International Journal Of Humanities Education And Social Sciences (IJHESS) E-ISSN: 2808-1765

Volume 3, Number 4, February 2024, Page. 1857 – 1864

Email : editorijhess@[Link]

The Role of Accounting And Auditing Organization For Islamic Financial Institutions
(AAOIFI) in Sharia Statement Of Fiancial Accounting Standards (PSAK)
Seniwati Sembiring¹), Ahmad Muhajir²)
1,2)
Universitas Al-Azhar

*Corresponding Author
Email: Amuhajir121215@[Link]

Abstract
This research is intended to provide an understanding of Islamic financial accounting standards. In carrying out
its sharia principles, sharia banks must also uphold the values of justice, trust, partnership, transparency and
mutual benefit for both the bank and for customers which are the pillars in carrying out muamalah activities .
With the rapid growth rate of Islamic Financial Institutions in the world, an appropriate standard is needed in
presenting financial reports to overcome differences in the preparation of each country. The role of AAOIFI in
this regard has greatly contributed in terms of the formulation of standards, although in practice there are many
obstacles to its application, moreover the standard that is widely used by countries is IFRS and it is not easy for
countries to adopt AAOIFI standards in a short time . Most of the standards used by Islamic banking follow the
AAOIFI standards adopted in the Sharia PSAK but in relation to IFRS standards are also applied as long as they
do not conflict with sharia principles and values.

Keywords: Accounting Standards, Islamic Banking, AAOIFI, PSAK Syariah

INTRODUCTION

Islam as a universal and comprehensive religion is very capable of answering the

complex problems of human life, including economic problems. Allah SWT says (QS.17:9)
"Indeed, this Qur'an gives instructions to a straighter path and gives good news to the believers
who do good deeds that for them is a great reward". Now what is the Islamic solution in
answering the people's economic problems?
One of the important factors in the development of a country is the existence of support
from a sound and stable financial system, the same is true for the Indonesian state. The
Indonesian state financial system itself consists of three elements, namely the monetary system,
the banking system and the non-bank financial institution system.
The increasingly complex economic development certainly requires the availability and
participation of financial institutions. Monetary and banking policies are part of economic
policies aimed at achieving development goals. Therefore the role of banking in a country is very
important. Financial institutions are very important in meeting the funding needs of parties with
a deficit of funds in order to develop and expand a business or business. Financial institutions as
intermediary institutions function to facilitate the mobilization of funds from surplus funds to
those with deficit funds.
Banking institutions in Indonesia are divided into two types, namely conventional banks
and sharia banks. Conventional banks are banks whose operations carry out an interest fee system
, while sharia banks are banks that use Islamic sharia principles in their operational
implementation. Sharia principles are rules of agreement based on Islamic law between banks
and other parties to deposit funds and or finance business activities, or other activities declared
in accordance with sharia.
In carrying out its sharia principles, sharia banks must also uphold the values of justice,
trust, partnership, transparency and mutual benefit for both the bank and for customers which
are the pillars in carrying out muamalah activities. Therefore, banking service products must be

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Volume 3, Number 4, February 2024, Page. 1857 – 1864
Email : editorijhess@[Link]

provided to be able to provide added value in increasing employment opportunities and the
economic welfare of society based on Islamic values .
Development of Islamic financial institutions and developing beliefs provides an
underlying assumption that the western financial accounting system is not compatible with
Islamic beliefs and values which have contributed to the development of Islamic accounting
research and Islamic corporate reports (Haniffa and Hudaib 2007) . This can be seen from the
rapid development of the Islamic finance industry in the world . The Islamic financial system
and industry is no longer a local issue that is limited in nature only among Muslim countries, but
has also become a global trend where non-Muslim countries have taken positions and initiatives
to adopt and develop this system as well as the Islamic financial industry. This has been proven
since the last ten years, there have been many Islamic banks established in European countries
and the United States, such as Citibank, HSBC, and Deutsche Bank which have helped develop
the Islamic banking industry in addition to carrying out their conventional practices (Maali &
Napier, 2006). Even world financial institutions such as the World Bank and the International
Monetary Fund (IMF) have also stated that the development of Islamic finance has become one
of their main programs.
Thus , Islamic financial institutions are required to have good transparency and
accountability in carrying out financial practices and presenting their financial reports. The
existence of sharia accounting standards is expected to provide relevant and reliable information.
Accounting standards are also used by users of financial statements such as investors, creditors,
government and the general public as a reference for understanding and analyzing financial
reports so as to enable them to make the right decisions. Thus, accounting standards have an
important role for the preparers and users of financial statements so that there is uniformity or
similarity of interpretation of the information contained in the financial statements.
In line with the need for standards for Islamic financial institutions, Indonesia as
one of the countries with the largest Muslim population in the world with a good growth rate in
the Islamic finance industry sector, feels a moral responsibility in developing sharia-based
financial reporting standards for the future of the Islamic economy in future. Therefore, Bank
Indonesia together with IAI and the Sharia Supervisory Board are trying to adopt Islamic-based
financial accounting standards in accordance with the needs of financial practice in Indonesia
(Rustiana, 2016).

RESEARCH METHODS

The method used in this research is library research. Data collection was carried out by
searching for literature related to the themes discussed. Sources of information obtained through
books, journals and other sources. Data analysis used in this research is text and discourse
analysis. Text and discourse analysis is used in this study because this research is a literature
study.

RESULT AND DISCUSSION

Sharia PSAK
Accounting is the main business language in the capital market. All stakeholders need
transparent, timely, effective and relevant financial information from many companies that can
be compared. This can be realized with the existence of accounting standards. However, the
existence of differences in accounting practices resulting from differences in accounting

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standards causes the comparability to be reduced or even completely lost. The financial
statements of companies in a country with good profits or performance, when prepared with
accounting standards from different countries, may show the opposite difference (Azis 2012) .
Accounting for Islamic Banking in Indonesia is guided by PSAK (Statement of Financial
Accounting Standards) No. 59 which was adopted from AAOIFI ( Accounting and Auditing
Organization for Islamic Financial Institutions ) an international Islamic financial regulatory
institution based in Abu Dhabi, UAE. AAOIFI has issued Accounting and Auditing Standards
for Islamic financial institutions since 1998.
PSAK (Statement of Financial Accounting Standards) No. 59 is a statement issued by the
Indonesian Institute of Accountants (IAI) regarding Sharia Banking Accounting. This standard
refers a lot to AAOIFI. This DSAK - IAI product needs to be applauded and is the beginning of
the recognition and existence of Islamic Accounting in Indonesia. This PSAK was ratified on
May 1, 2002, effective from January 1, 2003 or the accounting ended in 2003.
Based on a statement quoted from SAK May 2002, explaining about: "PSAK No. 59 is
the beginning of the birth of standards regarding sharia accounting. PSAK No. 59 concerning
Accounting for Islamic Banking was ratified by the Financial Accounting Standards Board
(DSAK) on May 1, 2002. Even though PSAK 59 is no longer valid, this is a milestone in our
need for sharia accounting.
The essence of PSAK 59 is that this statement aims to regulate the accounting treatment
(recognition, measurement, presentation and disclosure) of special transactions related to Islamic
bank activities. The scope in this statement applies to Islamic commercial banks, Islamic rural
credit banks, and sharia branch offices of conventional banks operating in Indonesia. General
matters that are not regulated in this statement refer to other PSAKs and/or generally accepted
accounting principles as long as they do not conflict with sharia principles.
This statement is not an arrangement for the presentation of financial statements according
to the special request (statutory) of the government, independent supervisory institutions and the
central bank (Bank Indonesia). A complete Islamic bank financial report consists of several
components, namely balance sheet, income statement, cash flow statement, statement of changes
in equity, report on changes in restricted investment funds, reports on sources and uses of zakat,
infaq, and shadaqah funds, reports on sources and uses of qardhul hasan funds , and notes to the
financial statements.
This Statement applies to the preparation and presentation of financial statements
covering reporting periods beginning on or after January 1, 2003. Earlier application is
encouraged.
After 10 years of Indonesian banking not having sharia accounting standards, finally on
May 1, 2002, PSAK 59 was passed on Accounting for Islamic Banking. The validity period of
PSAK 59 is quite long, and there has been no revision in that period.
This PSAK was only valid for 5 years and finally a special sharia accounting standard
was formed. There are several reasons why PSAK 59 is revoked, namely: 1) PSAK 59 is
considered unable to accommodate the increasingly rapid development of sharia accounting, 2)
sharia accounting is not only limited to the presentation of financial statements, but is very broad,
covering several sharia laws. 3) Islamic banking has grown and developed rapidly, so a better
standard is needed. 4) A special standard is needed regarding sharia banking, even though this
standard is still part of SAK. 5) Specialization of special sharia accounting standards is a serious
step in developing the economy in Indonesia, especially sharia banking. With the existence of
special sharia standards, it is expected to attract investors to invest.
Over time, the Islamic economy has begun to become one of the focuses in financial
institutions, which is no longer just an alternative to the shortcomings of conventional economics,
but has become a solutive economy in solving economic problems. Therefore, the existence of

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Islamic accounting is absolutely necessary to keep up with the pace of development of this Islamic
economy.
The existence of a good PSAK Syariah will also encourage the creation of a good
accounting system, so that reliable information will be available. The role of the existence of a
mature Sharia PSAK has an impact on the development of Islamic Financial Institutions.
Until now, the Indonesian Institute of Accountants (IAI) has issued 10 ( ten ) Sharia
PSAKs, namely: presentation of Islamic financial reports, murabahah accounting, salam
accounting, istishna accounting, mudharabah accounting, musyarakah accounting, ijarah
accounting, Islamic insurance, accounting, zakat, infaq & alms , and sukuk accounting.
This basic framework presents the concepts that underlie the preparation and presentation
of financial statements to its users. The purpose of this basic framework is to be used as a
reference for: 1) Setting up Islamic financial accounting standards, in carrying out their duties; 2)
Compilation of financial reports, to overcome sharia accounting problems that have not been
regulated in sharia financial accounting standards; 3) Auditor, in giving opinion on whether the
financial statements are prepared in accordance with generally accepted sharia accounting
principles; and 4) Users of financial reports, in interpreting the information presented in financial
reports prepared in accordance with sharia financial accounting standards.
Basic Framework for Preparation and Presentation of Islamic Financial Statements
This basic framework presents the concepts that underlie the preparation and presentation
of financial statements to its users. The purpose of this basic framework is to be used as a
reference for: 1) Setting up Islamic financial accounting standards, in carrying out their duties; 2)
Compilation of financial reports, to overcome sharia accounting problems that have not been
regulated in sharia financial accounting standards; 3) Auditor, in giving opinion on whether the
financial statements are prepared in accordance with generally accepted sharia accounting
principles; and 4) Users of financial reports, in interpreting the information presented in financial
reports prepared in accordance with sharia financial accounting standards.
AAOIFI's role in meeting the needs of Sharia-Based Accounting Standards
In order to be able to regulate and supervise Islamic financial institutions, an appropriate
methodology is needed in making regulations for each form and various types of Islamic financial
institutions so that later these standards can also be accepted generally or globally.
On an international scale, the need for sharia-based accounting standards has been formulated
by a non-profit organization called AAOIFI (Accounting and Auditing Organization for Islamic
Financial Institutions) which is an international Islamic organization that compiles standards and
issues related to accounting, auditing, governance, ethics, and standards. Islamic sharia for
Islamic financial institutions (IFI). As an independent international organization, AAOIFI is
supported by member institutions (200 members from 40 countries) including Central Banks,
Islamic Financial Institutions, and other members of the Islamic banking industry worldwide. To
date, AAOIFI has issued 26 accounting standards, 5 auditing standards, 2 code of ethics and 7
governance standards (AAOIFI, 2018).
The AAOIFI standard has been adopted by central banks or financial authorities in a number of
countries that carry out Islamic finance either in full (mandatory) adoption or as a basis of
guidelines. In its movement, AAOIFI is supported by a number of central banks, financial
authorities, financial institutions, accounting and auditing firms, and legal institutions from more
than 45 countries including Indonesia. The important purpose of establishing AAOIFI is actually
to prepare, compile and interpret accounting and auditing standards for Islamic financial
institutions, review and amend accounting and auditing standards for Islamic financial
institutions. Of course, with this important goal, it is hoped that Islamic financial institutions that
are developing around the world will have the right reference in compiling sharia-based financial
reports so that later financial reports can be compared with one another (Kamla, 2009).

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The big question is, how to publish a standard accounting methodology that can regulate various
types and patterns of Islamic banks that are generally or internationally accepted? In fact, AAOIFI
has attempted to develop Islamic banking standards to address the issue of differences between
IFIs and conventional products. However, in practice, this standard is still voluntary and only a
number of countries require this standard. In fact, a number of countries vary in the level of
adoption of standards issued by AAOIFI. The countries of Bahrain, Oman, Pakistan, Sudan, and
Syria have made sharia standards and AAOIFI accounting standards part of the mandatory
regulatory requirements.
The Islamic Development Bank (IDB) has also fully adopted it. Meanwhile, Brunei, the
Dubai International Financial Centre, Egypt, France, Kuwait, Lebanon, Malaysia, Saudi Arabia,
South Africa, the United Arab Emirates and the UK as well as in Africa and Central Asia have
only implemented voluntary AAOIFI standards for Islamic financial institutions. In Indonesia,
the AAOIFI sharia standards and accounting standards serve as the basis for guidelines in the
preparation of sharia standards and sharia accounting standards. Meanwhile, Malaysia uses the
standards issued by AAOIFI as a guide in its financial practices, even though in reality Malaysia
still uses the use of IFRS in the rules for preparing financial reporting for Islamic Financial
Institutions (Mohammed et. al., 2015).
Constraints in the Implementation of AAOIFI Standards
Currently, Islamic Financial Institutions (IFIs) do not only compete with conventional
banks in Muslim countries but this industry has developed very rapidly in western countries such
as the United States, United Kingdom and Australia (Haron and Wan Azmi, 2008).
Unfortunately, there are still obstacles to implementing standards for IFIs because the existing
financial institutions are still dominated by conventional institutions so that the presentation of
their financial reports still follows the conventional system.
This paper will then examine more deeply the obstacles that occur in implementing AAOIFI
standards based on the Journal made by Mohammed et. al. 2015 with the research title The
Influence of AAOIFI Accounting Standards in Reporting Islamic Financial Institutions in
Malaysia. Furthermore, these obstacles will also be compared in various countries including
Indonesia.
There are at least 2 things that are needed by Islamic Financial Institutions in their
reporting system. First, sharia-based requirements or rules, the second is rules that can be relevant
to practice. When viewed from the practice of applying standards, the biggest obstacle at the
moment is the difficulty in understanding the level of understanding of accountants and the level
of compliance with Islamic banks globally due to differences in the implementation of standards
applied to IFRS, or local accounting standards for financial reporting in Islamic banks around the
world.
The issue of the effectiveness of supervisors and regulatory agencies is a major challenge
for Islamic financial institutions that operate in complex and dynamic financial institutions. Even
though IFRS can be a reference for the rules for preparing financial statements, it is still very
doubtful if using these standards in Islamic financial institutions and equating the standards with
conventional banks. Because the institution was developed with the aim of fulfilling sharia
principles, previous research stated that there needs to be a clear distinction between sharia and
conventional accounting standards. (Vinnicombe, 2010). It is very important for IFIs to gain
public trust by reporting sharia-compliant financial reports and also sharia-compliant financial
products.
Actually, the presence of standards in AAOIFI was never intended to compete with IFRS,
but as a complement in preparing IFIs' financial reports. This view agrees with AAOIFI's
development in setting standards for IFIs by adopting the standards of conventional western

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banks. Because there are so many standards in AAOIFI and follow existing standards, IFRS has
higher rights in reporting IFIs, and AAOIFI is only used as a reference.
To examine more deeply regarding the obstacles that exist in the process of implementing
standards, there are interviews conducted by Mohammed [Link] with seven people who have an
important influence on the presentation of sharia-based financial reports in Malaysia which
further clarify the existing matters. Firstly, several correspondents agreed that the issue of
comparability between AAOIFI and IFRS standards has been a major obstacle in the adoption of
AAOIFI in Malaysia. Moreover, many countries have decided to use the same standard, namely
IFRS, to make it easier to distribute the issuance of financial reports. This further complicates the
standard separation of Islamic financial institutions in Malaysia. Second, the number of
disclosures required by AAOIFI in financial statements is also an obstacle to the adoption of
AAOIFI which is time consuming and costly, so its application is still questionable.
The use of AAOIFI standards in Malaysia is limited only as a guide and complement. The
correspondent also said that Malaysia and Bahrain have different schools of thought from Islamic
economists regarding the interpretation of contracts and products. The Sharia Advisory Council
in Malaysia is still very liberal and far from the goal (maqassid al-Shariah), therefore there are
many conventional banks that still offer their products to IFIs. The Malaysian Accounting
Standards Board (MASB) stated that there is no necessity in separating accounting standards for
Islamic financial institutions because there is no significant difference in record keeping between
IFIs and conventional products.
Even though the obligation to present financial statements for IFIs is IFRS, some
correspondents said that AAOIFI standards are still accepted because of the Islamic spirit that
exists among Muslims in Malaysia. There are many things that still need to be fixed in
implementing AAOIFI in Malaysia, such as infrastructure, education on Islamic finance before
implementing it and to achieve this it takes a long time and credible sources.
In addition to the obstacles above, actually there are many other reasons. The Islamic
banking and finance sector is not based on capitalism as contained in IFRS. While conventional
accounting uses a decision usefulness framework, Islamic accounting uses accountability based
on the shari'a compliance framework which “determines the rights and obligations of all parties,
including rights and obligations for unfinished transactions and other events in accordance with
shari'ah principles and concept of fairness, generosity and adherence to Islamic business values”
(AAOIFI, SFA 1).
The next reason is the difference in standard functions and contracts used by Islamic
financial institutions that are different from conventional banks. We all know that the core
objective of modern banking is to mobilize savings and disbursements of interest-based loans.
Islamic banks cannot accept or pay interest that is contrary to Islamic law or shari'ah and there
are several contracts that allow Islam to earn profits.
Application of Sharia Accounting Standards in Indonesia
Differences of opinion about how to account for sharia accounting financial transactions
and the pros and cons of sharia accounting standardization that arise as a result of IFRS
convergence is an important lesson in the development of sharia accounting theory that exists
today, especially in Indonesia. The unification of two different principles between the IFRS
standards and the standards made by AAOIFI will not solve the problem between the two
different accounting theories, so adjustment is one strategy to deal with the differences that exist.
If indeed a concept is not in accordance with IFRS, it should not be forced to be used and if it can
be used then use it as best as possible. The challenge for standard setters and interested parties is
to improve the cross-border comparability of Islamic financial transactions, while being mindful
of religious sensitivities and not forcing existing IFRS standards to be used. Even though IFRS
is an internationally accepted standard, the fact remains that there are some IFRS principles that

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cannot be applied to sharia interpretations, and that a separate financial reporting framework for
Islamic financial transactions is justified.
The important issues discussed above show that the principles of Islamic accounting and
conventional accounting are different. IFRS, which is an international standard that refers to
conventional accounting, it seems that there are some parts that are not compatible with this sharia
accounting principle. IFRS convergence to sharia accounting standards carried out in Indonesia
will not be one hundred percent perfect. AAOIFI in this case has formulated alternative sharia
accounting standards related to this IFRS convergence. AAOIFI in its formulation states that
when IFRS cannot be adopted as a whole by IFIs, when IASB does not have IFRS to cover Islamic
banking practices and Islamic financial practices, and when IFRS cannot be adopted, AAOIFI
will not develop standards or develop and adopt IFRS. Gaps and differences will always exist
and will continue to exist between the two standards, as they are the natural result of the different
structural objectives of the IASB and AAOIFI. IAI itself in this case also refers to AAOIFI in
responding to this IFRS convergence problem.

CONCLUSION

With the rapid growth rate of Islamic Financial Institutions in the world, an appropriate
standard is needed in presenting financial reports to overcome differences in the preparation of
each country. The role of AAOIFI in this regard has greatly contributed in terms of the
formulation of standards, although in practice there are many obstacles to its application,
moreover the standard that is widely used by countries is IFRS and it is not easy for countries to
adopt AAOIFI standards in a short time. Various countries that have Islamic financial institutions
and AAOIFI still have an important task that must be completed, namely how to make
appropriate sharia-based financial policies and standards so that they can be accepted globally.
Most of the standards used by Islamic banking follow the AAOIFI standards adopted in the
Sharia PSAK but in relation to IFRS standards are also applied as long as they do not conflict
with sharia principles and values.

REFERENCES

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Aziz, Indrawan. 2012. "The Impact of Convergence of International Financial Reporting
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Haniffa, Roszaini, and Mohammad Hudaib. 2007. "Exploring the Ethical Identity of Islamic
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Standards in Reporting Islamic Financial Institutions in Malaysia. ScienceDirect.

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Rustiana, SH (2016). The Development Of Sharia Accounting In Indonesia. Research Gate.

Sarea, AM, & Hanefah, MM (2013). The Need of Accounting Standards for Islamic Financial
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