Emerging issues for auditing in Islamic Financial Institutions: Empirical evidence from Malaysia

Abstract

The study examines the perspective of practitioners who are involved directly and/or indirectly with the process of shariah compliance/auditing from Islamic financial institutions (IFIs) in Malaysia on the issues of standards for shariah auditing, auditors qualifications and independence. The paper examines 77 self-developed questionnaires applicable to the main issues focused by this study. The survey questionnaires are distributed by mail or delivered in person to 85 respondents in 21 Malaysian Islamic financial institutions. It is found that Malaysian IFIs are in need of properly guided shariah standards for shariah auditing practices. The scarce resourceful auditors with both shariah and accounting/auditing qualifications and the issue of self review threat to independence may affect the reputable image of Islamic financial institutions. The findings reinforce the importance of auditors’ qualification and independence as currently there is no mandatory regulated professional shariah auditor code to be in tandem with drastic growth of the IFIs. The paper offers practical implication to regulators in providing a direction to revise the existing standards for shariah auditing practices and to formulate a mandatory professional governance structure for shariah auditors.