Degree Name

Doctor of Philosophy


Department of Accounting and Finance


Central to this study is the belief that accounting thought is not immune from the influence of social, cultural, political, and environmental considerations [ego Merino and Neimark, 1982; Tinker et aI, 1982; Tinker, 1985; Watts and Zimmerman, 1986]. In this regard, Sombart [1919] had argued that the modem accounting currently known, could not be detached from capitalism. He furthermore claimed that either capitalism had influenced modem accounting, or vice versa. Keeping this in mind, one ought to be cautious when applying certain accounting concepts and practices to situations different from those in which the concepts have been developed; it may cause a significant bias or the objective[s] which are being targeted may never been achieved.

Islamic banks which are operating on the basis of different set of philosophical foundation [ie. Islamic Shariah] to their conventional counterparts, seem to have been inevitably applying the accounting concepts developed under the notion of capitalism. Because of that, there already are some calls urging the development of Islamicly suitable accounting standards. Such efforts commenced about two or three years ago. The idea emanated from the judgment that Islamic banks and financial institutions cannot simply adopt their conventional counterparts accounting concepts and practices, for therein lie some fundamental differences in nature. However, during the development of accounting standards for Islamic banks, every Islamic bank applies the accounting standards which are applied where it is located.

This study is focused at investigating and evaluating critically the accounting concepts and practices adopted by Islamic banks. It is directed to the cases of the Bank Islam Malaysia Berhad (BIMB) and the Bank Muamalat Indonesia (BMl). However, the study is also extended to examine the standards which are currently issued by the Financial Accounting Standards Board of the Financial Accounting Organization for Islamic Banks and Financial Institutions (FAO-IBFI). A 'modified' critical approach is taken in this study.

The study found that basically the two Islamic banks investigated are still applying the conventional accounting concepts. Albeit some adjustments are found to have been made by those banks, but these are limited to the accounting technical or method level. Little, if anything, has been done with regard to accounting basic concepts. An examination of the Statements of Financial Accounting published by FAO-IBFI indicates that approach being taken seems to be positivistic. Moreover, there has been very little rigorous nonnative study of the issues involved. This research study is aimed, therefore, to fill this gap.