The formulation of financial, governance and social index of Malaysian Islamic banks: An integrative approach

Abstract

The study proposes and discusses the development of an index of Islamic Financial and Social Reporting (IFSR) for Islamic banks. The index of IFSR is carefully developed based on the relevant and applicable standards, guidelines and literature from an Islamic perspective such as the Malaysian Accounting Standards Board (MASB), Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), Bank Negara Malaysia (BNM) and Islamic social reporting literature. The index is developed in three parts, namely, financial, social, and auditing and governance. The items within the finance section are developed to ensure that the Islamic banks disclose relevant financial information. The items for the social part aim to ensure that the Islamic banks provide the relevant information regarding social and environment. The items within the auditing and governance part are developed to ensure that the Islamic banks provide relevant information regarding the monitoring and supervising activities that the Islamic banks have undertaken. The IFSR index may be lacking in terms of its usage generalisability as it is specifically developed for IFIs. The developed index of IFSR aims to promote a more appropriate level of disclosure among the Islamic banks. The need for the index is motivated by the growing importance of Islamic banks, not only from the economic perspective but also from the social perspective.

Disclosures And Perceptions Of Practitioners On Items Of Financial And Social Reporting Index Developed For Malaysian Islamic Banks

“…The IFSR index 1 as presented in Table 1 below is developed based on the relevant requirements of MASB (Tri-3), AAOIFI, IFSB and BNM (GP8-i) and the relevant contents of ISR developed and proposed by Maali et al (2006) and Haniffa (2002) (Marsidi et al, 2016).…”

“…In order to seek the views of the accountants about the level of importance of the index of IFSR, the study developed and distributed a survey to the accountants and/or practitioners who are directly involved in the financial reporting requirement of Islamic banks. The IFSR index is divided into three parts, namely, Marsidi et al (2016) Source: Marsidi et al (2016) In the survey, the respondents were required to assign the weight ranging from 1-5 for each of the items in the developed and presented IFSR index. Number 1 represents strongly not important whereas number 5 denotes strongly important.…”

“…The proposed IFSR by Marsidi et al (2016) is perceived as an avenue that can be used by organizations or corporations, such as Islamic banks, to create a rapport and develop confidence with their stakeholders. This is because the items of disclosure, as required under IFSR, require information concerning the financial and social needs of not only the owner or shareholders but also the other stakeholders.…”

“…The concept for the Islamic financial and social reporting (IFSR) generally lies in the blend of reporting requirements from the Islamic financial and social perspectives (Marsidi et al, 2016). The existing Islamic social reporting (ISR) concept includes financial components within its reporting system concept but it is not as comprehensive as the social components.…”

“…The first objective of the paper is to examine the views of the practitioners, i.e. accountants, concerning the importance of the components or items in the IFSR index developed by Marsidi et al (2016). The other objective of the paper is to examine the extent of compliance or awareness among the Islamic banks in Malaysia with respect to the IFSR.…”