Although the Islamic finance and banking is going to hit the US$2 trillion mark sometime this year, there are many Muslims (academics, potential and current depositors and customers) who are sceptical about Islamic banking. Potential and current customers compare the mark ups charged by Islamic banks and whenever Islamic banking mark ups are higher than their interest-charging counterparts, they assume Islamic banking is not Islamic.

The paper presents arguments on the need for inventing the profession of Shari'ah auditing and why Malaysia should take the lead to create an Association of Chartered Shari'ah Accountants and Auditors (ACSAA) that can result in long run economic benefits for the country. The paper also critically analyzes how accounting and auditing membership is being exported worldwide by few dominant players to generate economic benefits for their respective origin countries and how existing Islamic accounting and auditing qualification suppliers have failed to deliver and create holistic Shari'ah accountants/auditors required to serve in an ideal Islamic economy. The paper proposes 2 models through which ACSAA can be made a practical reality.

Pakistan is among the three countries that opted for economy-wide transformation to Islamic financial system in 1980s, the other two being Iran and Sudan. But the ‘non-interest based’ banking system introduced in mid-eighties was declared un-Islamic by the ‘Federal Shariat Court’ because the same was largely based on ‘buy-back’ (bai‘ al-‘Inah) and sale of debt instruments (bai‘ al dayn). In the new system introduced since December 2002, Islamic banking institutions (IBIs) operating in parallel with the conventional banks are using murarabah as the major mode to raise investment deposits from individuals as also the corporate sector. But based on the assumption that depositors’ risk tolerance level is close to zero, they have been giving profit to the investment depositors comparable with their conventional counterparts by way of discretionary hibah without proper disclosure. The rules of murarabah were not being followed in letter and spirit. The main issue was to give arbitrary gifts to priority depositors. The State Bank of Pakistan recently issued a comprehensive profit distribution and pool management framework in order to improve transparency and bring standardization in the IBIs’ practices while taking care for stability of the system. This paper analyses the new framework and finds that the SBP has taken a step in right direction to replace the indiscriminate use of hibah with a well thought-out profit distribution and allocation procedure along with provisions for specific reserves necessary for sustainability of the system.

Persistently high expectations from the operations of Islamic financial institutions (IFIs) appears to give way for a gap to exist between “what ought to be” shariah auditing and the current practice of shariah audit in IFIs in Malaysia. Sulaiman (2005) mentioned that “what ought to be desired (the desirable)” may not coincide with “what is actually desired (the desired)” and in consequent “what is actually desired” may not be the same as “the actual” practice. This paper aims to explore empirically the gap between “the desired” and “the actual” practice of shariah auditing in IFIs in Malaysia. It is found that there exists a gap between the two concepts in terms of certain issues discussed in this study. Even though this paper cannot hope to bridge the gap that exists, it nevertheless shows that shariah audit function has not seriously taken an impact in IFIs in Malaysia despite its potential as a monitoring tool for shariah compliance.

The purpose of this study is to examine accounting and management practices in two Indonesian awqaf institutions. It intends to seek evidence with regard to how mutawallis discharge their accountability. Two case studies were undertaken on two awqaf institutions in Indonesia, i.e. ABC and XYZ waqf foundations. Data were collected through various methods, i.e. interviews, document reviews and direct observations.The findings show that ABC shows more efficient management and greater transparency and accountability than XYZ due to the presence of Islamically committed professionals in the former, despite the better accounting information system and more “academically” qualified personnel in the latter. This study only concentrates on two Indonesian awqaf institutions.The paper is the first attempt to address accounting issues in awqaf institutions, particularly in Indonesia.