i

THE EXTENT OF COMPLIANCE WITH THE AAOIFI

ACCOUNTING STANDARDS BY ISLAMIC BANKS

IN BAHRAIN AND MALAYSIA

Adel Mohammed Yaslam Sarea

(Matric No. 4070007)

Thesis submitted in fulfillment for degree of

DOCTOR OF PHILOSOPHY

Faculty of Economics and Muamalat

UNIVERSITI SAINS ISLAM MALAYSIA

NILAI

May 2011

i

AUTHOR DECLARATION

I hereby declare that the work in this dissertation is the result of my own

investigations, except where otherwise stated. I declare that it has not been

previously or concurrently submitted as a whole for PhD degree at USIM or

other institutions.

Affirmed by:

ADEL MOHAMMED YASLAM SAREA

Signature: _________________________

Date: 7 May 2011

Matric No: 4070007

Address:

A-4-11 Pangsapuri Harmoniz, Jalan Harmoniz, Off Jalan Gombak, Kuala

Lumpur. 53100. Malaysia.

ii

BIODATA OF AUTHOR

Adel Mohammed Yaslam Sarea (4070007) was born on 17th Nov 1979. He is currently

residing at A-4-11 Pangsapuri Harmoniz, Jalan Harmoniz, Off Jalan Gombak, Kuala

Lumpur. 53100. Malaysia.

He previously was a student of Al Al-Bayt University in Jordan and obtained master degree

in accounting from the Faculty of Finance and Business Administration 2005.

In 2003 The Bachelor of Accounting obtained from Petra University (PU) in Jordan form

The Faculty of Administrative and Financial Sciences (FAFS). Presently, He is a PhD

candidate of USIM majoring in Accounting for Islamic financial institutions from Faculty of

Economics and Muamalat Administration.

In 2007 published an article in King Abdul-Aziz University, Saudi Arabia. Entitled "The

extent of the Jordanian industrial corporation’s compliance with International Accounting

Standard No. 16 for the property, plant, and equipment" Journal of Economics and Trade

.King Abdul-Aziz University. Volume 1. Issue 21. 2007. pp 103 – 158.

In 2009 attended the AAOIFI - World Bank Annual Conference on Islamic Banking and

Finance 2009, held at the Bahrain Conference Centre, Crown Plaza Hotel, Kingdom of

Bahrain, between the 14th and 16th of December 2009.

In 2010 presented paper for 4th Islamic banking, accounting and finance conference

(iBAF2010) entitled, “The adoption of the AAOIFI accounting standards: Diffusion of

innovation” The conference was organized by Faculty of Economics and Muamalat

Administration, Islamic Science University of Malaysia. 13 and 14 October 2010.

iii

ACKNOWLEDGEMENTS

In the name of ALLAH, Most Gracious, Most Merciful. ALL praise due to ALLAH SWT,

Peace be upon Prophet Mohammed SAW.

My special appreciation goes to my supervisor, Prof.Dr.Hj Mustafa Mohd Hanefah, for his

excellent supervision and for providing valuable comments and guidance that have

motivated me in conducting this research, my expression of gratitude also goes to all

lecturers for dedicated work and valuable thoughts during my research at USIM. I wish to

give very special thanks to external and internal examiners; Prof.Dr. Muhd Kamil Ibrahim

(UiTM), Assoc.Prof. Norman Mohd Saleh (UKM) and Dr. Zurina Shafii (USIM). I am also

thankful to accountants of Islamic banks in Malaysia and Bahrain for their patience and

kindness to complete the questionnaire of my research.

I also would like to express my special appreciation to the Accounting and Auditing

Organization for Islamic Financial Institutions (AAOIFI) for invited me to attend the

AAOIFI- World Bank Conference which holds in Bahrain from 14-16 December 2009.

Finally, my utmost and heartfelt appreciation to my beloved parents and my wife for their

supporting during my study. To my son, Mohammed Adel, thank you very much for your

smiles, cries and moments of joys from which I attain my motivation to accomplished this

research.

Thank you for the wonderful support.

May Allah SWT bless all of us. Amiiin

iv

ABSTRAK

TINGKAT PELAKSANAAN PIAWAIAN-PIAWAIAN PERAKAUNAN AAOIFI

OLEH PERBANKAN-PERBANKAN ISLAM DI BAHRAIN DAN MALAYSIA

Organisasi audit dan perakaunan untuk institusi-institusi kewangan Islam (AAOIFI) telah

mengambil inisiatif yang betul untuk memajukan piawaian perakaunan, perauditan, kawalan dan

etika untuk institusi-institusi kewangan Islam. Pada saat ini, laporan kewangan yang disusun

sesuai dengan standard perakaunan yang berbeza mungkin adanya masalah dalam perbandingan,

kebolehpercayaan dan tahap pematuhan. Namun, perkembangan sastera berkembang sekitar

penafsiran tahap pematuhan dengan standard perakaunan AAOIFI, menunjukkan perdebatan

besar di antara para penyelidik. Kajian ini secara utamanya adalah untuk menyelidik

pelaksanaan piawaian-piawaian perakaunan AAOIFI oleh perbankan-perbankan Islam di Bahrain

dan Malaysia. Untuk tujuan ini, beberapa pandangan-pandangan yang berbeza telah

dibentangkan untuk menerangkan tingkat pelaksanaan piawaian perakaunan, perauditan dan

kawalan AAOIFI oleh perbankan-perbankan Islam. Dasar kajian ini disebar dengan teori inovasi,

iaitu teori yang menyatakan bahawa keuntungan yang dirasakan, kesesuaian, kerumitan, tiga kali

ganda kemampuan dan pengaruh yang dapat dilihat pada tahap pematuhan atau pengambilan

anak angkat. Selain itu, kajian ini adalah untuk menerokai dan mengukur tahap pelaksanaan

piawaian-piawaian perakaunan AAOIFI dengan menggunakan satu senarai soalan sebagai data

utama dan laporan tahunan sebagai data sekunder. T-test yang dilakukan untuk mengesahkan

perbezaan-perbezaan secara purata antara responden-responden dalam perbankan-perbankan

Islam. Berdasarkan ujian ini, kajian menunjukkan pelaksanaan piawaian-piawaian perakaunan

AAOIFI oleh perbankan-perbankan Islam di Bahrain mempunyai tahap pelaksanaan ynag lebih

tinggi. Dengan kata lain, perbankan-perbankan Islam di Malaysia mempunyai tahap pelaksanaan

piawaian yang sederhana. Ini adalah kerana pelaksanaan piawaian perakaunan AAOIFI adalah

diwajibkan di Bahrain manakala di Malaysia ia tidak diwajibkan. Walaupun perbezaan tersebut

tidak besar iaitu β > 0.05. Selain itu, kecuali piawaian perakaunan AAOIFI tidak diwajibkan di

Malaysia, kajian ini menunjukkan terdapat beberapa persamaan antara persepsi-persepsi

perbankkan-perbankkan Islam di Malaysia dan Bahrain dalam aspek-aspek tertentu berkaitan

tentang tanggungjawab menuruti piawaian-piawaian perakaunan AAOIFI. Penemuan-penemuan

yang diperoleh daripada kajian semasa akan disumbangkan ke arah pemahaman dan penerimaan

piawaian-piawaian perakaunan AAOIFI yang lebih baik.

v

ABSTRACT

THE EXTENT OF COMPLIANCE WITH THE AAOIFI ACCOUNTING STANDARDS

BY ISLAMIC BANKS IN BAHRAIN AND MALAYSIA

The accounting and auditing organization for Islamic financial institutions (AAOIFI) had taken a

proper initiative to develop accounting, auditing, governance and ethics standards for Islamic

Financial Institutions (IFIs). The AAOIFI standards serve as a guideline that may reflect the

unique characteristics of IFIs and become a useful tool to meet the various needs of IFIs.

Currently, one the major challenges facing Islamic Financial Institution (IFS) lies in the

preparation of the financial statements under different accounting standards and which may

result to problem of comparability, reliability and compliance level’s measurement. This has

however resulted to a heated debate among scholars which has hitherto translated to the evolving

existing literature surrounding the interpretation of the level of compliance with the AAOIFI

accounting standards. This study therefore mainly investigates the level of compliance with the

AAOIFI accounting standards by Islamic banks in Bahrain and Malaysia and thus provides

answers to the current debate. The basis of the study was diffusion of innovation theory which

states that, the perceived relative advantage, compatibility, complexity, trialability and

observability influence the level of compliance or adoption. The investigation is however

undertaken by employing a survey method which involved questionnaire as primary data and

annual reports as secondary data. The data was later analyzed using descriptive statistics,

regression analyses and t–test. The t-test was conducted to verify the mean differences among

the respondents in Islamic banks. The finding of the study therefore indicates that, sample mean

of banks in Bahrain is slightly higher in term of compliance with the AAOIFI accounting

standards compared to Malaysia. Even though such difference is not so significance based on the

fact that, β > 0.05. Moreover, the results revealed that, although the AAOIFI accounting

standards are not mandatory in Malaysia, there are some similarities between the perceptions of

Islamic banks in Malaysia and Bahrain on certain aspects related to the responsibility to comply

with the AAOIFI accounting standards. The findings from the current study therefore contribute

towards a better understanding and acceptability of the AAOIFI accounting standards.

vi

ملخص البحث

مدى التزام البنوك االسالمية في البحرين وماليزيا بمعايير المحاسبة للمؤسسات المالية االسالمية

لقد بادر مجلس معايير المحاسبة للمؤسسات المالية االسالمية بالعمل على تطوير معايير المحاسبة،

ة للمؤسسات المالية االسالمية، كون هذه والمراجعة، والحوكمة، وعمل على تأكيد المعايير االخالقية والشرعي

ومع . العناصر مجتمعة هي من األهمية بمكان بالنسبة إلى عمل وطبيعة ودور المؤسسات المالية االسالمية

ذلك فإن موضوع اعداد القوائم المالية تحت معايير محاسبية مختلفة نتج عنه إشكالية تتعلق بقابلية هذه القوائم

مع األصول الشرعية التي ينبغي مراعاتها عند إعداد القوائم المالية وفق معايير المحاسبة مةالمالئللمقارنة أو

للمؤسسات المالية االسالمية، هذا من ناحية ومن ناحية اخرى اظهرت الدراسات السابقة فروقات في درجة

التزام مدى قياس إلى راسةالد هذه لذا فقد هدفت. االلتزام بمعايير المحاسبة للمؤسسات المالية االسالمية

بمعايير المحاسبة للمؤسسات المالية االسالمية، وقد اعتمد الباحث على وماليزيا البحرين في االسالمية البنوك

والتجربة , ودرجة التعقيد, والقابلية للتجانس, التي تبحث في أثر االهمية النسبية) االختراعانتشار (نظرية

ى االلتزام بمعايير المحاسبة للمؤسسات المالية االسالمية، كما اعتمد الباحث والقابلية للمالحظة على مستو

كذلك على الدراسات السابقة في الموضوع وذلك لتكوين رؤية واضحة وبما يضيق الفجوة بين اإلطار النظري

احث لتحقيق وفي الجانب العملي اعتمد الب. والتطبيق العملي لمعايير المحاسبة للمؤسسات المالية االسالمية

، وقد قام بتحليل هذه البيانات، )التقارير المالية(، وبيانات ثانوية )االستبيان(هدف الدراسة على بيانات رئيسة

وقد .T–test عن طريق المنهج الوصفي التحليلي، وقام تحليل االنحدار واالرتباط باالضافة الى تحليل

ة تلتزم في وسطها الحسابي، وبدرجة عالية، بمعايير خلصت الدراسة إلى أن البنوك االسالمية البحريني

المحاسبة للمؤسسات المالية االسالمية في حين تلتزم البنوك االسالمية الماليزية بهذه المعايير بدرجة أقل، على

ويمكن إرجاع . β > 0.05أظهر عدم وجود داللة احصائية كبيرة حيث إن T– testالرغم من أن تحليل

إلى أن المشرع البحريني ألزم البنوك االسالمية بمعايير المحاسبة للمؤسسات المالية االسالمية هذه النتيجة

بينما تركها المشرع الماليزي إلى االختيار دون اإللزام، ومع ذلك تظهر الدراسة أن هناك تشابهاً الى حد كبير

تشابه من خالل آراء المستجيبين حول مدىبين كال البلدين في مسألة االلتزام بتلك المعايير، وقد اتضح هذا ال

وكنتيجة أخرى للدراسة، فقد ساهمت . بمعايير المحاسبة للمؤسسات المالية االسالمية االسالمية البنوك التزام

هذه الدراسة في فهم معايير المحاسبة للمؤسسات المالية االسالمية والوقوف على أسباب قبولها من قبل

.من البحرين وماليزيا، ومن ثم االلتزام بها وتطبيقها المصارف اإلسالمية في كل

vii

TABLE OF CONTENTS

CONTENTS Page

Author declaration i Biodata of Author ii Acknowledgements iii Abstrak (Bahasa Malaysia) iv Abstract (English language) v Mulakhas al-bahth (Arabic language) vi Content page vii List of tables xi List of figures xii List of appendices Xii List of abbreviations

xiii

CHAPTER I: INTRODUCTION

1.0 Introduction 1 1.1 Statement of the problem 2

1.1.1 Why compliance issues 6

1.1.2 Justification of the study 10

1.2 Research objectives and Research questions 12 1.3 Significance of the study 17 1.4 History of Islamic banking worldwide 20 1.4.1 Islamic banks in the middle east 23 1.4.2 Islamic banks in Malaysia 25 1.4.3 Islamic banks in Bahrain 26 1.5 Motivation of the study 27 1.6 Organization of the study 28 Summary

30

CHAPTER II: LITERATURE REVIEW

2.0 Introduction 31 2.1 Towards IAS adoption 32

2.1.1 Adoption of IAS in developed countries 33 2.1.2 Adoption of IAS in developing countries 36

2.2 Towards the AAOIFI standards adoption 39 2.2.1 AAOIFI Structure 41 2.2.2 AAOIFI Financial Accounting Standards (FAS) 42 2.2.3 AAOIFI Auditing standards 42 2.2.3 AAOIFI Governance standards 43 2.2.4 AAOIFI Ethics standards 43 2.2.5 AAOIFI Shari’ah standards 43

2.3 Mode of Islamic finance 45 2.3.1 AAOIFI FAS 2 Murabahah Financing 45 2.3.2 AAOIFI FAS 3 Mudarabah Financing 48

viii

2.3.3AAOIFI FAS 4 Musharakah Financing 50 2.3.4 AAOIFI FAS 9 on Zakah 51 2.3.5 AAOIFI FAS 17 Sukuk (Islamic bonds) 55

2.4 Implemention of the AAOIFI standards 56 2.5 International Islamic standard-setting organizations 64

2.5.1 AAOIFI 64 2.5.2 Islamic Financial Services Board (IFSB) 65

Summary

66

CHAPTER III: RESEARCH METHODOLOGY

3.0 Introduction 67 3.1 Theories in adoption of accounting standards 67

3.1.1 Innovation diffusion theory (Rogers theory) 68 3.2 Research framework 70 3.3 Major variables 75

3.3.1 Relative advantage 76

3.3.2 Compatibility 76

3.3.3 Complexity 76

3.3.4 Trialability 77

3.3.5 Observability 77

3.1.2 Agency theory 77 3.4 Other variables definition and measurements 79

3.4.1 Firm size 79 3.4.2 Profitability 81 3.4.3 Liquidity 82 3.4.4 Demographic variables 83

3.5 Population and sampling size 83 3.6 Instrumentation 88

3.6.1 The questionnaire (primary data) 88 3.6.2 Annual reports (secondary data) 88 3.6.3 Translation of the Questionnaire into Arabic language 89

3.7 Pilot study 90 3.8 Data collection procedures 91 3.9 Data analysis 94 3.10 Normality test 97 3.11 Multicollinearity test 98 3.12 Factor analysis 99 Summary

111

CHAPTER IV: DATA ANALYSES AND FINDINGS FOR ISLAMIC BANKS IN

MALAYSIA

4.0 Introduction 112 4.1 Questionnaire design 113 4.2 Reliability test 113

ix

4.3 Demographic analysis 114 4.4 Analyses and findings for research question No. 1 117

4.4.1High compliance with the AAOIFI accounting standards 118 4.4.2 Moderate level of compliance with the AAOIFI accounting standards

125

4.4.3 Low level of compliance with the AAOIFI accounting standards

127

4.5 Analyses and findings for research question No. 2 130 4.6 Test of hypothesis 134

4.6.1 Relative advantage hypothesis/ Malaysia 136 4.6.2 Compatibility hypothesis/ Malaysia 140 4.6.3 Complexity hypothesis/ Malaysia 143 4.6.4 Trialability hypothesis/ Malaysia 145 4.6.5 Observability hypothesis/ Malaysia 147

4.7 Analyses and findings for research question No. 3 149 4.8 Test of hypothesis 150

4.8.1 Bank size hypothesis/ Malaysia 152 4.8.2 Profitability hypothesis/ Malaysia 154 4.8.3 Liquidity hypothesis/ Malaysia 155

Summary 156

CHAPTER V:DATA ANALYSES AND FINDINGS FOR ISLAMIC BANKS IN

BAHRAIN

5.0 Introduction 157 5.1 Questionnaire design 158 5.2 Reliability test 158

5.3 Demographic analysis 159 5.4 Analyses and findings for research question No. 1 162

5.4.1 Highly compliance with AAOIFI accounting standards 163 5.4.2 Moderate compliance with AAOIFI accounting standards 166 5.4.3 Low compliance with AAOIFI accounting standards 167

5.5 Test of hypothesis 169 5.5.1 Relative advantage hypothesis/ Bahrain 172 5.5.2 Compatibility hypothesis / Bahrain 175 5.5.3 Complexity hypothesis / Bahrain 177 5.5.4 Trialability hypothesis/ Bahrain 179 5.5.5 Observability hypothesis/ Bahrain 181

5.6 Test of hypothesis 183 5.6.1 Bank size hypothesis/ Bahrain 185 5.6.2 Profitability hypothesis/ Bahrain 185 5.6.3 Liquidity hypothesis/ Bahrain 186

Summary

187

x

CHAPTER VI: DATA ANALYSES AND FINDINGS FOR ISLAMIC BANKS IN

BAHRAIN AND MALAYSIA

6.0 Introduction 188 6.1 Reliability test 189

6.2 Demographic analysis 189 6.3 Analyses and findings for research question No. 1 192 6.3.1 High level of compliance 195

6.3.2 Moderate level of compliance 196 6.3.3 Low level of compliance 196

6.4 Test of hypothesis 198 6.4.1 Relative advantage hypothesis 201 6.4.2 Compatibility hypothesis 203 6.4.3 Complexity hypothesis 205 6.4.4 Trialability hypothesis 207 6.4.5 Observability hypothesis 209

6.5 Test of hypothesis 211 6.5.1 Bank size hypothesis 213 6.5.2 Profitability hypothesis 213 6.5.3 Liquidity hypothesis 214

6.6 Mean contrast T-test 214 Summary

216

CHAPTER VII: SUMMARY, CONCLUSION AND RECOMMENDATIONS

7.1 Introduction 217 7.1 Conclusions for research objectives and questions 217

7.1.1 Conclusions for research objectives No.1 218 7.1.2 Conclusions for research objectives No.2 220 7.1.3 Conclusions for research objectives No.3 223

7.2 Implication of the study 224 7.3 Limitation of the study 228 7.4 Future research 230 Summary

232

Bibliography 233 Appendix (A) Summary of literature (IAS) / (AAOIFI) 243 Appendix (B) Background of Islamic banks covered in this research 250 Appendix (C) Sample questionnaire 266

LIST OF TABLES

Name of Tables Page Table 2.1: Example of items included in determining the Zakah base 53 Table 3.1: The list of Islamic banks selected for the study 87 Table3.2: Methods of questionnaires distribution 92 Table 3.3: Overall response rate 92

xi

Table 3.4: Normality test for Model 1 97 Table 3.5: Normality test for Model 2 97 Table 3.6: Multicollinearity test for model 1 99 Table 3.7: Multicollinearity test for model 2 99 Table 3.8: Factor analysis for the relative advantage construct 100 Table 3.9: Factor analysis for compatibility 102 Table 3.10: Factor analysis for complexity 104 Table 3.11: Factor analysis for trial factor 106 Table 3.12: Factor analysis for observability 107 Table 3.13.1: Factor analysis: Regression Model 108 Table 3.13.2: ANOVA (b) 108 Table 3.13.3: Predictors Coefficients (a) 109 Table 3.14: Measurements for independent and dependent variables 110 Table 4.1: Demographic profile/ Malaysia 114 Table 4.2: AAOIFI accounting standards and the levels of compliance 118 Table 4.3: High level of compliance/ Malaysia 118 Table 4.4: Moderate level of compliance/ Malaysia 125 Table 4.5: Low level of compliance/ Malaysia 127 Table 4.6: Levels of compliance with AAOIFI accounting standards from accountant’s perception

130

Table 4.7.1: Regression Model (1)/ Malaysia 134 Table 4.7.2: ANOVA (b) 135 Table 4.7.3: Predictors Coefficients (a) 135 Table 4.8: Relative advantage 138 Table 4.9: Compatibility 141 Table 4.10: Complexity 143 Table 4.11: Trialability 146 Table 4.12: Observability 148 Table 4.13 Findings of prior studies 150 Table 4.13.1: Regression Model (2)/ Malaysia 151 Table 4.13.2: ANOVA (b) 151 Table 4.13.3: Predictors Coefficients (a) 151 Table 5.1: Demographic profile/Bahrain 159 Table 5.2: high compliance 163 Table 5.3: Moderate compliance 166 Table 5.4: low compliance 167 Table 5.5: Levels of compliance with AAOIFI accounting standards from accountant’s perception

169

Table 5.6.1: Regression Model (1)/Bahrain 170 Table 5.6.2: ANOVA (b) 170 Table 5.6.3: Predictors Coefficients (a) 170 Table 5.7: Relative advantage 173 Table 5.8: Compatibility 175 Table 5.9: Complexity 178 Table 5.10: Trialability 180 Table 5.11: Observability 182

xii

Table 5.12.1: Regression Model (2)/Bahrain 183 Table 5.12.2: ANOVA (b) 183 Table 5.12.3: Predictors Coefficients (a) 184 Table 6.1: Demographic profile/ Malaysia and Bahrain 189 Table 6.2: Compliance with the AAOIFI accounting standards 193 Table 6.3.1: Regression Model (1)/ Malaysia and Bahrain 198 Table 6.3.2: ANOVA (b) 198 Table 6.3.3: Predictors Coefficients (a) 199 Table 6.4 Relative advantage 202 Table 6.5: Compatibility 204 Table 6.6: Complexity 206 Table 6.7: Trialability 208 Table 6.8: Observability 209 Table 6.9.1: Regression Model (2)/ Malaysia and Bahrain 211 Table 6.9.2: ANOVA (b) 211 Table 6.9.3: Predictors Coefficients (a) 212 Table 6.10.1: T-test Statistics- Group Statistics 215 Table 6.10.2: Independent Samples Test 215 Table 7.1: The findings are summarized in the following table 219 Table 7.2: Independents variables/ comparative 223

LIST OF FIGURES

Name of Figures Page

Figure 2.1: AAOIFI structure 41

Figure2.2 : Murabahah contract 46

Figure 2.3: Mudarabah contract 49

Figure 2.4: Musharakah contract 50

Figure 2.5: Developing Accounting Standards for an Islamic Society 57

Figure 3.1: A Paradigm of Variables Determining the Rate of Adoption of Innovations 71 Figure 3.2: Research Framework 74

Figure 3.3: Research Design 93

Figure 3.4: Steps for data analysis 96

Figure 3.5: Scree plot of factors/ Relative advantage 101

Figure 3.6: Scree plot of factors/ Compatibility 103

Figure 3.7: Scree plot of factors/ Complexity 105

Figure 3.8: Scree plot of factors/ Trialability 106

Figure 3.9: Scree plot of factors/ Observability 107

LIST OF APPENDICES

Name of Appendices Page

Appendix A: Summary of literature IAS/AAOIFI 243

Appendix B: Background of Islamic banks covered in this research 250

xiii

Appendix C: Sample questionnaire 266

LIST OF ABBREVIATIONS

AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions AASB Accounting And Auditing Standards Board ADIB Abu Dhabi Islamic Bank BAA Bahraini Accountants Association BIMB Bank Islam Malaysia Berhad BMI Bank Muamalat Indonesia BNM Bank Negara Malaysia CBB Central Bank Of Bahrain FAS Financial Accounting Standards FIBE Faisal Islamic Bank Egypt FIBS Faisal Islamic Bank Sudan GCC Gulf Co-Operation Council INCEIF International Centre for Education in Islamic Finance IAS International Accounting Standards IASB International Accounting Standards Board IASC International Accounting Standards Committee IBB Islamic Bank Of Bahrain IDB Islamic Development Bank IFI Islamic Financial Institutions IFRS International Financial Reporting Standards IFSB Islamic Financial Services Board IIRA Islamic International Rating Agency IOSCO International Organization Of Securities Commission ISRA Islamic Shari’ah Research Academy IIUM International Islamic University of Malaysia KFH Kuwait Finance House MASB Malaysian Accounting Standards Board MENA Middle East And North Africa MIA Malaysian Accountants Institutions OIC Organization of Islamic Conference SAMA Saudi Arabian Monetary Agency SSB Shari’ah Supervisory Board WB World Bank

232

SUMMARY

This chapter presented a discussion of the findings and their implications as well as the

limitations of the study and recommendations. Based on the test conducted, AAOIFI

standards have reasonably slightly high compliance for Islamic banks of Bahrain and

moderate levels of compliance with the AAOIFI for Islamic banks in Malaysia.

The respondents in Islamic banks of Bahrain and Malaysia are aware of the AAOIFI

accounting standards based on the findings presented in previous chapters. In addition,

respondent’s perceptions are positive regarding the compliance with AAOIFI accounting

standards. This might be due to the fact that the AAOIFI standards have high potential of

acceptability with more understandability among Islamic financial institutions.

In the last section, this chapter presented the implication of the findings in terms of

theoretical implication and policy implication. The theoretical framework is concerned

with the accountant’s perceptions in terms of diffusion and innovation theory which is the

most well known models which concern on perception. On the other hand, the study

concludes the findings on the policy implications in Bahrain and Malaysia. Thus, the

results should guide the regulatory bodies such as Bank Negara Malaysia (BNM), Central

Bank of Bahrain (CBB) and the setter of accounting standards for Islamic financial

institutions to comply or adopt the AAOIFI accounting standards.

233

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