Internal sharia control in Islamic banks and its procedure rules
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Abstract
This article deals with the issue of internal Sharia control applied in banks that offer Islamic financing products such as Murabaha, Ijara, Musharakah, Salam, and others. It explains the concept of internal Sharia control, its types, its importance, and the foundations upon which it is based, as internal Sharia control in banks has become the most important standard of good governance in banks. Its position is derived from the consensus of the reference institutions for Islamic banks in the world, such as (AAOIFI), (IFSB), and (CIBAFI), on the necessity of its existence, independence, and the binding of its decisions. It also derives from its position within the organizational structure of the bank, as it reports directly to the general assembly of the bank, not to the executive management. This article also focuses on the most important stages that Sharia supervision processes go through in light of the principles and standards decided by the reference institutions for Islamic finance, such as the principle of independence, the binding decisions of the Sharia Supervisory Board, and the dual supervision accompanying the bank’s activities before, during, and after operations.
For citation
Senouci А.В. Internal sharia control in Islamic banks and its procedure rules // Bulletin of Bolgar Islamic Academy, 2024, no. 2 (6), рр. 25–39.
References
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2. Muhammad at-Tihami at-Tawahiri. Al-Muraja‘a wa-t-tadqiq, al-itar an-nazari wa-l-mumarasa at-tatbikiya. Al-Jazair, 2005. (in Arabic)
3. Altamuro J., Beatty A. How does internal control regulation affect financial reporting? Journal of Accounting and Economics, 2010, February.
4. Baker C.R., Cohanier B., Leo N.J. Breakdowns in internal controls in bank trading information systems: the case of the fraud Societe Generale. International Journal of Accounting Information Systems, 2017, no. 26.
5. Birnberg J.G., Zhang Y. When betrayal aversion meets loss aversion: The effects of changes in economic conditions on internal control system choices. Journal of Management Accounting Research, 2011, no. 23.
6. Brayer R.A. The History of Accounting and the Transition to Capitalism in England. Part two: Evidence. Accounting, Organizations and Society, 2000, vol. 25, no. 4–5.
7. Burns D.C., Greenspan J.W., Hartwell C. The state of professionalism in internal auditing. The Accounting Historians Journal, 1994, no. 21 (2).
8. Chiu T., Wang T. The COSO framework in emerging technology environments: An effective in-class exercise on internal control. Journal of Emerging Technologies in Accounting, 2019, no. 16 (2).
9. DʼAquila J. COSOʼs internal control – Integrated framework. The CPA Journal, 2013, October.
10. Dickins D., Fay R.G. COSO 2013: Aligning internal controls and principles. Issues in Accounting Education, 2017, August.
11. Kern A. Stability and Sustainability in Banking Reform: Are Environmental Risks Missing in Basel III? Zurich, 2014.
12. Rotter J. Some problems and misconceptions related to the construct of internal versus external control of reinforcement. Journal of Consulting and Clinical Psychology, 1975.
13. Sanchez M.H., Brown K.F., Agoglia C.P. Consideration of control environment and fraud risk: A set of instructional exercises. Journal of Accounting Education, 2007, no. 25 (4).
14. Tidrick D.E. Improving governance and internal control: An interview with COSO chairman David L. Landsittel. The CPA Journal, 2012, October.
15. Vorhies J.B. Account reconciliation: An underappreciated control. Journal of Accountancy, 2006, September.
16. White Paper on Green and Sustainable Banking. Hong Kong: Hong Kong Monetary Authority, 2020, June.