6 .

0 ACCOUNTABILITY AND ISLAMIC ACCOUNTABILITY : THE OBJECTIVE

AND PREMISE OF ISLAMIC ACCOUNTING.
Since the objective of Muslims and the Islamic economic system is to achieve falah,
Islamic businesses and Muslim businessmen should so conduct their business activity to
achieve this falah, as business activity is part of human activity and cannot be separated
from other daily activities (Beekun, 1997). Hence, the principles of profit and wealth
maximisation and the incessant concern with shareholder value, on which capitalist
businesses are based, are questionable from an Islamic framework. This is especially so,
since Islam has comprehensive ethical principles for business. Accounting should support
this activity by providing information to achieve falah.
Since accounting cannot achieve falah directly but only by directing user behaviour
towards activities (mainly in the economic arena) which will lead them to achieve falah, there
needs to be an intervening variable, especially related to accounting, which Islamic
accounting is based on. Since, the researcher has already considered, decision-usefulness
of conventional accounting in the chapter three and, within the context and meaning it is now
used, found it unsuitable for the purposes of Islamic accounting, the researcher will not
consider it further as an objective of Islamic accounting. Instead, the researcher suggests
“Islamic accountability” as the concept, which can help operationalise falah in the socio-
economic arena. This is an extension of the concept of accountability and primary
stewardship developed in the conventional accounting literature (Gray et al., 1996;Chen,
1975).

6.0.1 Stewardship
Stewardship is said to be the duty to provide an account of the use(s) to which the
resources entrusted to a steward have been put (Gray et al., 1991, p 3). It has often been
confused with the notion of accountability (eg. Gjesdal, 1981). Stewardship can be said to be
a subset of accountability. Gray et al. (1991) suggests that the difference between
stewardship and accountability is that the former “says nothing about the effects of those
uses or about purposes behind entrusting of the resources to the steward”. Chen (1975)
offers a broader view of stewardship as encompassing both financial and social stewardship.
Chen (1975) asserts that the concept of stewardship arose from the religious, mainly
Christian, teachings that man is a steward of God for the resources given to him (a concept
akin to the Islamic concept of Khilafah (vicegerancy) and Amanah (trusteeship)).
Stewardship is said to arise in relation to property rights, i.e. the right to own and use
property. Man as God’s steward owes a responsibility to use the property effectively not only
for himself (which Chen defines as secondary stewardship function) but also has a social
responsibility for others around him (the primary stewardship function). This concept later
developed in the feudal and manorial versions of stewardship, where resources especially
lands were given to the serfs to manage on the landlord’s behalf. Here, the serf was
responsible for the ‘secondary stewardship function’ of taking care of the land for the
landlord, whereas the landlord had to take care of the primary stewardship function of
responsibility to the community.
With the development of capitalistic businesses, which absorbed the new social
philosophies of individualism, the classical form of stewardship developed. In this form, the
managers (stewards) who were effectively servants of the new capitalist owners recognised
only the secondary stewardship to their masters; the primary stewardship function was
abandoned. In accounting, this is reflected in the proprietary theory, where the business was
the property of the owners and stewards were responsible to them only. Chen (1975) further
observes that the development of managerial capitalism (after the depression of 1929) and
the world wars, led to the acceptance of the entity theory and the managerial model of
stewardship, where the managers felt responsible, not only to the shareholders but to other
parties as well. Hence the primary stewardship function (i.e. the social responsibility) was
recognised and the secondary stewardship function was dropped.
 Chen (1975) concludes that both forms of stewardship must be recognised i.e. the
primary stewardship to society and the secondary financial stewardship to the owners. She
suggests that a dual accounting system needs be developed and regulated by the
profession, who should provide guidelines to measure, report and audit, both financial and
social information in two separate reports, a financial accounting for the owners and a social
account to meet the needs of society.
The recognition of a social responsibility, the designation of it as the primary
stewardship function and the relegation of the financial stewardship function as secondary is
completely compatible, in my view with the Islamic perspective of preferring the social over
the self. However, Chen’s suggestion of having two separate accounts cannot be accepted
because:
 The owners are part of society, and as Muslims, their falah as well as that of society are
both concerns of Islam and Islamic accounting. The owner, especially an ethically driven
Muslim owner, would be interested to make sure that the business activities are not only
conducted within the letter of the Shari’ah but within its spirit also thereby ensuring ihsan
(equity and magnanimity).
 Further, it is difficult to separate the economic and financial implications and effects of
the business from the social ones e.g. downsizing may increase short-term profits but
create unemployment for the local community. Reporting this separately, would imply,
the owners do not care for the social impact of their activities and can only be forced to
act in the social interest through legislation presumably brought about by public reaction
to the social report.
Further, stewardship seems too simplistic a concept in the era of multinational
corporations and other entities which use significant community resources and assets. It
would imply that these corporations are publicly accountable for their actions (ASSC, 1975;
Gray et al., 1991). Hence, while the suggestion by Chen to recognise social stewardship is
accepted, her suggestion to do a dual reporting is not deemed acceptable from an Islamic
viewpoint. Hence, Islamic accounting must be holistic and integrated for both forms of
stewardship.

6.0.1 Accountability
Accountability is said to be a broader concept than stewardship because it requires
an account of the extent to which the objectives for which the resources were entrusted have
been achieved. Various meanings and definitions have been given to accountability in the
literature (e.g. Ijiri 1983; Roberts & Scapens, 1985; Gray et al., 1996).
One definition of accountability, using a principal-agent contract model (see figure 6-
1), is that of Gray et al. (1996) who define accountability as “ the duty to provide an account
(by no means necessarily a financial account) or reckoning of those actions for which one is
held responsible”. In this model, an Accountee (principal) enters into a contractual
relationship with an agent (Accountor). The Accountee gives the power over resources along
with instructions about actions and rewards to the accountor. The accountor is supposed to
take certain actions and refrain from others in managing the resources given to him, to meet
certain objectives and to account to his principal by giving information about his actions to
him.
 Social context
Accountee
(Principal)

Information, reports
of performance & , authority, responsibilities,
resources, rewards &
non- performance Relationship reprimands
(contract)

Accountor
(Agent) Social context

FIGURE 6-1:THE ACCOUNTABILITY MODEL & FRAMEWORK

(ADAPTED FROM GRAY ET AL., 1988 & 1996)

The first problem with the above definition is that it emphasises the discharge of
accountability rather than accountability itself. The actions for which the accountor is
responsible arise due to entrusting resources to him. Hence use (or misuse) of the
resources) is the action the accountee is responsible for and not merely the accounting for it.
However Gray et al. (1996) seem to have recognised this problem in their elaboration of the
term accountability although it is not apparent in their definition. They suggest that it consists
of two parts i.e. the responsibility to undertake (or to refrain from) certain actions and to
provide an account of these actions.
The second problem with this definition is it is that not easy to define what actions the
accountor is responsible for to the accountee. From a Western societal perspective,
directors for example would not be responsible for investing ethically, unless specified by
contract. From an Islamic perspective, this is assumed because any contract operates
under the ethical rules of Islam.

The researcher suggests the following definition, which would perhaps, be better:

Accountability is the duty of an entity to use (and prevent the misuse of) the resources
entrusted it in an effective, efficient and economical manner, within the boundaries of
the moral and legal framework of the society, and to provide an account of its actions to
accountees who are not only the persons who provided it with its financial resources but
to groups within society and to society at large.

FIGURE 6-2: AN ALTERNATE DEFINITION OF ACCOUNTABILITY

In the researcher’s opinion, the accountor has a duty not only give an account (i.e.
report on the performance or non-performance of this duties) but also to act or refrain from
acting in a certain way. Since the accountee is usually not in close contact with the
accountor (except for employee-employer accountability), the reporting or the account
makes the organisation transparent as well as providing a feedback for the accountee to
enable him to control the accountor and the organisation.
The use of the terms efficient and economical in the researcher’s proposed definition
may be problematic for critical and social accounting researchers, but the researcher did not
use them in a positivist or reductionist manner. Although the term “economical” has become
value laden in the eyes of socialists and “greens”, the researcher uses it in the sense of “the
least cost “. This is due to the fact that choosing a higher priced option (in the absence of a
social/moral reason) is contrary to the Qur’anic prohibition of waste.
Gray et al. (1996) recognise that two different categories of rights and responsibilities
exist; legal and non-legal, the latter arising from moral or natural rights and responsibilities.
They argue that the law lays down the minimum level of responsibilities and rights and
consequently the minimum level of accountability in any given country at a given time. They
note however that while law establishes responsibility for certain actions (e.g. equal
opportunities) it does not provide an equivalent responsibility to account in all cases. Thus
the legal responsibility for action and legal responsibility to account are not equal. The
disparities in the two responsibilities, they argue, bring a moral responsibility to account.
They therefore call for mandatory regulations to cover Corporate Social Reporting.
The researcher fail to see the logic of insisting that a moral responsibility to account
exists (only) when a legal responsibility for action exists. The social contract and the very
fact that large organisations use significant community resources (see ASSC, 1975) should
give rise to a moral responsibility for action even in the absence of legislation. Following the
deep green view,

“To be accountable is morally sound and spiritually uplifting thing to do.... It is

only ...the conditioning effect of large organisations that make the idea of freely
giving an account so bizarre”. (Gray et al., 1996, p 53)

If a social contract/legitimacy or moral view of business organisations is not enforced,

organisations following the cue from Friedman (1962), might insist they had no such
responsibility to account. However, in the climate of a neo-pluralist, self-interested and utility
maximising capitalist society, there might be no other choice in the short term except through
legislated “compliance with standard report.”.
Another problem with the accountability model is the nature of the
moral/philosophical rights and how they are determined. Gray et al. (1996) distinguish
absolute and relative philosophical responsibilities although in a society where religious
values do not seem to hold, even the absolute values are becoming relative. The researcher
agrees partially that debate, education and agreement can achieve philosophical rights.
However this is very difficult in view of the materialist anti-religious philosophy, which seem
to characterise capitalistic society. It is very difficult to reach consensus and agreement
when the society is so pluralist and relativist as to morals and believes in nihilistic moral
philosophies.
In an Islamic society, the ethical values are specified in the Qur’an (word of God) and
the traditions of the prophet (exemplification and interpretation the Quran in daily life).
Indeed the Prophet (peace be upon him) said “I was not sent except to perfect character”
and the Qur’an says of the prophet “In you, we have established the best character.” The
prophet is a model of virtue for the Muslim who tries to imitate his character and his ethics
(although to varying degrees of success).
Hence accountability of organisations (which is a subset of the Muslim’s
accountability to Allah or God) could possibly be re-established in Muslim societies more
easily than Western societies, because the philosophical values of a Muslim society are
derived from unchanging revelatory principles.

6.0.2 Extensions of Accountability Framework & Islamic Accountability

Gray et al. (1988 &1996) have used the accountability model as a theoretical
framework for corporate social and environmental reporting and mainly examined
disclosures in annual reports and social/environmental audits. The accountability framework,
however, is a much broader concept, which can explain the workings of accounting systems
in their organisational contexts. According to Roberts & Scapens (1985), it may help to
integrate the technical and interpersonal aspects of accounting systems by focusing on
accounting practices and the human/organisation/system and manager/subordinate
interface.
Roberts (1991) elaborates on this positive aspect of accountability as follows:

“...to be held accountable for one’s actions serves to sharpen one’s sense of self and
one’s actions. The practice of accountability focuses attention within the flow of
experiencing; it acknowledges and confirms self, and the fact that one’s actions
makes a difference. Conversely, in the absence of being held accountable, there is a
possibility of a weakening and blurring of one’s sense of self and situation”.
(Roberts, 1991, p 356)

As the researcher argued earlier, accountability is not only a duty to report

performance (which is the discharge of accountability) but a duty to perform or not to perform
certain action. Even corporate social and environmental disclosures could be for reasons
other than discharging accountability (e.g. for legitimation and stakeholder management
reasons). Accountability starts from a frame of mind, from an ‘inbuilt’ responsibility to act in
a certain way according to religious/philosophical/societal customs, ethics and values, as
well as legal and quasi-legal requirements. In this sense, discharging accountability means
the actual performance of the required actions (or the avoidance of certain actions) rather
than merely reporting the performance. However, since the ‘relevant publics’ are at a
distance and cannot observe the actions directly, the annual reports become the important
media through which accountability is observed by the accountee. Hence ‘accounting’
information can play a crucial role in the maintenance of harmonious social relationships
which is the purpose of ‘accounting’ hinted in the Qur’an1[2].
Roberts & Scapens (1985), for example, give a broader definition of accountability
as “giving and demanding of reasons for conduct” and assert accountability (quoting
Giddens, 1979) as a long established, continuing feature of daily conduct.
Using a framework of accountability and by focusing on the accounting practice, they
suggest new insights could be gained on how accounting systems construct and are
constructed by organisational realities, as organisations themselves comprise the
interdependent social practices of skilled (knowledgeable) subjects.
Roberts & Scapens (1985), use the term “systems of accountability” to refer to the
accounting system as embodied in practice, for example, social accountability relationships
created by the abstract ’accounting system’ which is the body of rules and resources which
are drawn upon in the practice of accounting. In hierarchical forms of accountability,
accounting information provides a means of negotiating and defining the significance of
events (Signification), They also embody a moral order: a complex systems of reciprocal
rights and responsibilities which institutionalise the notion of accountability. In this way, the
system of accountability becomes a method for expressing and enforcing expectations (e.g.
budgeting systems).
Roberts & Scapens (1985) analyse the operations of systems of accountability by
contrasting forms of accountability in relationships characterised by face to face contacts
with forms of accountability where relationships span physical distance. They find in the first
instance, accounting information is interpreted and understood within the shared context of

1[2]
“O You who believe!, when you contract a debt for a fixed period, write it down. Let a scribe (accountant?)
write it down in justice between you.....Let him who incur the liability dictate...And get two witnesses out of
your own men.....You should not become weary to write it down whether it be big or small....that is more just
with Allah, more solid as evidence and more convenient to prevent doubts among yourselves, save when it
is a present trade which you carry on , on the spot among yourselves, then there is no sin on you if do not write
it down.....”., Al-Qur’an (2:282). The relevance of this verse to accounting can be seen by references to credit
and writing as antecedents of bookkeeping. Littleton (1966, p12).
extensive mutual knowledge (accounting plays a confirmatory role, confirming results known
from other sources of information). However in situations which span physical distance such
as divisions to head office, (directors to shareholders?), the reductionist nature of the
accounting and reduced visibility of the divisions in the absence of shared mutual knowledge
(as the accounting information may be the only source of knowledge) causes problems. It
becomes difficult for head office managers to interpret the reality (the physical and
interpersonal processes) that generated the results embodied in the accounts. According to
Roberts & Scapens (1985), this distance makes trust more difficult and attempts to invest in
more intrusive accounting systems may stop it acting as a vehicle for developing mutual
understanding and encourage further manipulations.
Roberts (1991) explores how different forms of accountability produce different
senses of self and different relationships with others. Here accountability is defined as:

“a form of social relation which reflects symbolically against the practical

interdependence of action: an interdependence that always has a moral and
strategic dimension”. (Roberts, 1991, p 367)

He argues that the hierarchical forms of accountability which conventional accounting

perpetuate lead to an individualising form of accountability which results in a solitary and
singular sense of self which is nervously preoccupied with other people’s perception of self.
On the other hand, socialising forms of accountability which flourishes in the informal
spaces of organisations confirm the interdependence of self and others. Obviously, there
are tensions and conflicts between the two forms of accountability and Roberts argues that
the contemporary organisational accountability (which may be extrapolated to contemporary
accounting), constructed around an untenable and destructive split of ethical and strategic
concerns to the detriments of both. He calls for a search into the possibilities of
accountability, which is oriented towards the reconciliation of these ethical and strategic
concerns.
It can thus be seen that Roberts (1991) and Roberts & Scapens (1985) use of
accountability is more in the context of internal accounting relationships. The current
researcher sees this as an important part of Islamic accounting. The second part of this
research project is designed to gain information on the internal accountabilities of Muslims.
This research project is concerned mainly with External Accounting (conventionally financial
accounting and reporting). However, the researcher believes that concept of accountability
can be extended to stakeholder relationships and form a continuum in Islamic Accountability
which proceeds from the internal to the external accountees.

6.0.3 Islamic Accountability; The Basis of Islamic Accounting

From an Islamic perspective, accountability is a basic ingrained concept in the
Muslim community (Khir, 1992) and forms one of the core concepts of belief i.e the belief in
the hereafter, heaven and hell, accounting and punishment. Accountability arises from the
amanah or primordial trust (i.e. free- will, freedom to choose, knowledge and reason) which
was given to man only (Al-Faruqi, 1992). Other creatures including angels, animals and non-
living matter have no such ability. Hence angels, animals and other creation will not be
accountable as they have no choice but to obey God and carry out their mission and
purpose in life as He decreed.
Only Man has the freedom to choose or not to choose God’s way. Further the
concept of Khilafa or Man as vicegerent of God on Earth (Al-Faruqi, 1992) means that God
has placed man in custody of the resources of not only this earth but the entire heavens and
the earth to be exercised in accordance with his instructions to his benefit as well as all other
human- beings and animals and the environment.
Besides this concept of accountability, which is common to many religions, Islam
places special emphasis on accounting i.e. recording events or actions itself. The Qur’an
declares that there are two angels recording every action of man. One angel records rightful
actions and the rewards attributed to them (sawab) and the other records sinful actions and
the sin attributed to them (ithm). The translation of actions into units of rewards and sins is
unique to Islam. In fact there is a whole area of study in Islam regarding the benefits of
actions (al-fadhail). This acts as a motivation and a deterrent to actions of Muslims. A good
act gets up to 700 reward units depending on the intention and effort. A good intention
counts as one reward unit and when it is undertaken merits at least 10 reward units. A bad
intention without action does not merit any debit (sin) units but when carried out gets one sin
unit.
Further, Islamic scholars have classified the value of all actions into five categories;
Fard (obligatory), Sunnah or Mustahab (recommended), Mubah (permitted but legally
indifferent), Makruh (disapproved) and Haram (forbidden) (Doi, 1992;Kamali, 1991). Fard
acts attract reward units and leaving them out attracts sin units. Sunnah acts attract reward
units but if left out do not attract sin units. Mubah acts do not attract reward or sin units.
Makruh acts do not attract sin units but leaving them out attracts reward units and finally
Haram acts attract sin units whereas leaving them out attracts reward units.
Although neither the exact quantum of rewards or sins, nor their exact nature is
revealed to Muslims; it forms part of the core belief structure. On the day of judgement, the
person with more reward units will be given the book of records (which the angel had kept) in
the right hand. The person with a deficiency of reward units will be given the book from the
back (Al-Qur’an, 84:7-12) and they will be glad or sad depending on the situation. Finally, the
units will be placed on the Mizan (measuring scale) and will be weighed. The person with
more good units than bad will be sent to heaven, whereas the person with a deficiency will
land in hell. In order to prevent a misfortune on the day of Judgement, the Muslim is asked
by the Prophet Muhammad (pbuh) “to take account before account is taken of you”. The
pious Muslim therefore makes a self-account (a sort of a confession to God) of the actions
he has undertaken during the day and asks forgiveness for his sins and praises God for the
good he has done. This activity serves as a sort of feed-forward control to discipline
behaviour. If a sin involves other persons, then restitution is an essential pre-condition for
forgiveness.
It can thus be seen that for a believing Muslim, accountability and accounting is ingrained by
his religion into his soul, as Khir (1992) asserts,

“the concept of accountability is so ingrained in the (Muslim) community. This to

me is the greatest motivation for the practical development of (Islamic)
accountancy. This is due to the fact, that Muslims hold dearly to the concept of
man as a trustee and not as holder of absolute power”.
(Khir, 1992, p 36)

Further, this accountability concept is not restricted to spiritual aspects but extends to
social, business and contractual dealings. The Qur’an declares that “And Fulfil contract,
Verily (fulfillment of) contracts will be questioned (on the day of reckoning)” (Al-Qur’an,
17:34). Hence, it is thus logical to extend this ingrained accountability and accounting
(recording of actions by angels) concepts into the notion of “Islamic Accountability” which
can be used as the main objective of Islamic accounting.
By Islamic accountability, the researcher means, undertaking actions (and refraining
from some) and giving account of the actions taken (and not taken) by an organisation or
person (the accountor) in discharging its Shari’ah obligations both contractual and social as
an aid to self-correction and inducing behaviour of stakeholders towards falah. This will
transform accounting into a social accountability activity, as Schweiker (1993) puts it:

“what makes accounting an activity concerned with how we should live.. (is) giving
an account of our past actions and their consequences(usually described in a
number of ways; political, economic, social and personal) that is, of ascribing
accountability ex post facto”.
(Schweiker, 1993, p 234- 241)
 How would Islamic accounting influence the behaviour of stakeholders towards
falah? From the conventional accounting literature (e.g. Hines, 1988) we know accounting
can give importance to certain notions i.e. what is accounted for becomes what is important.
If profit is emphasised in conventional accounting, Islamic accounting should disclose
information about Shari’ah compliance and non-compliance. Similarly, an alternate valuation
system (in line with the Shari’ah) may have to be conceived giving scores to events and
actions which have social and moral values encouraged by Islam. Although these units
cannot be distributed to stakeholders, they will certainly point them towards what is
important. Furthermore, the control aspect is very important. If information users know that
the entity has not followed Shari’ah actions, they can demand explanations and take actions
resulting in the entity complying with the Shari’ah in the future, thus protecting the economic,
social and spiritual future of the users. Thus:

“It is very important that accounting performs as a control tool of the Sharia in
respect of economic activities; that is, an Islamic accounting system must conform
to the Sharia verses (in the Qur’an), while measuring , recording and reporting
financial outcomes”.
(Askary & Clarke, 1997, p 143)

There is also a philosophical point to consider here. In the view of symbolic

interactionists (e.g. Blumer, 1969), the self is the most important element of the dynamic
pattern of an individual. The self experiences social interactions, which it may internalise or
reject. When an individual internalises the values of a society (or Islam, for that matter), his
covert (thinking) and overt actions will be actualised based on the perspectives of those
values (Triyuwono & Gaffikin, 1996). However, an accounting system is like a mirror
(surface) reflecting reality. Further, the appearance of the reality depends on the surface of
the mirror because as (Dillard, 1991) argues, “different surfaces (ideological frames) reflect a
different reality”. Hence for Muslims with different value sets, Islamic accountability can be
attenuated by an Islamic accounting system which reflect Shari’ahte values (Triyuwono &
Gaffikin, 1996).
Although the word, accountability is not used in the “objectives of financial accounting
for Islamic banks and financial institutions” (AAOIFI, 1996), the notion of accountability is
implicit. In noting the differences between objectives of financial accounting for Islamic banks
and other banks, it states that:

“[while] financial accounting is mainly concerned with providing information to

assist users in making decisions, those who deal with Islamic banks are concerned
in the first place to obeying and satisfying Allah in their financial and other
dealings”. (AAOIFI , 1996, p22).

Further, the AAOIFI (1996) lists four objectives of financial accounting in the same
statement and only the last seems to be decision-usefulness; the first three pertain to Islamic
accountability. The statement lists the determination of rights and obligations of all
interested parties in accordance with the principles of the Shari’ah and its concepts of
fairness, charity and compliance with Islamic business values (Para 6/1(a)). It also includes
the encouragement of compliance with Islamic Shari’ah in all transactions and events (Para
6/1 (c)). Thus the notion of Islamic accountability is implied strongly in a prominent Islamic
accounting Regulatory Institution document (Pomeranz, 1997).
Adnan & Gaffikin (1997) advocate a slightly different view of accountability, basing
their findings from a reading of some Qur’anic verses. They assert that the primary objective
of (Islamic) accounting information is the provision of information to satisfy an accountability
obligation to the real owner (Allah). However, they assert that the overall accountability to act
within the Shari’ah would be better operationalised, if the accountability is directed towards
the fulfillment of the Zakat obligation (which is considered God’s share of the wealth). They
argue that this emphasis on accounting for Zakat is logical because it is a prime Islamic
socio-religious obligation, it will lead to avoidance of cheating and window dressing.
Consequently it will lead to a discharging of societal responsibility, because Muslims believe
that God always watches over them and thus is aware of any wrong doing in this respect.
One could argue that God equally watches the faithful on all transactions and not only those
pertaining to Zakat. However, what the authors seem to imply is that, the psychological
affect of avoiding window dressing games in Zakat accounting is real because both
preparers and users realise that they cannot cheat God of his share.
This is a strong argument but the researcher believes that a broader concept of
accountability is better because, although Zakat is an important socio-religious obligation, it
is just as important to ensure just rights of various stakeholders of large organisations,
especially in this era of large corporations. If large businesses and other entities are not held
Islamically accountable but only Zakat accountable, they may pay Zakat on unlawful and
immoral sources of income, which is forbidden by Islam. This may create havoc for the
economic, moral and spiritual health of stakeholders such as by instilling consumerism
through their marketing activities.
The researcher proposes the Islamic accountability model, based on the dual
stewardship model of Chen (1975), Gray et al.’s (1996) accountability model and Islamic
concept of Khilafa. The proposed model is illustrated in figure 6-3 and is elaborated next.
The numbers in brackets corresponds to the numbered arrows (information flows) in the
model.
The Islamic accountability model is premised on both Islamic and Muslim
organisations (through their managers), and Muslim owners /investors having dual
accountabilities. The first or prime accountability arises through the concept of khilafa in
Islam whereby a man is also a trustee (khalifa) of Allah’s (God’s) resources (physical and
intellectual). Under the khilafa concept, he is also accountable to Allah for the care of other
human beings (specifically local community, society and employees, in the case of
organisations), animals and environment. This primary accountability is transcendent, as it
cannot be perceived through the senses and is therefore represented by a dotted arrow (1).
However, this transcendent accountability is made visible (through the revelation of the
Qur’an and Hadith) to both investors and managers, in the form of Islamic teachings. This is
represented by the two dashed arrows (2).
The secondary accountability is established by contract between the owner/investor
and manager (e.g. through the Memorandum and Articles of Association of a company). The
solid arrows in the model represent this (3). The secondary accountability contract between
the owner/investor and manager implicitly or explicitly embeds the primary accountability
stipulations of Islam. As the company performs its activities the Islamic accounting system
identifies, records, measures and reports these socioeconomic activities (similar to the
conventional accounting system) to the investor thus discharging the secondary
accountability. This is again shown in the model by the solid arrows (4), as these are
perceivable by the senses. The latter completes the secondary accountability cycle.
However, the Islamic accounting system also identifies, measures and reports the
socioeconomic activities pertaining to Islamic/social/economic/environmental and other
issues to both the owner/investor and the manager (5 & 6). Dashed arrows show these
information flows. The information thus disclosed enables both these parties to monitor the
activities of the organisation and ensure their primary accountabilities (measured by Qur’anic
and Hadith criteria) in their capacities as khalifas of Allah, are discharged. The Angels of
course record these actions and account this to Allah according to Islamic belief. However,
as these latter information flows (7) are not perceptible to the senses, they are shown as
dotted arrows to indicate their metaphysical nature. These information flows complete the
primary accountability cycle.
 FIGURE 6-3:THE ISLAMIC ACCOUNTABILITY MODEL

ALLAH/
GOD
(Primary
Accountee)

PRIMARY
PRIMARY ACCOUNTABILITY
ACCOUNTABILITY (Angelic Records)
PRIMARY ACCOUNTABILITY
(Angelic Records)
THROUGH THE QUR’AN &
HADITH
(Trusteeship of physical resources
and creatures arising from nature of
man as Khalifa)

7
[ 7
2 2

KHALIFA KHALIFA
(Vicegerent: (Vicegerent:
6
Primary 6 Primary
Accountor) 5 Accountor)
4 ISLAMIC
MAN ACCOUNTING 4 MAN
INVESTOR SYSTEM MANAGER
Secondary (Secondary
Accountee Accountor)

Managerial Contract
3 [SECONDARY 3
ACCOUNTABILITY]
 The Islamic accountability model can thus be seen to have two accountability cycles,
one to God and one to men. The accountability to God is partly transcendent and is thus
indicated by dotted arrows. That part of accountability relationships to God which is
perceptible, is indicated by dashed arrows. Finally, solid arrows designate the normal
physical accountability relationship between man and man.

6.1 SUBSIDIARY OBJECTIVES OF ISLAMIC ACCOUNTING

The main objective of Islamic accountability needs to be supplemented by subsidiary
objectives to further operationalise and refine the concept in practice. The researcher
proposes four subsidiary objectives for Islamic accounting; (i) Shari’ah compliance, (ii) the
proper assessment and distribution of Zakat , (iii) the equitable and fair distribution of wealth
generated by an organisation, and (iv) the creation of a co-operative environment and
solidarity. These are discussed below:

6.1.1 Shari’ah Compliance.

The first subsidiary objective would be to enable the activities of the entity to be
controlled to be in line with the Shari’ah. This was already partially covered in the main
objective but specific information on Shari’ah compliance would be a main part of the Islamic
accounting information framework. Here, not only is the immediate Shari’ah meaning of halal
(permitted) activities and avoidance of prohibited (haram) activities meant, but also a
broader more comprehensive view of the Shari’ah, including the protection of the
environment. Unfortunately, the case of Islamic banks seems to indicate that Shari’ah
compliance has become a technical compliance with the letter of fiqh legal devices. For
example, the significant use of mark-up (murabaha) financing does not seem to realise the
objectives of the Islamic economic system for which Islamic banks were established. The
researcher takes a broader view of the Shari’ah, taking the maqasid (objectives of) al-
Shari’ah approach of al-Shatibi which was discussed in Chapter 2 (see Kamali, 1989). Thus,
Shari’ah compliance would include steps taken by the Islamic organisation to relieve poverty
and hardship, to avoid damage to the environment, to avoid consumerist and misleading
advertisements. An indication of the “broadness of the Shari’ah” meant by the researcher is
illustrated by Khan (1994a). He suggests that businesses should promote the overall-
objective of the Shari’ah including protecting the environment, keeping its contracts and
promises, propagation of good and negation of evil, and contribute towards the
socioeconomic development of society. He asserts that Islamic society requires information
on these matters and therefore accountants should respond to these demands by
developing new concepts and procedures.

6.1.1 Assessment and Distribution of Zakat

This is a very special case of Shari’ah compliance and wealth distribution. Under
conventional accounting, tax avoidance is a major activity for accountants. No consideration
is given to the fact that less tax means less wealth distribution and less money for public
benefit. Accountants in the guise of tax consultants spend their intellectual talent to benefit a
few people. In Islam, however, Zakat is a prime religious obligation on the same level as
obligatory prayer. It is an act of honour, duty and obligation to assess Zakat properly on the
wealth and profits of an entity. Pious Muslims always attempt to over rather than
underestimate Zakat, as any excess is credited to his account as voluntary charity on the
day of judgement.
The practice of Zakat assessment and collection has been carried out since the
Prophet’s time. Under the Islamic economic system, Zakat is a cornerstone of public fiscal
policy of in Islamic State. Even in the absence of a truly Islamic government, many Muslim
countries have departments to collect Zakat and distribute them. Hence, the ability to assess
the proper amount of Zakat to ensure that Zakat beneficiaries get their rightful share is a
very important.
 Adnan & Gaffikin (1997) advocate Zakat assessment as the main objective of Islamic
accounting. They see accountability manifested “ in the form of how one can account for his
or her Zakat obligations properly” (p121). Gambling & Karim (1986) also suggest that the
way forward for Islamic accounting and finance is to develop the concept of Zakat more fully.
In fact, Gambling & Karim (1986) point out that the requirement to have a different valuation
system of Zakat calculation requires the need for an accounting system that is adequate to
provide the required tax-base on which Zakat should be calculated.
Since the recipients of Zakat are well defined in the Qur’an itself (mainly poor and
destitute), the payer may be motivated to pay more rather than less because the Zakat payer
knows it will be mostly used for the poor and the destitute. To make this a reality, however,
one may require more rather than less accounting.
The Zakat objective is further endorsed by the AAOIFI (1996) in their objectives of financial
accounting for Islamic Banks. Under the heading of “Objectives of financial reports”, it
declares that:

“Financial reports......should provide the following types of information.....(c)

Information to assist the concerned party in the determination of Zakat on the
Islamic bank’s funds and the purpose for which it will be disbursed”.(AAOIFI,
1996, p28-29)

The objective of proper Zakat calculation is so important that the AAOIFI has come
out with an exposure draft on Accounting for Zakat (Financial Accounting Standard No. 11)
which gives detailed rules for determining the Zakat base and the asset valuation method to
be used.
Further, Khan (1994a) suggests that since Zakat is an obligation on all individuals
(and organisations) with wealth of more than a certain minimum, every individual (and
organisations) has to keep account of his assets so that Zakat can be calculated properly.
Thus, the importance of Zakat assessment is one of the primary objectives of Islamic
accounting.

6.1.2 Equitable distribution of wealth among stakeholders

Justice and equity are two of the main objectives of Islam. Further, concentration
of wealth is discouraged by the Qur’an itself even if this is legally done. Hence, equitable
distribution of wealth among stakeholders would be a prime objective of Islamic
accounting. Justice in Islam means to give everyone his or her due according to Doi (1992).
Hence accounting information should enable all users to get their fair share of wealth
generated by an organisation. Zakat is a special case, which is already taken up earlier.
What is of special concern here is the distribution between shareholders/owners,
managers and employees. Conventional accounting masks distribution above the bottom
line through transfer pricing and other creative practices. Thus, the “above the bottom line”
distribution is especially important such as the flows between locals and expatriates,
Muslims and Non-Muslims, the ‘workers’ and managers. Managers can siphon off wealth in
the form of perks and excessive remuneration in the form of share options, bonuses and
expense accounts. In particular, Islamic accounting should avoid the problems of
conventional accounting associated with inequitable wealth distributions noted by Tinker
(1985).
Tinker (1985) noted that conventional accounting with its neo-classical orientation
seeks to measure and disclose indexes of wealth accumulation - profit. This is an
inadequate metric of performance because it ignores how wealth is distributed: between
insiders and minority shareholders (greenmailing and fraud), government and corporations
(tax liability) and business and public (in case of rate determination) and business and
society (pollution costs). Due to its marginalist dependency, “accounting has no way of
judging the inequality or exploitativeness of exchange” p172). According to Tinker,
accounting has also suffered from social alienation because of its involvement in a number
of recent controversies where accounting has helped to expropriate wealth from one social
constituency to another” (outsiders to insiders).
The AAOIFI (1991) places the determination of the rights and obligations of all
interested parties” (p28) in accordance with the concept of fairness and charity under the
Shari’ah, as the first objective of financial accounting for Islamic banks and financial
institutions. This obviously includes the rightful share of wealth, which would be the main
concern of financial accounts.

6.1.3 The creation of an co-operative environment and solidarity

The Qur’an in verse 282 of Chapter 2, refers to the avoidance of doubts between
parties as the objective of recording deferred obligations. Doubts and suspicions are termed
Satanic and some suspicions are sins. Further, doubts can lead to mistrust, enmity and
breakdown of harmony. This is especially the case when money is involved because it often
leads to breakdown in friendship. This is a particular failing of conventional accounting which
Islamic accounting has to remedy. Lehman (1992a), for example, contends that accounting
practice has been theorised in a social and political vacuum, which have led to the
misapprehension, silence and anomalousness of controversies surrounding various
stakeholders. Further the accountants’ “privileged access to specialised information, which
places them in position of power and knowledge” (p2) has not always been used responsibly
as evidenced by the affliction of accounting by financial collapses and controversies. She
argues that accountants play changing roles as arbitrators, public policy makers, legitimators
and mythmakers in social conflicts. Hence, Islamic accounting is obligated to take up
Lehman’s (1992a) call for accounting to move beyond the posture of ‘objectivity’ and
‘efficiency’ and to move towards the solidarity which Arrington (1990) proposes.
Further solidarity and co-operation in society is better than cut-throat competition
which results in financial losses and ultimately unfair competition such as by driving out
competitors using loss leader marketing techniques.