Auditing Islamic financial institutions (IFIs) covers a wider scope than statutory financial statement auditing.
External auditors of IFIs not only conduct financial audits, but also conduct tests on the shariah compliance of IFIs, according to fatawa (religious opinions) and guidelines set by the Shariah Supervisory Board (SSB).
Shariah review is unique to IFIs, due to the requirement to ensure that all business activities and operations of IFIs adhere to shariah precepts.
Scope of audit of IFIs needs to be comprehensive in order to achieve maqasid al-shariah (wider objectives of the shariah).
Challenges in auditing of IFIs include lack of standardized shariah guidelines, lack of independence of SSB, and lack of competence of external auditors to conduct comprehensive shariah audit.
The purpose of the statutory or financial statement audit is to enhance the degree of confidence of intended users of the financial statements as to whether the financial statements are prepared in accordance with an applicable financial reporting framework. The most widely accepted and adopted auditing standards are those issued by the International Federation of Accountants (IFAC).
Following the emergence and phenomenal growth of Islamic financial institutions (IFIs) in recent years in various parts of the world, the scope of conventional statutory financial audit is inadequate to fulfill the needs of the stakeholders of IFIs. Because IFIs need to adhere to shariah principles in all their business transactions and operations, a new dimension in auditing, as well as auditing standards which can cope with such principles, is needed. Recognizing the limitations of the International Standards of Auditing (ISA) in addressing issues related to religious compliance, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has taken steps in producing a number of auditing standards and audit methodologies specifically for IFIs.
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