The Shari'ah and its Implications for Islamic Financial Analysis

Abstract

I. Relevance of the Issue By far the majority of articles in the world's leading accounting journals take as given the culture and religions of the Western world. Articles appear from time to time that make distinctions among accounting practices in different Western or ex-Commonwealth countries, but in so doing there is usually no need to re-examine whether the basic building blocks of accounting and finance are consistent with the cultures of those countries; that is taken as self-evident. A few authors have pressed further to show that it is inappropriate to impose unmodified Western accounting practices on developing countries, while many others have illustrated the difficulties in harmonizing international accounting standards when they have to be applied to countries with different environmental business and social foundations. This line of development is followed in these pages to examine the situation in countries adhering to strict Islamic principles where the cultural background to business, and in particular the influence of religious law, are quite different from that in Western countries. It will be shown that differences between the Islamic and Christian religions imply different societal rules of business behaviour, which further imply differences in operating financial organisations, as well as in accounting for them and conducting financial analysis. In fact, the impact of religious principles are so different in these ...