Islamic perspective of management accounting decision making techniques

Abstract

Purpose – This paper aims to argue that the methodologies adopted by the conventional management accounting in selecting between or among two or more alternative courses of action, both in the long-term and the short-term decision making endeavours conflict with the overall objective ( falah) of Islamic enterprises. Design/methodology/approach – The paper explores relevant literatures (including the Qur'an and the Hadeeth) to ascertain the objective of an Islamic enterprise and suggest an alternative approach, in making a choice among alternative courses of action, that aligns with the Islamic socio-economic objective ( falah). Findings – The paper suggests that both in long-term and short-term decision making endeavours, cost-benefit comparison (where cost includes negative externalities) rather than discounted cashflow techniques or contribution margin should be adopted in making a final choice among alternatives to achieve falah. Research limitations/implications – The paper has not considered other objectives that may be pursued by an organisation beside profit maximization whether short-term or long-term. Practical implications – The paper expands the frontiers of knowledge in Islamic accounting by exposing the inadequacy of the conventional management accounting decision making methods. Originality/value – This paper explores the Islamic perspective of the conventional management accounting which is rare among scholars of accounting.

The Construction of Sharia Management Accounting Objectives: Reaching Liqaa-a Rabb and Maqashid Syariah

“…Zikr is done by reciting Allah's names (Asmaa al Husnaa) and vowing to Allah as the one and only God. Zikr is better done in the morning and evening as often as possible 1 . Through zikr, the human asks for hopes and ability to receive goodness from God.…”

“…Thus, the use of a way of thinking that leads to the awareness of the Godhead is a form of reflection ideally integrated with zikr and prayer. 1 Recitation of Qur'an from Al-Huda (2014).…”

Exploring the “social failures” of Islamic banks: a historical dialectics analysis

“…This mix of principles creates a unique system of accountability that contradicts the capitalist goal of wealth maximization [3]. It creates a system of recognizing the interest of stakeholders that are affected by our actions and inactions (Freeman, 1984) in such a way that best decisions are not those that give us the maximum value or profit, rather best decisions are those that give us the least cost-benefit ratio, where cost include negative externalities (Abdul-Baki et al, 2013).…”

“…This contradicts the Islamic shariah as supported by some Islamic economists. Equally, according to Abdul-Baki et al (2013), even when the traditional methods of investment appraisals are deemed acceptable, the overall ranking criteria for investment evaluation by Islamic banks should be the least cost-benefit ratio, where cost includes negative externalities. Chong and Liu (2009) also observed, using a granger causality test, that Islamic deposits are not interest free; rather, they are closely related to conventional deposits.…”

“…In Islam, however, societal well-being prevails over self-interest. The decision-making criteria in Islam is to first consider huququ-Allah (fulfilling obligations to Allah), then huququl-ibad (fulfilling obligations to the society) and huququ-nafs (fulfilling own needs) (Haniffa et al, 2005;Abdul-Baki et al, 2013). Through these decision-making criteria, mankind is able to realize benefits for the society via removal of hardship (raf al-haraj), prevention of forbidden (daf al-darar) and striving for the truth (haqiqiyah) before pursuing self-interest (Haniffa et al, 2005, p. 5).…”