Browsing by Author "Nur Laili binti Ab Ghani"

Shari’ah audit is an important element to ensure Shari’ah compliance in Islamic banking operations. Currently in Malaysia, each Islamic bank and financial institution is required by the Shari’ah Governance Framework to establish the Shari’ah audit function to provide reasonable assurance and ensure an effective internal control system for Shari’ah compliance. At the moment, there is lack of empirical studies conducted to ensure proper practice of the Shari’ah audit in Islamic banks in the absence of a Shari’ah audit framework. The primary objective of this research is to determine the extent of Shari’ah audit practices in Islamic banks in Malaysia. The study also evaluates the supervisory and practical challenges in the implementation of Shari’ah audit practices. The research adopts the mixed method approach consisting of a survey questionnaire and structured interviews. Survey questionnaires were distributed to the heads of Shari’ah audit, internal Shari’ah auditors, Shari’ah executives and Shari’ah Committee members of 16 Islamic banks in Malaysia. The study conducts structured interviews with the Shari’ah Committee members in selected Islamic banks. The study adopts the Exposure Draft of Internal Shari’ah Audit Framework (ISAF) issued by the International Shari’ah Research Academy (ISRA) as a benchmark to measure the extent of Shari’ah audit practices. From the findings, the results indicate that almost all Islamic banks have established the audit objectives, governance structure, competency of internal Shari’ah auditors, audit process and reporting requirements as part of their Shari’ah audit practices. However, some Islamic subsidiaries have excluded audit scope and audit charter. Also, internal Shari’ah auditors, Shari’ah executives and Shari’ah Committee members agreed that it is important to develop a proper structure for the Shari’ah audit function in Islamic banks. The study found that Shari’ah Committee members understand Shari’ah audit in terms of ensuring Shari’ah compliance, the need to ensure competency of internal Shari’ah auditors and the need to have audit guidelines. They also faced challenges such as to supervise Shari’ah audit findings, to determine Shari’ah audit work and to conduct an internal Shari’ah audit. In conclusion, the good Shari’ah audit practices in Islamic banks have constituted a positive development in enhancing the integrity of Islamic banks. This further highlights the need for Bank Negara Malaysia to establish a standard Shari’ah audit framework in Malaysia.

An effective internal Shariah audit function in Islamic Financial Institutions (IFIs) is imperative to ensure better management of the Shariah non-compliance risks through a more robust Shariah audit practices. The accountabilities of the Board and Shariah Committee members are also vital to provide effective oversight on the internal Shariah audit function. The primary objective of this research is to evaluate the extent of the effectiveness of the internal Shariah audit function in IFIs in Malaysia. By using contingency theory, the study also examines the antecedents of an effective internal Shariah audit function. Consequently, the impacts of an effective internal Shariah audit function on the extent of Shariah governance and Shariah compliance disclosure in the Statements by Directors and Shariah Committee Report are examined based on the accountability theory. The study adopts a quantitative research method using a survey questionnaire and content analysis of the annual reports of IFIs in Malaysia. The total population of 47 IFIs during the period of data collection, i.e. the year 2016, were observed as the unit of analysis and the targeted sample. Survey questionnaires were distributed to the Heads of Shariah audit who are the key representatives of the internal Shariah audit function in IFIs in Malaysia. The findings indicate that the majority of IFIs have established an effective level of internal Shariah audit function. The internal control system is found to be the dominant contingent factor to contribute positive and significant effects to the effective internal Shariah audit function. There are positive but not significant effects between the Shariah risk management function, management support, and the function of Shariah Committee members on the effective internal Shariah audit function. The study also found that an effective internal Shariah audit function has a positive effect on the Shariah governance and Shariah compliance disclosures in the Statements by Directors and Shariah Committee Report. However, the effects are also not significant. The majority of IFIs have disclosed a minimum level of Shariah governance and Shariah compliance information in the Statements by Directors and the Shariah Committee Report. In conclusion, an effective internal Shariah audit function indicates the robustness of the Shariah audit practices and better management of Shariah non-compliance in the IFIs. The findings contribute to the need of rigorous monitoring and more attention by Bank Negara Malaysia as the regulator on the effectiveness of the internal Shariah audit function performed by the Takaful operators and Islamic windows in commercial and investment banks. This further emphasises the crucial need for a holistic Shariah compliance culture in IFIs to enhance the effective internal Shariah audit function and ultimately, enhance the integrity and accountability of IFIs.