ISSUES AND CHALLENGES OF SHARIAH COMPLIANCE AUDITING IN ISLAMIC FINANCIAL INSTITUTION

Abstract

The study examines the stakeholders’ perspectives who are involved directly and/or indirectly with Shariah compliance auditing of Islamic financial institutions on the issues of Shariah auditing standards, auditors’ qualifications, and independence. Auditing Islamic financial institutions cover a broader scope than the financial statement auditing. The auditors are not only conducting financial audits but also conduct tests on the Shariah compliance according to Shariah resolution and guidelines set by the centralized Shariah Board and/ or the industry Shariah Body. The Shariah audit review is unique due to the requirement in ensuring that all business activities and operations adhere to Shariah principles. The limited resourceful auditors that possess both Shariah and technical accounting/auditing qualifications and the issue of independence may affect the reputable image of Islamic financial institutions. This study is based on a literature review from past studies. Evidence from past studies mostly emphasizes the importance of auditors' qualifications and independence in determining the Islamic financial market’s growth. The paper suggests practical actions to regulators in formulating regulated professional governance structure for Shariah auditors.