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.
|Number of pages||15|
|Journal||International Journal of Economic Research|
|Publication status||Published - Jan 1 2017|
- Internal audit
- Islamic banking
- Saudi Arabia.
- Shariah audit
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics, Econometrics and Finance(all)