), competency of SA (Mohd Ali et al , 2020) and role of Shariah auditor (Yasoa et al , 2020b), to mention some. The qualitative approach helps to understand how and why things occur.…”

“…With regard to financial institutions addressed in the empirical literature, it is worth mentioning that majority of studies have considered the Islamic banks in the sample (Hassan and Haridan, 2019; Mohd Ali et al , 2020; Yasoa et al , 2020b), while the knowledge is still scarce and fragmented on other IFIs such as Takaful organizations. For example, it has been suggested that no specification is provided for the Takaful industry while the existing rule by the regulators is mostly suitable for the banking industry.…”

“…As a result, there is a mix of practices regarding Shariah auditor recruiting. Rather than employing new graduates or acquiring experienced Shariah auditors from other financial organizations, the majority of banking firms opt to use their current internal auditors (Ali and Kasim, 2019; Mohd Ali et al , 2018, 2020). There is no doubt that conventional auditing significantly influences the auditing frameworks used in IFIs.…”

Sustainability of Islamic Banking Human Resources Through the Formulation of an Islamic Accounting Curriculum for Higher Education: Indonesian Perspective

“…The different positions may influence the level of knowledge that must be possessed. For example, knowledge of auditing, fiqh muamalah and Islamic banking is important knowledge for auditors in Islamic banks (Mohd Ali et al, 2020).…”