A Study on Timeliness of Income Recognition for Shariah Compliant Companies: A Malaysian Evidence

Abstract

This paper aims to discover the timeliness of income recognition in Malaysian’s Shariah compliant companies. In Islamic teachings, weight and measurement play a significant principle in business transactions which have repeatedly emphasized by the Prophet S.A.W. Riba’ or interest is forbidden in the Quran. Sunnah should be followed. Nevertheless, post-modern business world embraces International Financial Reporting Standards (IRFS) for reporting for which in contrary is insufficient to cover certain elements of Islamic practice. Hence, Shariah compliant companies are torn in between pursuing religion obligations and being internationally acceptance for compliance and reporting. This research has collected evidence from 712 companies listed in Bursa Malaysia under Shariah law, a decree that is enshrined in the Quran. We employed multiple regression method to test the samples. Malaysian capital market is chosen as our research contender due to its position as the most important Islamic finance center. In effect, even though the main driver for reporting financial statements are IFRS, we found that income recognition in these companies is not significant, an important virtue that is weighty in Shariah companies. There were few studies on Islamic financial institutions that cover different angles of income recognition for other countries. This study focus on the same scenario, yet supplemented with a study on income recognition in Shariah compliant companies in Malaysian capital market.