Financial accounting and reporting in Islamic banks : the case of Jordan

Abstract

This thesis studies the accounting and reporting practices of Islamic banking in Jordan. It aims to provide a set of explanations for different measurement and reporting policies in these banks, and to identify the role of religion, among other factors, that have affected the choices of accounting and reporting practices and regulations for Islamic banking. This includes the study of the effect of religion and secular factors on the perceptions of the need for special accounting practices, such as standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The research was accomplished by undertaking an interpretative case study of the accounting and reporting practices of the Jordan Islamic Bank (JIB) over a period of 24 years; JIB has constituted Islamic banking in Jordan for most of the period covered in this study.

It was found that religious considerations highly affected the choice of accounting measurement rules and regulations at the establishment stage of JIB. However, it was found that at a later stage, governmental regulations and commonly accepted practices have had most obvious effects on the evolution of accounting and reporting. It is argued that being exposed to a high secular environment had a large effect on the accounting practices of JIB and the regulatory behaviour towards the bank. It is also argued that the adoption of AAOIFI standards in 2001 in Jordan was mainly the result of result of pressure within JIB to achieve its objectives, most importantly, presenting the Islamic status of the bank. However, the adoption of AAOIFI standards led to an enhanced level of disclosure by Islamic banks in Jordan. Regarding the need for special accounting practices, it is argued that Islamic religion affects the constructions of and perceptions about major transactions undertaken by JIB; however, for some transactions, as practised and perceived in JIB, this does not necessarily imply the need for different accounting treatments. Thus, conventional accounting standards such as International Accounting Standards would be relevant to deal with these transactions as practised and perceived in JIB. This is mainly due to highly secular effect on JIB practices. However, this is not to rule out the need for special accounting standards such as AAOIFI. It is argued that for some other transactions, AAOIFI standards are better able to deal with them in the way they are practised and perceived in JIB, and the adoption of these standards would reduce the agency problem associated with investment deposits in JIB.

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