Hisbah v Audit

1. SHARIA AUDIT
Presented by:
Suleman Ahmed - 1200163
Abdussattar Muis - 1200027
Moosa Hassim - 1200077
Yazrif Yusof – 1200018

2. The term Shariah Audit is relatively a new term in
Shariah
Islamic tradition introduced hisbah which lies with the
concept of ”
‘‘enjoining the good and forbidding the evil’’

3. Hisbah
Hisbah was institutionalized in the early days of Islam,
but not focusing on economic and commercial
activities only. Instead it was an integral part of a
justice, economy & society
All the Sources of the Hisbah are from the Quran &
Sunnah (primary)
In fact, the 1st to hold the position of Hisbah in the
history of Islamic civilization was? Any ideas Bro & Sis..

4. Objective of Hisbah:
To assist human-being in worshipping Allah (ibadat)
Those relates to the right of Allah
Those relates to the right of other human beings –
including Islamic financial transactions

5. Hisbah -The Foundation of Shariah Auditing
Reporting to Allah
Reporting to Authorities
Reporting to Shareholders
Reporting to the public

6. Hisbah – Shariah Audit
Hisbah Shariah Audit
 True and fair
General purpose (al- implementation of
amr bilma’ruf wal Shariah rules and
nahyu an almunkar) principles
Against government  Against IFI
and public
 Financial statement
Wider scope (+ non- (reflect the
economic/Financial) operation)
+Shariah compliance  Established Shariah
Municipal function decisions
 Regulatory function

7. Shariah Rule on Hisbah & Shariah Auditing
There are two major views on the Shariah rule on hisbah which is
based on the discussion of al-amr bil’ma’ruf wal-nahyu ‘an
almunkar.
1. Fardh kifayah, but if everyone is ignorant of it, it is fard
‘ayn – Views of the majority of Scholars (Shafi’yyah,
Hanabilah and Hanafiyyah).
2. The duty is wajib on everybody – Malikiyyah e.g. Imaam
Ibn Abi Zayd al Qayrawaani
Many Quranic verses and ahadith supported the first view

8. Audit in the Quran
Then he who is given his Record in his right hand, Soon will his account be
taken by an easy reckoning, And he will turn to his people, rejoicing!

9. For Alex info
Samra' bint Nuhaik al-Asadiyyah – female auditor
Umar ibn al-Khattab – laid the foundation of Al-Hisbah
& also appointed her to continue
Ibn al-Jawzy – confirmed the above facts.

10. Todays Shariah Audit
In the present context of the Islamic financial services
industry, the regulatory organs of the state refer to
the statutory bodies enacted under the Ministry of
Finance or equivalent, which vary among jurisdictions.
Periodical assessment conducted from time to time,
to provide an independent assessment and objective
assurance designed to add value and improve the
degree of compliance in relation to the IFI’s business
operations, with the main objective of ensuring a
sound and effective internal control system for
Shariah compliance.

11. Shariah Audit cont…….
this refers to the financial authorities such as the
Central Banks, Monetary Authorities, Securities
Commission and other relevant institutions that are
vested with the power to implement the legislation
through guidelines and requirements, monitor
statutory compliance through supervision, physical
inspection and examination of premises and
documents, enforcement of the act as well as
prescribe punitive measures for non-compliance.

12. Shariah Audit Cont…
This is done by ensuring effective internal control system
as well as risk management system that provide
reasonable assurance in the form reports, opinions and
communications that promote transparency and market
discipline.
Internal Shariah review is independent department or part
of internal audit examining and evaluating extent of
compliance with Shariah rule, fatwas, instructions etc
issued by the IFI’s Fatwa and Shariah Supervisory Board
(SAB)

13. Annual Audit Budget
Preparing the annual budget
Revisit the objectives
Area of audit
Cost & pricing of the audit

14. Letter of Engagement
Confirms the auditors acceptance of appointment
Objectives & scope of audit
Auditors responsibility to the client
Report to be provided by the auditors

15. Audit objective & criteria of shariah
audit
Shairah audit focuses on attesting the true and fair
view of the financial statements in accordance to the
shariah principles and requirements.
Financial audit is conducted in a consideration that
financial activities and financial reporting is
compliance with shariah requirements and principles.

16. Auditing & ASIFI
Obejctive of shariah audit according to para 2 of ASIFI
No.1; the objective of an audit of financial statement
is to ensure the statement are prepared in
accordance with shariah rules and principles, the
accounting standards of AAOIFI and relevant national
standard in which the IFI operates.

17. ESSENTIAL PRINCIPLES GOVERNING
THE AUDITOR
To attain the audit objective, the auditor is expected
to comply with code of ethics for professional
accountants .
The audit should be conducted in shariah manners
and in accordance to basic principles and essential
procedures given ASIFI.
The auditor should understand pertinent shariah rules
and principles.

18. Scope of Audit
Paragraph 7 of ASIFI No. 1 is stated as follows:
“The scope of audit refers to audit procedures deemed necessary to
achieve the audit objective. The procedures required to conduct an audit
having regard to the requirements of appropriate Islamic rules and
principles, ASIFIs, relevant professional bodies, legislation, regulations
which do not contravene Islamic rules and principles, and where
appropriate, the terms of audit engagement and reporting requirements.
International Standards of Auditing (ISA) shall apply in respect of matters
not covered in detail by ASIFI provided that these do not contravene
Islamic principles”

19. Scope of Audit (2)
In order to formulate the audit procedures necessary
to accomplish the specific audit objectives, it is
necessary for the auditors to define the scope of
audit taking into account various aspects such as the
type of activities the IFI is involved in and the relevant
regulations and requirements on these activities.

20. Scope of Audit (3)
Functions of auditor that relate to scope and defined in the letter of
engagement include:
To conduct the audit in accordance to standards and requirements as
specified by the scope of audit.
To understand and assess the adequacy of the accounting system as basis
of preparations of financial statements of IFIs.
To obtain relevant and reliable evidence to enable them to draw
reasonable conclusions therefrom.
To determine the nature and extent of audit procedures to be adopted in
lieu of the assessment of the internal control system.
To plan an audit that allows reasonable expectation of detecting material
misstatements or errors in the financial statements or accounting records.
To provide for sampling error and level of confidence in testing the
sampled information when conducting the audit.

21. Change of terms of engagement
Auditor will indicate in the letter of engagement on
matters pertaining to recurring audit on whether the
terms of engagement are to be revised or reaffirmed.
Any changes will affect the scope, role of auditors as
well as the budget and fees.

22. Change of terms of engagement
cont.
Possible sources of change for the terms of engagement
are as follows:
Changes in processes whether business or institution
processes
Misunderstandings as to nature of audit related service
originally requested
Restriction on scope of engagement imposed by management
or by any other circumstance
Should these changes not affect the professional conduct
of due care and diligence of the auditor and the auditors
agree with reasonable justification then these changes can
be made. Else the auditor should withdraw.

23. DEVELOPING SHARIAH
AUDITING RATING SYSTEMS

24. METHODOLOGIES OF AUDIT RATING
SYSTEMS
1. Control Environment
2. Risk assesment
3. Control activities
4. Information and Communication
5. Monitoring

25. Essential Components in Assigning
Shariah audit rating
1. Effectiveness of audit program
2. Effectiveness of the Board and Audit Committee
3. Audit Management and Processes
4. Audit Reporting

26. KEY ATTRIBUTES WHEN ASSESSING QUALITY
OF FINANCIAL INSTITUTIONS AUDIT
PROGRAM
1. STRONG
2. SATISFACTORY
3. WEAK

27. QUALIFIED AUDIT OPINION
Audit options are expressed as ‘the financial
statements as a whole are free from material
misstatements based on accumulated audit
evidence’.

28. TYPES OF AUDIT OPINION
1. Unqualified Opinion
2. Qualified Opinion
3. Disclaimer Opinion
4. Adverse Opinion

29. NUMBER OF AUDIT FINDINGS
Frequency and impact of audit findings are indicative
of prevalence and materiality of such findings.

30. IMPACT ON ISLAMIC FINANCIAL
INSTITUIONS’ FINANCIAL STATEMENTS
AND STAKEHOLDERS
May affect the integrity and acceptability of the
financial statements of IFI

31. Thank you!
Nothing is coming!!!