AUDITING FROM ISLAMIC PERSPECTIVE

Similar developments were reported by historians about the audit during the era of the Zhao dynasty in China, Greece, Babylonia, the City States of Italy, and the Roman Empire (Ramamoorti, 2003). The people are believed to have established a comprehensive system of checks and counterchecks. Particularly, these governments were concerned about incapable officers inclined to create bookkeeping errors and corrupt officers with tendencies to perpetrate fraud whenever opportunities were available.

Initially, the auditing involved only a feature of stewardship concept. Then, the auditing position was elevated to notify an entity's members that its management has spent its resources as budgeted (Yahya, 2016). The company’s executives, auditors, and shareholders, who were collectively responsible for the financial performance of the company, have traditionally assumed the task of auditing a company (Napier, 1998).

Formally, auditing exercise was known in the medieval ages in the 13th century (Khan, 1985). At that particular time, auditing was performed by listening to the accounts by the owner and later by an auditor who had been employed by the owner. However, due to the higher volume of business transactions, the owners’ detachment from the transactions and potential bias of reporting parties namely agents have enforced the formal establishment of the auditing profession. The demand for external and internal auditing is due to the need for independent verification or assurance to examine the accuracy of the accounts, errors in record-keeping, misappropriation of assets, and fraud in business and non-business organizations (Ramamoorti, 2003).

In a similar vein, auditing in Islam is not a new discipline (Wan Shahar, Wan Hassin, & Mohamad Zan, 2018). In fact, during the early years of the Islamic age, Muslim scholars’ thoughts regarding accounting and auditing were documented in the Islamic literature, highlighting their articulate discourses on the economic challenges of their times by referring to Al-Quran and As-Sunnah. Their records are a testimony to the Islamic scholars’ obedience to many calls by Allah SWT in the Al-Quran, emphasizing the importance of recording one’s deeds and actions (Yahya, 2016).

According to Othman & Ameer (2015), the request for audit work is inferred as Ali Ibn Abi Talib cited:

“Monitor the behavior of your assistants and use them only after probation. Monitor their performance and use for this purpose people who are known for their truthfulness and loyalty. Your discreet monitoring of their work will ensure that they remain honest and considerate to their subjects”.

Allah’s SWT angels will be endlessly recording every deed and action performed by human beings to the greatest details and will be accounted for in the hereafter. At the same time, Allah SWT also reminds all human beings to record all their transactions truthfully as evidence, underlining the process of recording actions and deeds in all transactions, including business dealings. For instance, the reminder is emphasized by the verses as follows:

“We shall set up justice scales for the Day of Judgment, not a soul will be dealt unjustly in the least. And if there be (no more than) the weight of mustard seed, we will bring it (to account) and enough are We to take account”
(Al-Quran, 21:47)

“O you who believe! When you deal with each other in transactions involving future obligations in a fixed period, reduce them to writing and let a scribe write down faithfully as between the parties”
(Al-Quran, 2:282)

During the era of Prophet Muhammad (PBUH), his wife Siti Khadijah (RA) would courteously listen to the accounts of her business verbally from the Holy Prophet. This action indicates that Siti Khadijah (RA) audited transactions of her trading by Rasulullah (PBUH) (Khan, 1985). However, as business and government administration evolved, they required certain mechanisms that could safeguard the transactions and ensure that all activities in the community were in line with the Shariah principles. Such mechanism was known as hisbah and was established during the time of the Prophet Muhammad (PBUH) and the four caliphs (khulafa ar-rasyidin) (Hasan, Abdul Rahman, & Yazid, 2020).

On a final note, auditing is not a new fraternity in Islam. The audit concept has been discussed in many places in the Al Quran as well as in Prophet Muhammad's (PBUH) Hadith. Thus, a pious Muslim believes that all their works in this world will be audited by Allah SWT hereafter and he will be held accountable for what he has done during his life.  Ideally, when every single Muslim strongly believes that his deeds will be presented to him during the Day of Judgement, the issues of corruption, bribery, embezzlement, and mismanagement, can be eradicated effectively.

Reference:
Ramamoorti, S. (2003). Internal auditing : History , evolution , and prospects. In Research opportunities in internal auditing (pp. 1–23).
Yahya, Y. (2016). Shariah audit in Islamic financial institutions : The effects of spirituality and moderating role on judgement and decision making. Phd Thesis, University of Malaya, Kuala Lumpur.
Napier, C. J. (1998). Intersections of law and accountancy: Unlimited auditor liability in the United Kingdom. Accounting, Organizations and Society, 23(1), 105–128. https://doi.org/https://doi.org/10.1016/S0361-3682(97)00006-8
Khan, M. A. (1985). Role of the auditor in an Islamic economy. Journal of Research in Islamic Economics, 3(1), 31–41.
Wan Shahar, W. S. S., Wan Hassin, W. S., & Mohamad Zan, U. M. S. (2018). Shariah audit for Islamic financial institutions ( IFIs): Issues and challenges. Reports on Economics and Finance, 4(4), 151–158.
Othman, R., & Ameer, R. (2015). Conceptualizing the duties and roles of auditors in Islamic financial institutions. Humanomics, 31(2), 201–213. https://doi.org/10.1108/H-04-2013-0027
Hasan, A. N., Abdul Rahman, A., & Yazid, Z. (2020). Shariah governance practices at Islamic fund management companies. Journal of Islamic Accounting and Business Research, 11(2), 309–325. https://doi.org/10.1108/JIABR-03-2017-0045