DIFFERENT ACCOUNTINGS FOR DIFFERENT WORLDVIEWS – THE CASE FOR AN “ ISLAMIC ACCOUNTING”.
Dr. Shahul Hameed bin Hj. Mohamed Ibrahim
Assistant Professor,
Dept. of Accounting,
International Islamic University Malaysia
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Abstract:
In the Muslim world, Islam plays a very significant role in the social and economic life of Muslims arising from the Islamic worldview, beliefs, values and rituals, much more than Christianity in Western society (Haneef, 1997). This is evidenced by the growth of Islamic banks, Islamic financial and Takaful (insurance companies) and a general trend towards the demand of the Muslim demos for the application of the Islamic Shari’ah in political, economic and social life of the Muslims (IAIB, 1997;Sivan, 1985). In academia, Islamisation of knowledge is one of the components of this wider Islamisation of society (Abu Sulayman, 1988;1989) . Islamic economics, one of its outputs, is already an established discipline in many Muslim countries. This has bred Islamic financial and economic institutions which aim to achieve Islamic objectives within its worldview. However, despite attempts by AAOIFI (Haqiqi & Pomeranz, 1997) to introduce accounting standards for Islamic Financial institutions, these institutions continue to use conventional accounting which is perceived to be value neutral. A previous article (Shahul, 2000b) highlighted the philosophical assumptions that underlies conventional accounting and argued that continual use of conventional accounting may be dysfunctional to these institutions. In this paper, the authorextends the argument and highlights the relationship between the Islamic worldview and values on the one hand and the objectives, nature and characteristics of aproposed Islamic accounting, which would perhaps better serve the Islamic institutions in achieving their objectives, as opposed to conventional accounting.
1.INTRODUCTION.
A worldview (weltanschauung) can be thought of as the set of implicit and explicit assumptions about the origin of the universe and the nature and purpose of human life (Chapra, 1992). The worldview controls the “nature of man’s reflections on almost any subject” (Chapra, 1996, p 6). Differences in world-view can lead to differences in economic values and norms, which in turn affects accounting .
Every society has a shared worldview, norms and values, which give it its distinctivenessand cultural identity and delineate it from other societies and cultures. The group, which shares this cultural identity, could be of national, regional, ethnic or linguistic origins. However, when similar norms and values transcendgeographical, linguistic and even ethnic boundaries, the society tend to become a civilization, even if these linguistic,ethnic and geographical traditions remain intact among the group sharing this ‘civilizational’ identity.
Westerrn and Non- Western civilizations have their own world-view and values which translate into economic codes, behaviour and institutions intended to achieve the objectives of their own world view. It does not seem logical then for conventional Anglo-American accounting, which is rooted in Western philosophical values (Shahul, 2000b) and meant to achieve different aims and objectives, to be used by these societies. In this respect, conventional accounting has also received criticism from an Islamic perspective (Shahul, 2000b, Adnan & Gaffikin, 1997, Hamid et al., 1993). In particular, the objectives, characteristics and disclosure requirements of conventional accounting are said to be inadequate and misleading from an Islamic perspective. Further, attempts have been made to develop an Islamic perspective of accounting (e.g. Gambling and Karim, 1991;Karim (199x CF paper)AAOIFI, 1996:Triyuwono, 199x;Baydoun & Willet 2000,
However, a survey of annual reports of Islamic banks and other financial organizations (Shahul, 2000a) shows those Islamic corporations which were set up supposedly to attain the objectives of the Islamic economy continue to use conventional financial reports which promote investor behaviour towards maximizing profits (despite the efforts of AAOIFI in setting up accounting standards for Islamic banks and financial institutions). Conventional accounting accomplishes this by reifying terms such as “profits”, “net income”, “financial position”, “cost control” and “return on investment”. This according to Hines (1988), “constructs its own reality” which might lead to Islamic institutions not achieving the socio-economic objectives for which they have been established. This may lead to the Islamic institutions themselves being transformed into Western capitalistic institutions in substance with an Islamic form (Shahul, 2000b), which would even contradict conventional accounting doctrine of substance over form, if not totally misleading its users, as to their Islamic credentials. Perhaps the lingering perception of conventional accounting among practising professional accountants including even Muslim ones (Maliah, 1997), is responsible for this state of affairs.
Further, critical and social accounting researchers (e.g. Tinker, 1985; Gray et al., 1996) have debunked the myth that accounting is a technical, neutral discipline that is value-free. They have criticised conventional accounting (and accountants) for creating; social conflict (Lehman, 1992), unemployment and underemployment, concentrating wealth by re-channelling public property into private hands (Arnold and Cooper, 1999), damaging the ecological environment (Maunders & Burrit, 1991, Tinker, 1985), financial scandals and fraudulent investment practices (Briloff, 1990), and creating inter-personal conflicts in organizations (Argyris, 1990).
The critical, social and interpretive schools of accounting can be thought of as different paradigms (Hopper & Powell, 19??) within the same (secular fundamentalist) worldview (shahul 2000a). However, as Chua (1986) has noted even within these different paradigms of the same worldview, the objectives, methodology and findings of accounting research and policy prescriptions resulting therefrom can be very different. In the case where a different society shares a different worldview, it is logical to expect the accounting system or set would presumably be very different as well.
Despite the arguments given above however, conventional (read “Western, Anglo-American”) accounting continues to be preached as the only possible accounting that is suitable for all civilizations and societies through various devices including (i) professional examination schemes of UK and Australian based professional accounting bodies (Briston and Kedslie, 1997), (ii) the efforts of the IASC in ‘harmonising’ (perhaps, hagemonising would be a better word!) international accounting standards (Taylor, 1987) and (iii) the operations of the multinational corporations and their auditing firms.
The author believes that different civilisations with their different worldviews should have their own accountings This will lead to different set of ‘accountings’ for different worldviews. Although, this may not be to the liking of the IASC in harmonising accounting standards and the trend towards globalisation (read hegemony), yet this is essential if each society is to achieve their own socio-economic objectives within their own milieu and values without creating social and environmental problems caused by the unsustainable economic demands brought about by ‘rational’ economic behaviour. This is not far-fetched as might initially thought to be as alternative accountings have been slowly forthcoming since the Corporate Report (ASSC, 1975), in the form of social, environmental and critical accounting. The latest in these series is the global reporting initiative (GRI,2001) which suggests the use of a triple bottom line consisting of the social, economic and environmental performance of a business rather than the one dimensional economic ‘net income’. From the Islamic perspective, Baydoun and Willett (2000) have proposed the Islamic Corporate Report based on a Value Added Statement and Current Value Balance Sheet as more reflective of the Islamic view and “would better server the needs of users wishing to act in accordance with the Islamic code”.
2.Worldviews, values and accounting
3.
Shahul (2000b) has already highlighted the relationship between Western philosophical values and the objectives, nature and of conventional accounting and this will not be discussed at length here. This paper attempts to answer the questions produced by the earlier papers i.e. what sort of accounting is demanded by the Islamic world view? This is done as follows: In the next section, some alternative accountings proposed in the literature are reviewed. Thereafter, the arguments for an Islamic accounting are presented. In section 4, the Islamic worldview is presented in detail. Next, the implications of the Islamic worldview for economic objectives, codes and their accounting implications are discussed, In section 6, a comparative analysis is undertaken of the relationship between Western and Islamic Worldviews, values, objectives, economic codes and their corresponding accounting implications to show how different worldviews impacts the objectives and characteristics of an accounting appropriate to that worldview and the article concluded in section 7.
The author differentiates two civilizations here, the Western (Anglo-American/Western European) and Islamic 2civilizations. The differences in the worldviews, values and norms between the two civilizations are in part due to their sources. The West takes its values from philosophical thought 3 although it cannot be denied that Westernvalues have been influenced by Judeo-Christian religion (Russell, 1995). Despite this, however, 20 th Century Westerners seem to be moving away from religion (Ashford & Timms, 1992). On the other hand, Islamic civilizationsources its values from its religious scriptures, the Qur’an and Sunnah, although the Muslim society has not been immune to Western philosophical developments and influence e.g. the influence of platonic and Aristotelian thoughton early Islamic theology lead to the development of “ Kalam”. The Quran and Sunnah extols a different worldview which is examined in the next section
4.SOME ALTERNATIVE “ACCOUNTINGS “ SUGGESTED IN CONVENTIONAL LITERATURE
Critique of conventional accounting started as early as the 1930’s with MacNeal’s (1970,[1939]) criticism of the historical cost conventional of accounting. However, the first comprehensive proposal was put forward by the Accounting Standard Steering Committee, UK in their Corporate Report (ASSC, 1975). The Corporate Report, addressed the issue of public accountability of corporations. This report suggested that corporations which are of a significant size use significant community resources and as such, are publicly accountable to a wide suite of stakeholders as opposed to the traditional shareholder and creditor groups. It suggested that in addition to the traditional profit and loss account and balance sheet, several other statements be included in a company’s annual report including a value added statement, a statement of energy usage, an employee report and a statement of transactions with the government, amongst others. The corporate report was overshadowed by the Sandilands Report ( on inflation accounting - which was a significant issue at that time) and therefore did not attract the attention that it deserved.
However, increasing concerns with the environment brought to public attention by groups such as Greenpeace and the social problems brought about accounting in the 1980’s and 1990’s led to calls for increasing the accountability of corporations in these areas. Corporations increasingly started reporting on these issues voluntarily. For example, some companies stress the voluntary contributions of cash and time their staff have contributed to the local community. Others provide information on product and workplace safety or the contribution the company itself has made to the local community such as donations for charitable causes (Gray et al., 1996).
Environmental information such as using renewable non-polluting energy sources, measures taken to curb harmful emissions, replanting schemes, the use of biodegradable packaging and recycling waste materials have been increasingly included in the annual reports. Recently, new methods of measuring ecological inputs and outputs have been suggested as the basis on which full blown environmental accounting reports can be made, instead of merely providing qualitative non-financial information (see Gray et al., 1993). Some accounting professional bodies such as the Association of Chartered Certified Accountants have even instituted annual environmental awards for companies for producing the best environmental information in their annual reports besides funding research studies on the issue.[1]
Critical accountants try to portray the social conflict arising from the practice of conventional practice of capitalist accounting. They view the accountants as biased arbitrators in social conflict (Lehman 1992: Tinker, 1985) rather than being neutral and objective information providers. Many studies have indicated how accounting has led to:
loss of jobs through downsizing and privatization (Arnold and Cooper, 1999),
(ii concentration of wealth by a few individuals at the expense of society (Briloff, 1990)
commodification of socially necessary institutions such as water and health (Shaoul, 1997) , and
as a mechanism of personal control over other individuals (Miller and O’Leary, 1987).
Various theories such as legitimacy theory and stakeholder theory have been suggested in the literature to explain the increase in these additional information reported (Gray et al. 1996). Legitimacy theory suggests that the corporation is a social institution needs legitimacy to operate in society. As such it owes social responsibilities to the public in addition to its shareholders and creditors. Stakeholder theory on the other hand, states that the corporations have to manage and balance the interests of various groups of its stakeholders. To ward off further reporting legislation which would result from public pressure on government, the corporations manages the public stakeholder by providing these additional information to show how responsible the corporation is to society.
The above efforts mainly focus on additional accounting statements in additional to the traditional financial measures of economic activity. However, the financial bottomline i.e. profits continue to drive the main feature and focus of accounting
5.THE NEED FOR ISLAMIC ACCOUNTING
All these developments, although welcome from the Islamic perspective, are not sufficient. Muslim users and Islamic organizations, which operate under a different worldview, need a different system of accounting. Despite the fact that accounting is affected and influenced by the economic system, culture (Perera, 1989), religion (Hamid et al., 1993); and the political and social environment of a, positive Anglo-American accounting (herein referred to as conventional accounting) tends to hegemonize the globe due to the factors mentioned in section 1.
Islam, however, has its own worldview (Haneef, 1997), the most important difference with the Western worldview being that the separation of the sacred and secular realms of life is not recognized in Islam. Islam is the second largest and fastest growing religion in the world. It is not only a ritualistic religion confined to the individual but an integrated way of life combining politics, economics, culture, religion and every aspect of human life. From its very beginnings, it was an integrated way of life combining the secular and the sacred, mosque and the state, political and social life. Thus, Noreng (1997), for example, terms it as both a “political and social project “since its inception. This is unlike the understanding of religion in the modern secular West where religion is separated from the state.
There is a global resurgence of Islamic fervour at both local and international levels and the aspect, which most concerns this study, is the aspiration of the Muslims to order their political, social and economic life in accordance with Islamic teachings. Towards this end, in the socio-economic sphere, there has been a paradigm shift from conventional utilitarian economics to Islamic Economics (Presley & Sessions, 1994). In Islamic economics, the rational economic man’s utility maximising behaviour is replaced by the ‘homo-economicus-Islamicus’ (Al-Zarqa, 1980) whose consumer behaviour is limited by a ‘moral filter’ and a redefined self interest extending to the hereafter (Chapra, 1992).
To attain this “Islamic Economic System”, Islamic political and economic organisations have been set up at the international, regional and local levels. International politico-economic organisations include the Organisation of the Islamic Conference (OIC) grouping 52 Muslim countries, Economic Co-operation Organisation (ECO) grouping Iran, Pakistan, Turkey and the Central Asian States, the newly formed D8 (group of developing eight Muslim countries) and the Gulf Co-operation Council (GCC) which groups six Muslim gulf countries. These organisations have economic, scientific, trade and cultural sub-committees.
More important from an accounting point of view is the setting up of local and regional Islamic banks, insurance companies, investment companies, Muslim treasuries (baitul mal) and endowments (al-awqaf) established to operate under Islamic Shari’ah (Islamic law) and to achieve Islamic objectives. These organisations are for the most part using conventional accounting principles, which may not be appropriate to the achievement of their mission.
In addition there is a movement towards Islamisation of knowledge and disciplines (Abu Sulayman, 1989), which basically is an attempt to critically re-examine secular ‘western’ knowledge and to recast them with the values, norms and assumptions of Islam.
This movement asserts that there is a ‘crisis in the Muslim mind’, which has caused the stagnation of knowledge, and progress in the Muslim world. They assert that the way to correct the problem is to reinterpret conventional western secular knowledge into the Islamic mould and to reintegrate human knowledge derived from the senses and reason with revelation, the knowledge given by God through scriptures and the Prophets; in other words, a whole new epistemology. The apparent problem with Islamic law is that it is based on eternal principles in the Qur’an (which is the Word of God according to Muslims) and the Sunnah (the sayings and traditions of the Prophet Muhammad, pbuh[2]) and the interpretation of religious scholars over the past 1420 years. The Qur’an and the Sunnah cannot be changed. They can only be reinterpreted within strict limits in line with the requirements of time and space.
Unfortunately for the Muslim world, the process of development of Islamic law stagnated around 700 years ago and the colonisation of the Muslim world leading to the separation of politics from Islam further confounded this problem. Since the law of the land was separated from Islam, Muslim scholars became completely out of touch with the realities of modern society and state and many of the derived laws for a bygone age became obsolete. After independence, not only was there an absence of law to meet the requirements of modern society, the colonial masters had moulded their successors in the developing world with their own philosophies and left them with a legacy of knowledge, institutions and civilisation, divorced from the Islamic past. The Muslim not only had problems of reinterpreting laws to meet their current needs, there were left with an alien epistemology that alienated their thinking from their religion and forced them to lead a double life in their personal and societal roles.