Unravelling shariah audit practice in Saudi Islamic Banks

Hatem A. Alahmadi, Ahmad F.S. Hassan, Yusuf Karbhari, Hairul S. Nahar

Research output: Contribution to journalArticle

Abstract

This paper critically reviews the limited literature on the practice of Shariah audit and expounds on its meaning and scope and explores issues on contemporary practice in Islamic banks. The study focusses on Saudi Arabia as it is the largest global player in the Islamic finance industry. The authors construct a measure for Shariah audit comparison using guidelines issued by regulators of Malaysian Islamic banks - a country with the most developed governance framework for Islamic financial institutions. Using these guidelines, we critically review comparatively the current role of internal audit and Shariah Boards (SBs) of Saudi Islamic banks in ensuring religious compliance. The study identifies a lack of consistency in the Shariah audit framework to mitigate ambiguity and risk between banks internal audit function and their respective SBs. A discernable gap exists in banks operating Islamic windows which are found to be more susceptible to religious non-compliance risk compared to their fully-fledged counterparts. Our review finds that the Shariah audit function amongst Islamic banks in Saudi still remains vague without any guidelines issued. Islamic banks in Saudi Arabia are required to develop their own internal policies to be applied by SBs and internal auditors. The paper further highlights that Saudi authorities, regulators and practitioners should ensure uniformity in Shariah audit practice for its Islamic banking industry by moving from a self-serving regulatory model and to urgently consider implementing robust Shariah audit practice and governance framework.

Original languageEnglish
Pages (from-to)255-269
Number of pages15
JournalInternational Journal of Economic Research
Volume14
Issue number15
Publication statusPublished - Jan 1 2017

Fingerprint

Audit
Islamic financial institutions
Governance
Saudi Arabia
Noncompliance
Internal audit
Authority
Islamic banking
Auditors
Islamic finance
Industry
Banking industry
Uniformity
Bank risk
Internal audit function

Keywords

  • Governance
  • Internal audit
  • Islamic banking
  • Saudi Arabia.
  • Shariah audit

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)

Cite this

Alahmadi, H. A., Hassan, A. F. S., Karbhari, Y., & Nahar, H. S. (2017). Unravelling shariah audit practice in Saudi Islamic Banks. International Journal of Economic Research, 14(15), 255-269.

Unravelling shariah audit practice in Saudi Islamic Banks. / Alahmadi, Hatem A.; Hassan, Ahmad F.S.; Karbhari, Yusuf; Nahar, Hairul S.

In: International Journal of Economic Research, Vol. 14, No. 15, 01.01.2017, p. 255-269.

Research output: Contribution to journalArticle

Alahmadi, HA, Hassan, AFS, Karbhari, Y & Nahar, HS 2017, 'Unravelling shariah audit practice in Saudi Islamic Banks', International Journal of Economic Research, vol. 14, no. 15, pp. 255-269.
Alahmadi, Hatem A. ; Hassan, Ahmad F.S. ; Karbhari, Yusuf ; Nahar, Hairul S. / Unravelling shariah audit practice in Saudi Islamic Banks. In: International Journal of Economic Research. 2017 ; Vol. 14, No. 15. pp. 255-269.
@article{e7a726cd8aec43b883a1850af28493f8,
title = "Unravelling shariah audit practice in Saudi Islamic Banks",
abstract = "This paper critically reviews the limited literature on the practice of Shariah audit and expounds on its meaning and scope and explores issues on contemporary practice in Islamic banks. The study focusses on Saudi Arabia as it is the largest global player in the Islamic finance industry. The authors construct a measure for Shariah audit comparison using guidelines issued by regulators of Malaysian Islamic banks - a country with the most developed governance framework for Islamic financial institutions. Using these guidelines, we critically review comparatively the current role of internal audit and Shariah Boards (SBs) of Saudi Islamic banks in ensuring religious compliance. The study identifies a lack of consistency in the Shariah audit framework to mitigate ambiguity and risk between banks internal audit function and their respective SBs. A discernable gap exists in banks operating Islamic windows which are found to be more susceptible to religious non-compliance risk compared to their fully-fledged counterparts. Our review finds that the Shariah audit function amongst Islamic banks in Saudi still remains vague without any guidelines issued. Islamic banks in Saudi Arabia are required to develop their own internal policies to be applied by SBs and internal auditors. The paper further highlights that Saudi authorities, regulators and practitioners should ensure uniformity in Shariah audit practice for its Islamic banking industry by moving from a self-serving regulatory model and to urgently consider implementing robust Shariah audit practice and governance framework.",
keywords = "Governance, Internal audit, Islamic banking, Saudi Arabia., Shariah audit",
author = "Alahmadi, {Hatem A.} and Hassan, {Ahmad F.S.} and Yusuf Karbhari and Nahar, {Hairul S.}",
year = "2017",
month = "1",
day = "1",
language = "English",
volume = "14",
pages = "255--269",
journal = "International Journal of Economic Research",
issn = "0972-9380",
publisher = "Serials Publications",
number = "15",

}

TY - JOUR

T1 - Unravelling shariah audit practice in Saudi Islamic Banks

AU - Alahmadi, Hatem A.

AU - Hassan, Ahmad F.S.

AU - Karbhari, Yusuf

AU - Nahar, Hairul S.

PY - 2017/1/1

Y1 - 2017/1/1

N2 - This paper critically reviews the limited literature on the practice of Shariah audit and expounds on its meaning and scope and explores issues on contemporary practice in Islamic banks. The study focusses on Saudi Arabia as it is the largest global player in the Islamic finance industry. The authors construct a measure for Shariah audit comparison using guidelines issued by regulators of Malaysian Islamic banks - a country with the most developed governance framework for Islamic financial institutions. Using these guidelines, we critically review comparatively the current role of internal audit and Shariah Boards (SBs) of Saudi Islamic banks in ensuring religious compliance. The study identifies a lack of consistency in the Shariah audit framework to mitigate ambiguity and risk between banks internal audit function and their respective SBs. A discernable gap exists in banks operating Islamic windows which are found to be more susceptible to religious non-compliance risk compared to their fully-fledged counterparts. Our review finds that the Shariah audit function amongst Islamic banks in Saudi still remains vague without any guidelines issued. Islamic banks in Saudi Arabia are required to develop their own internal policies to be applied by SBs and internal auditors. The paper further highlights that Saudi authorities, regulators and practitioners should ensure uniformity in Shariah audit practice for its Islamic banking industry by moving from a self-serving regulatory model and to urgently consider implementing robust Shariah audit practice and governance framework.

AB - This paper critically reviews the limited literature on the practice of Shariah audit and expounds on its meaning and scope and explores issues on contemporary practice in Islamic banks. The study focusses on Saudi Arabia as it is the largest global player in the Islamic finance industry. The authors construct a measure for Shariah audit comparison using guidelines issued by regulators of Malaysian Islamic banks - a country with the most developed governance framework for Islamic financial institutions. Using these guidelines, we critically review comparatively the current role of internal audit and Shariah Boards (SBs) of Saudi Islamic banks in ensuring religious compliance. The study identifies a lack of consistency in the Shariah audit framework to mitigate ambiguity and risk between banks internal audit function and their respective SBs. A discernable gap exists in banks operating Islamic windows which are found to be more susceptible to religious non-compliance risk compared to their fully-fledged counterparts. Our review finds that the Shariah audit function amongst Islamic banks in Saudi still remains vague without any guidelines issued. Islamic banks in Saudi Arabia are required to develop their own internal policies to be applied by SBs and internal auditors. The paper further highlights that Saudi authorities, regulators and practitioners should ensure uniformity in Shariah audit practice for its Islamic banking industry by moving from a self-serving regulatory model and to urgently consider implementing robust Shariah audit practice and governance framework.

KW - Governance

KW - Internal audit

KW - Islamic banking

KW - Saudi Arabia.

KW - Shariah audit

UR - http://www.scopus.com/inward/record.url?scp=85035795256&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85035795256&partnerID=8YFLogxK

M3 - Article

VL - 14

SP - 255

EP - 269

JO - International Journal of Economic Research

JF - International Journal of Economic Research

SN - 0972-9380

IS - 15

ER -