Chapter 9 Page 387

CHAPTER 9: HYPOTHESES TESTING OF THE ISLAMIC

ACCOUNTING QUESTIONNAIRE

9.0 INTRODUCTION

In this chapter, the hypotheses set out in chapter 7 will be tested and the findings

reported and interpreted. The object of this chapter is to present evidence of the

perception of Malaysian Muslim Academics and Accountants on the nature of Islamic

businesses, the objective and characteristics of Islamic accounting and whether

conventional accounting is inappropriate for Islamic organisations and users.

Consensus of scholars (‘ulema) is considered as a method by which Islamic law can

be derived when interpretations of principles of the Qur’an to practical life are varied

(Kamali, 1991). The survey research is thus seen as a means of evidencing

consensus among Muslim academics and Accountants (who constitute, at least

partially, the relevant ‘ulema) on the objective and characteristics of Islamic

accounting. As this is an exploratory study of the subject, it is considered adequate

by the researcher to conduct a univariate analysis on the data without attempting to

study relationship among different variables.

The general conclusion from the analysis is that respondents believe that Islamic and

Muslim organisations should follow Shari’ah/ethical principles and promote social

welfare rather than concentrate on profits. However, the respondents do not perceive

the need to forgo the profit maximisation objective as long as the Shari’ah constraints

are fulfilled. There also seems to be a favourable response to the need for Islamic

accounting among Muslim accounting academics and accountants in Malaysia. Most

of the participants agree with the accountability objective of Islamic accounting and

support the integrative and holistic nature of Islamic accounting information. Although

the respondents are not convinced about the unsuitability of the conventional

accounting concepts of historic cost, prudence and monetary measurement, for

Chapter 9 Page 388

Islamic organisations and Muslim users, they generally agree that conventional

accounting is not suitable in terms of its objectives, the information it provides and its

behavioural effects.

In the next chapter, evidence from a survey of Muslim executives and employees of

both Islamic and Non-Muslim companies in Malaysia, regarding the unIslamic

behavioural effects of conventional accounting are presented. Together with the

evidence presented in this chapter, there is at least prima facie evidence for the

development of an Islamic accounting system, although further research is needed to

elaborate on more practical ideas and obtaining evidence of wider consensus among

Muslim users and accountants in other Muslim countries.

9.1 SOCIO-ECONOMIC PRINCIPLES OF ISLAMIC BUSINESS

ORGANISATIONS

The objectives and operations of Islamic and Muslim organisations should have

some unique characteristics, if there is to be a need for an alternate Islamic

accounting system for these organisations. These objectives and operations should

be different from non-Islamic organisations, as otherwise, it would be a case of

reinventing the wheel or adding cosmetics to conventional accounting. The first

research question therefore is:

Are the socio-economic principles under which Islamic business organisations

operate different from those of non-Islamic business organisations?

The researcher has attempted to argue that arising from the different world-view of

Islam discussed in chapters 2, the objectives and operations of Islamic business and

non-business organisations are different. This was illustrated in detail in the case of

Islamic banks and to some extent Islamic business organisations, which was

discussed in chapter 5.

Islamic organisations have to carry out their financing, investing and operating

activities according to the Shari’ah. In addition, from the world-view of Islam, the
Chapter 9 Page 389

researcher believes that profit maximisation or wealth maximisation is not the

ultimate rationale for the existence of Islamic business organisations. Instead,

earning a reasonable rate of return according to the risk undertaken should suffice

Muslim investors who should always keep the success of the hereafter in mind.

Hence, the equitable treatment of other groups and the general social well-being of

the community should be more important to the Muslim businessmen than profits.

This is the theory and it thus remains to elicit empirical evidence to substantiate

these arguments. This could be done to some extent by undertaking analyses of the

financial statements of Islamic organisations. However, given that conventional

financial statements do not disclose details on the Islamicity of operations, it was

considered more appropriate to obtain the perceptions of accountants, academics

and executives of various companies in this regard. Academics play an important

role in moulding current and future business leaders while public accountants provide

important services as auditors and consultants. Further, corporate accountants play

key roles in running the organisations in various capacities such as company

accountant and finance manager. Thus, the perceptions of these groups of

respondents are relevant to determine the actual and intended state of these

organisations. Two hypotheses were developed and set up in a hypothesis statistical

testing framework with a null hypothesis Ho and alternative hypothesis H1, in attempt

to answer these questions. The first hypothesis is as follows:

HYPOTHESIS NO.1
Ho: Malaysian Muslim accountants and accounting academics believe that
Islamic Business organisations concentrate more on profits as
compared to the attainment of social welfare.
H1: Malaysian Muslim accountants and accounting academics believe that
Islamic Business organisations concentrate more on the attainment of
social welfare than on profits.

FIGURE 9-1: HYPOTHESIS 1: IBO’S CONCENTRATE ON SOCIAL WELFARE

Chapter 9 Page 390

To test this hypothesis, an ethical score, ETH11 was constructed using Q1.2, Q1.3

(a) to (c) and Q1.6 – a total of five items (see figure 9-2). Since question 1.3c (IBO’s

should include shareholder profit maximisation as an objective) is in the opposite

direction, the coding is reversed. Hence, a Strongly Disagree, which would score a

one, is re-coded in this case to a five.

1. The Shari’ah should constrain the activities of Muslim Business

Organisations. [not included in hypothesis due to reliability reasons].
2. Islamic and Muslim Business Organisations should promote the attainment
of falah (success) and social welfare and not just concentrate on profits.

3. The Objectives of Islamic Business Organisations (IBO’s) should include:

(a) Ensuring all stakeholders are treated in a just and fair manner even if this
means profits are lowered.
(b) Avoiding damage to the environment even in the absence of adequate legal
requirements.
(c) Maximising profits for shareholders.

6. Islamic business organisations should pay sufficient wages to its employees

for them to live reasonably, even if this means reducing shareholder profits.

FIGURE 9-2: QUESTIONS ON ETHICAL NATURE OF ISLAMIC BUSINESS

Some respondents failed to answer all the questions in the questionnaire. This were

coded as missing by the system. These missing items are taken into account, when

the mean formula of SPSS is used. However, in cases where there are too many

items of information missing for a particular respondents, an average score for that

participant may be inappropriate as it would not be comparable to the scores of other

participants. As such, a minimum number of non-missing questions are necessary if

the index score is to be comparable (Bryman & Cramer, 1997). This can be made a

requirement in SPSS by using a formula in computing the score. This procedure is

adopted in this research. According to Bryman & Cramer (1997), suggest a 10% cut-

1
Question 1.1 and Q1.4 were left out, as the reliability analysis showed that they did not fit well with the other questions in the
group.
Chapter 9 Page 391

off rate (i.e. if less than 9 out of 10 questions in the score is not answered, the score

is not computed). However, (at the authors point out), in a score which has only a

few questions, this would mean all questions must be answered before the score is

computed. If this rule is followed strictly in this research, many scores would not have

been computed for many respondents, thus losing a lot of useful information. Hence,

a more practical approach is adopted in determining the minimum number of

questions required computing a score. Generally, a 10% or rounded to 10% of the

number of questions is normally used as cut-off for the number of non-missing

questions. However, in case the number of questions used to compute the score is

less than 5, then all the questions in the score is used as the minimum number of

questions required to compute the score.

For example, in a score containing 5 questions, 10% cut off would mean 0.5

question, which rounded up becomes 1 question. Hence, the minimum number of

questions required to compute the score is set at 5-1=4 questions. In case of a score

computed using 4 questions, the 10% cut-off rate is 0.25. Following the 10% rule, all

four questions should be used. Using SPSS the formula for ETH1 was

ETH1= mean.4(q1.2,q1.3a,q.1.3b,rq1.3c,q1.6)2 (9.1)

The (.4) in the formula for the mean of ETH1 denotes a minimum of 4 questions in

the score must be answered in order for the score to be computed. A graph of ETH1

showed that the distribution is negatively skewed with a median value of 4. This

means that at least 50% of the respondents in the combined sample of academics

and accountants perceived Islamic business organisations concentrate more on

social welfare than on profits.

2
As discussed in Chapter 8, Q1.1 and 1.4 are not used in computing this score to doubts concerning reliability and validity
problems respectively.
Chapter 9 Page 392

The sample was split into two groups, one professional accountants3 and academics.

Since the distributions were not normal, a non-parametric test of median is

conducted. The tests were conducted using Minitab as SPSS did not have

corresponding univariate tests.

A normality test of the distribution of the score showed that for the academics, for

score ETH1, the normal distribution could not be rejected (with a p value of 0.1) at

the 5% significance level. However, the scores of the accountants were not normally

distributed (p value 0.0) Hence non-parametric tests should be used to test the

hypothesis for accountants.

For both accountants and academics, the null hypothesis that the median of ETH1 is

≤ 3, against the alternate hypothesis that the median of ETH1>3 is tested. The

researcher has used the non-parametric sign test, which does not assume that the

population is normally distributed and holds for whatever the shape of the population

distribution. The results in Table 9-1, show that, for both groups of respondents the

median of ETH1 is significantly larger than 3 at the 5% significance level. (The p

value of 0.000 shows that the probability of the sample coming from a population

having a median eth1 of 3 is almost 0). Hence we reject the null hypothesis that the

median of ETH1 is 3 and accept the alternative hypothesis, at the 5% significance

level, that the median of ETH1 is greater than 3.

3
Due to the sampling error noted in chapter 8, it is insufficient to test the accountants as one
homogenous group. Hence, although the accountants are tested as a group in all the hypothesis
presented in this chapter, separate tests for each group of accountants in the government, commerce &
Industry and public practice sector were conducted to ensure the sectoral population means were
consistent with the hypothesised means for all professional accountants. The results of the sectoral
testing of means (table A9-1) and medians (table A9-2) is presented in the Appendix to this chapter
(Appendix 9-1). Except for the variable UNISL (Hypothesis No.4) on the unIslamic consequences of
conventional accounting, where the p-value median test for accountants in public practice was 0.7142
and therefore the null hypothesis for H4 cannot be rejected for public practice accountants, all the
other hypotheses tested sectorally, were in agreement with the accountants tested as a group.
Chapter 9 Page 393

TABLE 9-1:: Statistical Results for Hypothesis Testing of ETH1

Sign Test for Median :Professional Accountants4

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH1 95 3 0 92 0.0000 4.000

Sign Test for Median: Accounting academics

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH1 96 0 1 95 0.0000 4.200

From these tests, the researcher infers that Malaysian Muslim accountants and

academics perceive that Islamic business organisations concentrate on the

attainment of social welfare rather than on profits.

The second hypothesis is as follows:

HYPOTHESIS NO. 2
HO: Malaysian Muslim accountants and accounting academics believe that
Islamic business organisations participate in activities, which are not in
line with Islamic socio-economic principles.
H1: Malaysian Muslim accountants and accounting academics believe that
Islamic business organisations do not participate in activities, which are
not in line with Islamic socio-economic principles.

FIGURE 9-3: HYPOTHESIS 2: IBO’S DO NOT PARTICIPATE IN UNISLAMIC ACTIVITIES

As discussed in chapters 3, 6 and 7, interest is forbidden in Islam, hence Islamic

organisations should not place their funds in interest bearing deposits, even if this

results in lower profits. Further, as discussed in the same chapters, Islam forbids

4
Refer to appendix Table A9-2 for results of sectoral testing of medians. All p values <0.05.
Chapter 9 Page 394

short selling and contra trading although the later is more controversial. Further

options and futures may be prohibited because of the aleatory nature of the contract

and the uncertainty (or gharar) involved. Although the researcher believes that

options and futures are prohibited in Islam, there is a great variety of opinions on this.

However, going by the Islamic juristic principle of “blocking the means to an evil”

(Kamali 1991), the researcher believes, the truly Islamic organisation would avoid

this investment as well.

To test the hypothesis that “Malaysian Muslim accountants and accounting

academics believe that Islamic business organisations participate in activities not in

line with Islamic socio-economic principles”, the respondents were asked whether

Islamic business organisations should participate in interest based debt market and

short selling, both of which are clearly forbidden by Islam. In addition, questions on

the more controversial futures/options market and contra trading of shares, where

there is a difference of opinion on the issue were also asked. Since, according to

Islamic law, doubtful things should be avoided, a strongly disagree response to these

questions would mean that Malaysian Muslim accountants and accounting

academics believe that Islamic business organisations do have strong principles

which makes them sacrifice profits for religious ethics. As a negative response would

give a favourable answer, the responses were re-coded in reverse.

As a multi-item score would give a better indicator of the concept, another score

consisting of four questions (see figure 9-4 below) was constructed and named ETH2

(ethical behaviour 2 – investment behaviour). The formula for this was:

ETH2=mean.4(rq1.5a,rq1.5b,rq1.5c,rq1.5d) (9.2)

The minimum number of non-missing questions for each respondent was set at

following the rule mentioned above. This meant that for the score to be computed, at

least three of the four questions must have been answered. In any case, the

controversial nature of some of the activities in Islamic Law may mean less
Chapter 9 Page 395

agreement would be forthcoming, hence a lower number of responses was

acceptable.

5. Islamic business organisations should participate in:

a) Interest based Debt market.
b) Futures and/or Options market.
c) Short selling.
d) Contra Trading.

FIGURE 9-4:QUESTIONS ON INVESTMENT ACTIVITIES OF IBOS.

Normality tests for both groups indicate that the normality of the distributions could

not be rejected. Hence, both the sign test and the t test are used in this case. The

mean of ETH2 3 (null hypothesis) is tested against the alternative that the mean is

greater than 3, the median ≤3 against the median >3 is also tested. The results are

listed in Table 9-2 on the next page.

From Table 9-2, it can be seen that the p values for both academics and accountant,

for both the t-test and sign test are below 0.05 (p value is 0.000). This means that

there is almost a nil chance of drawing a sample with the calculated sample mean,

from a population with a mean value for ETH2=3. Hence we reject the null

hypothesis, that the mean value of ETH2≤ 3 and accept the alternate hypothesis, that

the mean value of ETH2 is more than 3. From the sign test, we infer similarly for the

median. Hence, this implies that both accounting academics and professional

accountants believe that Islamic business organisations do not participate in

activities, which are not in line with Islamic socio-economic principles.

Chapter 9 Page 396

TABLE 9-2: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF ETH2

Professional Accountants:

T-Test of the Mean5

Test of mu = 3.000 vs mu > 3.000

Variable N Mean StDev SE Mean T P

ETH2 89 3.5346 0.9330 0.0989 5.51 0.0000

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH2 89 16 11 62 0.0000 3.500

Accounting academics:

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

ETH2 87 3.8036 1.0500 0.1126 7.14 0.000

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH2 87 14 6 67 0.0000 4.000

5
For sectoral tests of the mean for professional accountants of all the hypotheses , please refer to Appendix 9-1, table A9-1.
Chapter 9 Page 397

9.2 THE ADEQUACY OF ISLAMIC SOURCES (QUR’AN, SUNNAH) AS A

BASE FOR DEVELOPING AN ISLAMIC ACCOUNTING AND
ECONOMIC SYSTEM FOR CONTEMPORARY ORGANISATIONS.

The current wisdom in the West is that Muslim countries should adopt Western style

democracy and secularism in order to progress. Adherence to fundamental tenets of

Islam is seen as backward and retrogressive to a primitive state of existence. The

implication is that Muslims should forget about their religious teachings in the social,

political and economic domain and Islam should be a matter of personal conviction

rather than state policy.

With many Muslim students studying in the West, the possibility of secular thinking

among Muslims may be widespread. In fact, the discussion in Chapter 4 indicates

that the bifurcated education system in Muslim countries is one of the root causes of

the Muslim malady.

In this situation, the researcher believes that a survey is important, of perceptions of

among Muslim accounting professionals and academics, regarding their attitudes

towards the viability of their religious sources being developed into a modern

economic regulatory framework that can meet the needs of Islamic organisations. A

strong belief in their viability would make an easier task of developing an alternative

Islamic accounting system. The results would also give an idea of the success of

secularist education and indication of the extent of acceptance of the secularist ethos

among Muslim professional and accountants.

In order to answer this question as to whether Islamic sources i.e. the Qur’an and the

Sunnah are adequate as a base for developing an Islamic accounting and economic

system for contemporary organisations, the following hypothesis is set up.

Chapter 9 Page 398

Hypothesis No. 3:
Null Hypothesis: Malaysian Muslim accountants and accounting academics
believe that an economic framework cannot be developed from the
socio-economic principles of the Qur’an and Sunnah to meet the
current needs of organisations.
Alternative Hypothesis: Malaysian Muslim accountants and accounting
academics believe that an economic framework can be developed from
the socio-economic principles of the Qur’an and Sunnah to meet the
current needs of organisations

FIGURE 9-5:HYPOTHESIS ON THE INHERENT DEVELOPMENT CAPACITY OF THE

ISLAMIC SOURCES OF LAW

In order to test the above hypothesis, a score, QSREL constituting questions 1.7a –

1.7d was computed with the following formula:

QSREL=mean.4 (q1.7a, q1.7b, q1.7c, q1.7d) (9.3)

and, tested as to whether

Ho: mean/median of QSREL ≤3.0

H1: mean/median of QSREL>3.0

As can be seen from the results listed in Table9-3, both the professional accountants

and accounting academics groups have p values of less than 0.05 for both the t and

sign tests for the mean and median respectively. Hence the null hypothesis that the

population mean/median for QSREL≤3 is rejected and the alternative hypothesis that

QSREL>3 is accepted. This implies that both groups of respondents believe that the

Qur’an and Sunnah (the basic sources of Islamic Law) provide principles which can

be developed into a business and or/legal framework (including accounting

framework) to meet the needs of different types of organisations.

Chapter 9 Page 399

TABLE 9-3: STATISTICAL RESULTS OF HYPOTHESIS TESTING FOR QSREL

Professional Accountants:

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

QSREL 87 0 0 87 0.0000 4.750

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

QSREL 87 4.5431 0.4719 0.0506 30.50 0.0000

Accounting Academics:
Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

QSREL 95 0 0 95 0.0000 5.000

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

QSREL 95 4.6447 0.4692 0.0481 34.16 0.0000

9.3 THE APPROPRIATENESS OF CONVENTIONAL ACCOUNTING FOR

ISLAMIC BUSINESS ORGANISATIONS AND MUSLIM USERS

Accounting is said to be the language of business. Each language has its own

nuances and accounting is not free from this phenomenon. As argued in chapter 2,

accounting helps to construct reality and itself is a construction of its environment.

The fact that Anglo-American accounting, shaped in the environment of Western

philosophy and history, is being used to assess and monitor the performance of

Islamic business organisations could be a problem.

Chapter 9 Page 400

Given the socio-economic principles, under which Islamic and Muslim business

operate, the information that is required may vary from what conventional accounting

is attuned to provide. The researcher has argued in Chapter 3, 5 and 6 that the

objectives, characteristics and consequences of conventional accounting do not

make it a suitable information tool for Muslim users and organisations. This

inappropriateness can be categorised into three aspects:

• Conventional accounting may in effect direct Muslim users towards unIslamic

behaviour.

• Conventional accounting may not provide appropriate information for Muslim

users (various stakeholders and Organisations)

• The concepts of conventional accounting such as historical cost and monetary

measurement concept may be unsuitable for adoption by Islamic organisations.

To elicit answers to these questions, three hypotheses are and tested.

9.3.1 Conventional accounting results in UnIslamic behaviour

The first hypothesis for these research questions is set up as follows:

Hypothesis No. 4:
H0: Malaysian Muslim accountants and accounting academics believe that
Conventional accounting provide information, which directs Muslim
users towards Islamic behaviour
H1 : Malaysian Muslim accountants and accounting academics believe that
Conventional accounting provide information, which do not direct
Muslim users towards Islamic behaviour.

FIGURE 9-6: HYPOTHESIS ON CONSEQUENCES OF CONVENTIONAL ACCOUNTING

INFORMATION

The hypothesis to be tested is that “Malaysian Muslim accountants and accounting

academics believe that conventional accounting provides information, which directs

Muslim users toward Islamic behaviour”. To test the hypothesis a score (UNISL)
Chapter 9 Page 401

consisting of questions Q2.1, Q2.2, Q2.3 and Q2.4 (see figure 9-7) was calculated

with the following formula is computed.

UNISL= mean.4(q2.1, q2.2,q2.3,q2.4) (9.4)

Please indicate the extent to which you agree with the following statements
by ticking (√) the appropriate box. If you are unable to give an answer,
please leave the boxes Blank.

2.1 The fact that Western cultural values underlie conventional accounting principles may
make them inappropriate for use by Islamic business organisations

2.2 The focus given to money and profits by conventional accounting fosters materialism,
individualism and competition among Muslim users.

2.3 Information produced by conventional accounting cannot lead to welfare (falah) in the
Islamic perspective through the efficient allocation of resources.

2.4 Conventional accounting needs major modification to enable it to provide the

appropriate information which will allow Muslim users to make the appropriate
decisions to ensure the attainment of Islamic objectives.

FIGURE 9-7:QUESTIONS ON THE BEHAVIOURAL IMPLICATIONS OF CONVENTIONAL

ACCOUNTING
The hypothesis is set up as follows:

H0: mean/median of UNISL ≤ 3

H1: mean/median of UNISL > 3
The results are presented in table 9-4 below:
Chapter 9 Page 402

TABLE 9-4: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF UNISL

Professional Accountants:
Sign Test for Median
Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

UNISL 89 29 7 53 0.0055 3.500

T-Test of Mean

Test of mu = 3.000 vs mu > 3.000

Variable N Mean StDev SE Mean T P

UNISL 89 3.3624 0.8815 0.0934 3.88 0.0001

Accounting Academics:
Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

UNISL 90 14 5 71 0.0000 3.750

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

UNISL 90 3.6361 0.6881 0.0725 8.77 0.0000

From table 9-4, it can be seen that for both professional accountants and academics,

the p value is less than 0.05 for both the sign and t tests. This indicates that the

difference between the population median and the test value of 3 is significant and

cannot be ignored. Hence the null hypothesis that the population median is 3 is

rejected. The alternative hypothesis that the median of UNISL is 3 is accepted. It can

thus be inferred that Malaysian Muslim accountants and accounting academics

believe that conventional accounting does not lead to Islamic behaviour.

Chapter 9 Page 403

However, a sectoral test of mean and median produced a p value of 0.35 and 0.7142

for accountants in public practice. Due to the sampling error mentioned in chapter 8,

the null hypothesis cannot be rejected for public practice accountants. Hence, the

above conclusion that Malaysian Muslim accountants believe that conventional

accounting information do not lead to Islamic behaviour must be restricted to only

accountants working in commerce and government sectors.

9.3.2 Conventional accounting provides inappropriate information

The second hypothesis in this section as follows:

HYPOTHESIS NO. 5:
H0: Malaysian Muslim accountants and accounting academics believe that
Financial Statements provided under conventional accounting provide
appropriate information for Muslim users.
H1: Malaysian Muslim accountants and accounting academics believe that
Financial Statements provided under conventional accounting provide
inappropriate information for Muslim users.

FIGURE 9-8:HYPOTHESIS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING

INFORMATION
Again, a score, CAINF, is constructed to measure this concept better, using the

responses to questions Q2.5(b) and Q2.5(c) (see figure 9-9) . The SPSS formula

used is:

CAINF6= MEAN.2(q2.5b,q2.5c) (9.5)

In order for the score to be calculated, all the questions constituting the score must

have been answered.

6
As noted in Chapter 8, question Q2.5a is not included in this score as the reliability test indicated that it does not measure the
same concept as the other two questions.
Chapter 9 Page 404

5. Financial Statements prepared in accordance with conventional

accounting principles:
a. provide appropriate information to enable Islamic business
organisations (IBO) to properly disclose their Islamic accountabilities
( e.g. Shari’ah compliance) to all their stakeholders. (not included in
above score)
b. impede the fair and proper allocation of wealth between stakeholders
e.g. as between shareholders , managers and employees.
c. hinder the making of the appropriate decisions needed to control
Islamic organisations to ensure the attainment of their Islamic
objectives.
FIGURE 9-9: QUESTIONS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING
INFORMATION

TABLE 9-5: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF

APPROPRIATENESS OF CONVENTIONAL ACCOUNTING INFORMATION FOR MUSLIM
USERS (CAINF).

Professional Accountants:

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

CAINF 84 32 24 28 0.7407 3.000

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

CAINF 84 2.9583 1.0126 0.1105 -0.38 0.65

Accounting Academics:

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

CAINF 78 30 16 32 0.4495 3.000
T-Test of the Mean
Test of mu = 3.000 vs mu > 3.000

Variable N Mean StDev SE Mean T P

CAINF 78 3.0769 0.9469 0.1072 0.72 0.24
Chapter 9 Page 405

From Table 9-5, it can be seen that for both professional accountants and accounting

academics, the p-value is above 0.05, indicating that there is more than 5% chance

that the sample comes from a population with a mean and median of ≤ 3.0. Hence

the null hypothesis that Malaysian Muslim accountants and accounting academics

perceive that conventional accounting information is suitable for Muslim users cannot

be rejected. It is therefore likely that Malaysian Muslim accountants and accounting

academics do not believe that conventional accounting information is not appropriate

for Muslim users.

9.3.3 Conventional accounting concepts (principles) are not suitable for

Islamic organisations.

The third Hypothesis for these research questions is set up as follows:

Hypothesis No. 6:
H0: Malaysian Muslim accountants and accounting academics believe that
Conventional accounting concepts are suitable for Islamic
organisations
H1: Malaysian Muslim accountants and accounting academics believe that
Conventional accounting concepts are not suitable for Islamic
organisations.

FIGURE 9-10: HYPOTHESIS ON SUITABILITY OF CONVENTIONAL ACCOUNTING

CONCEPTS
To test this hypothesis, a multi-item score, CAP was calculated consisting of

questions 2.6a,2.6b and 2.6c (see figure 9-11).

CAPRIN=mean.3(rq2.6a,rq2.6b,rq2.6c) (9.6)

Re-coding of all the questions in the score was necessary because the questions are

in the reverse direction. Answers to all the questions must be present before the

score is computed.
Chapter 9 Page 406

6. The following accounting concepts are appropriate for Islamic

organisations:

a. Historic Cost.
b. Prudence/conservatism.
c. Money Measurement.
FIGURE 9-11:QUSTIONS ON APPROPRIATENESS OF CONVENTIONAL ACCOUNTING
CONCEPTS
The hypothesis is set up as follows:

H0: CAPRIN≤3
H1: CAPRIN>3
Again both non-parametric sign test and t tests were used, to allow for the possible

non-normality of the population distribution. The results are listed in Table 9-6.

TABLE 9-6: STATISTICAL RESULTS FOR HYPOTHESIS TESTING OF CAPRIN

Professional accountants
Sign Test for Median
Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

CAPRIN 97 57 22 18 1.0000 2.333
T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

CAPRIN 97 2.4399 0.8998 0.0914 -6.13 1.00

Accounting Academics
Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

CAPRIN 94 54 13 27 0.9991 2.417

T-Test of the Mean

Test of mu = 3.000 vs mu > 3.000

Variable N Mean StDev SE Mean T P

CAPRIN 94 2.5798 1.1435 0.1179 -3.56 1.00
Chapter 9 Page 407

The p values of nearly 1.00 in both cases for accountants and academics, for both

the sign and t tests indicate that the probability of the sample having come from a

population containing a median and mean of 3 or less is almost 100%. Hence the null

hypothesis cannot be rejected for both the groups of respondents. Hence, the

hypothesis that “Malaysian Muslim accountants and accounting academics believe

that some conventional accounting principles are suitable for Islamic organisations” is

accepted.

From the results of testing the above three hypotheses in section 9.2, it can be

inferred that the information it provides may be suitable for Islamic organisations and

users. However, the lower number of respondents answering this question and the

fact that a separate test of Q2.5 (CAINF_2: refer appendix 9-1) indicated that the

academics and accountants (except for those working in the government) did not

believe that “conventional financial statements provides appropriate information to

enable Islamic business organisations to properly disclose their Islamic

accountabilities to all their stakeholders” (p values were below 0.05 except for govt

which was 0.42), It also appears that some conventional accounting principles,

such as monetary measurement, prudence and historical cost, may be viewed as

appropriate for Islamic organisations. Nevertheless, despite this, conventional

accounting does not appear to direct Muslim users to Islamic behaviour.

9.4 THE OBJECTIVES AND CHARACTERISTICS OF ISLAMIC

ACCOUNTING

From section 9.1, it was found that that Malaysian Muslim accountants and

accounting academics believe that Islamic business organisations follow a different

set of socio-economic principles from Western business organisations. The findings

from section 9.3 indicate that conventional accounting may not provide appropriate

information for them. Further the findings in section 9.2 indicate that Muslim
Chapter 9 Page 408

academics and accountants believe that the basic Islamic sources (Qur’an and

Sunnah) provide principles which can be developed into a viable economic regulatory

framework for contemporary Islamic organisations in various sectors. These findings

point to an alternative Islamic accounting system.

The researcher has argued for an “Islamic accountability” as the main objective of

Islamic accounting. Further social and environmental objectives should be given at

least equal weight as profits. Further, the researcher has suggested from Chapters 3

and 6 that the stakeholders other than shareholders are equally if not more important

than shareholders as users of Islamic accounting information. To further this, the type

of information (non-financial, integrative, and holistic) disclosed by Islamic accounting

and its recognition and valuation principles, needs to be different from those of

conventional accounting. In the subsections below, the results of testing the

hypotheses regarding the objectives, users and characteristics of Islamic Accounting

will be presented.

9.4.1 The Objectives of Islamic Accounting.

The first hypothesis to be tested refers to the objective of Islamic accounting. In

conventional accounting, the primary objective is held to be decision-usefulness for

investors and creditors (FASB, 1979; AAA, 1977). As discussed in chapter 6,

although the researcher has no qualms on the need for usefulness of accounting

information, decision-usefulness has come to imply usefulness for investors and

creditors to make financial decisions to increase their wealth measured in cash flows.

The researcher believes that this cannot be the main objective of Islamic accounting.

Further, it cannot be more important than other social, religious and environmental

objectives. This notion is tested as follows:

Chapter 9 Page 409

Hypothesis No. 7:
Null Hypothesis: Malaysian Muslim accountants and accounting academics
believe that decision-usefulness is the main objective of Islamic
accounting.
Alternative Hypothesis: Malaysian Muslim accountants and accounting
academics believe that decision-usefulness is not the main objective of
Islamic accounting.

FIGURE 9-12:HYPOTHESIS ON THE MAIN OBJECTIVE OF ISLAMIC ACCOUNTING

In the Islamic Accounting Questionnaire, Q3.1 lists four alternative objectives of

Islamic accounting from which respondents are asked to choose one or give their

own. Decision usefulness, stewardship, Islamic accountability and social

accountability is listed as answers. Decision-usefulness is given a score of 1,

stewardship a 2, own choice a 3, social accountability 4 and Islamic accountability 5.

The further away from 1 the mean score is the more the tendency towards Islamic

accountability. To be doubly sure, the null hypothesis is that H0: ≤ 3 against the

alternative hypothesis H1>3 was tested using both the sign test for median and t test

of means.

In table 9-7, the p values for both the sign test and t-test are 0.0000 (very much less

than 0.05), for both categories of respondents. Therefore the null hypothesis,

decision usefulness is the main objective of Islamic accounting has to be rejected.

This indicates that Malaysian Muslim accountants and accounting academics believe

that decision-usefulness should not be the main objective of Islamic Accounting.

Further the table of response frequencies (Table 8-6 in chapter 8, page 358), shows

that only four respondents (representing 2% of the 205 participants who answered

this question) chose, number 3 (own choice). Hence, even if the rank three were not

the appropriate rank to be given for their choice (given 3 was interpreted to mean

neutral), it would not affect the results above.

Chapter 9 Page 410

TABLE 9-7: RESULTS OF TESTING THE DECISION-USEFULNESS HYPOTHESIS

Professional Accountants:
Sign Test for Median

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

Q3.1 98 7 5 86 0.0000 5.000

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

3.1 98 4.4490 0.9538 0.0963 15.04 0.0000

Accounting Academics:

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

Q3.1 95 2 0 93 0.0000 5.000

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

Q3.1 95 4.7158 0.6301 0.0647 26.54 0.0000

Chapter 9 Page 411

9.4.2 The Subsidiary Objectives of Islamic Accounting

In addition to the main objective of Islamic accounting, there may be subsidiary

objectives of Islamic accounting. These could include the provision of information to

achieve its non-economic objectives as opposed to, as opposed to the case of

conventional accounting objectives where the objectives of increasing shareholder

wealth and efficient capital allocation is given prominence. These Islamic socio-

economic objectives include the equitable distribution of wealth among stakeholders,

proper assessment of Zakat, Shari’ah control of organisations and the creation of a

co-operative friendly environment for employees and stakeholders. Thus another

hypothesis related to the objectives of Islamic accounting is set up and tested as

follows:

In order to test this hypothesis, two scores, NFOB (mean of non-financial objectives)

and MFO (mean of financial objectives) are computed. The first score consists of the

mean of Q3.2c –f;

NFOB=mean.4(q3.2c,q3.2d,q3.2e,q3.2f) (9.7)

The second score consists of the mean of Q3.2a and b from the Islamic accounting

questionnaire (see figure 9-14).

MFO= mean.2(q3.2a, q3.2b) (9.8)

HYPOTHESIS NO.8:
H0: Malaysian Muslim accountants and accounting academics believe that
Islamic/Social objectives of Islamic accounting are of equal importance
to Economic objectives of Islamic accounting.
H1: Malaysian Muslim accountants and accounting academics believe that
Islamic/Social objectives of Islamic accounting are more important than
Economic objectives of Islamic accounting.

FIGURE 9-13: HYPOTHESIS ON THE SUBSIDIARY OBJECTIVES OF ISLAMIC

ACCOUNTING
Chapter 9 Page 412

3.2 The objectives of Islamic accounting should be to provide information:-

a) in order to maximise efficient allocation of capital to the most effective uses.
b) to increase shareholder wealth.

c) so that all users (including shareholders, employees and others) get their fair share of
the wealth generated by an organisation.
d) for the government to assess Zakat properly in order that Zakat beneficiaries can get
their proper rights.
e) so that activities of the organisation can be controlled to be in accordance with the
Islamic Shari’ah.
f) to create an environment conducive to solidarity within the organisation and co-
operation between various stakeholders.

FIGURE 9-14:QUESTIONS ON THE SUBSIDARY OBJECTIVES OF ISLAMIC ACCOUNTING

The hypothesis is set up as follows:

H0: mean/median of (NFOB- MFO)=0

H1: mean/median of (NFOB- MFO)>0

Again the sign test (non-parametric) and the t-test are used. The results are listed in

Table 9-8.

Table 9-8 shows that for both professional and accounting academics, the p value is

well below 0.05, indicating that the difference between the two medians cannot be

attributed to chance. Hence, the null hypothesis is rejected and the conclusion is that

Islamic/social objectives of Islamic accounting are seen by Malaysian Muslim

accountants and accounting academics as more important than the economic

objectives such as the maximisation of shareholder wealth.

Chapter 9 Page 413

TABLE 9-8: RESULTS OF HYPOTHESIS TESTING OF SOCIAL VS. ECONOMIC

OBJECTIVES OF ISLAMIC ACCOUNTING

Professional accountants:

Sign Test for Median

Sign test of median = 0.00000 versus > 0.00000

N Below Equal Above P Median

NFOB-MFO 97 11 21 65 0.0000 0.5000

T-Test of the Mean

Test of mu = 0.000 vs mu > 0.000

Variable N Mean StDev SE Mean T P

NFOB-MFO 97 0.5387 0.7683 0.0780 6.91 0.0000

Accounting Academics

Sign Test for Median

Sign test of median = 0.00000 versus > 0.00000

N Below Equal Above P Median

NFOB-MFO 91 11 20 60 0.0000 0.5

T-Test of the Mean

Test of mu = 0.000 vs mu > 0.000

Variable N Mean StDev SE Mean T P

NFOB-MFO 91 0.6703 0.7931 0.0831 8.06 0.0000

9.4.3 The Users of Islamic Accounting

Stakeholders other than shareholders may be more important as users of Islamic

accounting information. Since conventional accounting focuses on shareholders and

creditors (FASB 1978), IASC (1989), it may not provide the information required by

other stakeholders.

To find out whether these other stakeholders were viewed as more important as

users of Islamic accounting information than shareholders, the participants were

Chapter 9 Page 414

asked to rank the importance of other stakeholders such as employees, government,

community, consumer groups and benevolent loan creditors. A score, STIMP

constituting questions 3.3a to 3.3d (see figure 9- 15) was computed with the following

formula:

STIMP= mean.4(q3.3a,q3.3b,q3.3c,q3.3d,q3.3e)

3.3As compared to shareholders, please rank the importance of

the following stakeholders as users of Islamic accounting
information.
a) Employees/Trade Unions.
b) Government.
c) Community.
d) Benevolent Loan (Qard Hasan) Creditors.
e) Customers / Consumer groups.

FIGURE 9-15:QUESTIONS ON THE RELATIVE IMPORTANCE OF VARIOUS

STAKEHOLDERS COMPARED TO SHAREHOLDERS
The questions were measured on a 1 to 5 scale; a score of 1 indicating that the

stakeholder group was not important at all compared to shareholders while a score of

5 would mean the stakeholder group is much more important than shareholders. A

score of 3 indicates that the stakeholder group was equally important as

shareholders. The following hypothesis was tested:

Hypothesis No. 9:
H0: Malaysian Muslim accountants and accounting academics believe that
as in conventional accounting, shareholders are more important users
of Islamic accounting that other stakeholders
H1: Malaysian Muslim accountants and accounting academics believe that
in contrast to conventional accounting, shareholders are not more
important users of Islamic accounting than other stakeholders.

FIGURE 9-16:HYPOTHESIS ON THE RELATIVE IMPORTANCE OF ISLAMIC ACCOUNTING

USERS

The hypothesis test was:

H0: mean/median of STIMP=3

Chapter 9 Page 415

H1: mean/median of STIMP>3

Both the non-parametric sign test of median and the t-test of means were employed.

The results are illustrated in Table 9-9.

TABLE 9-9: RESULTS OF HYPOTHESIS TESTING OF STIMP

Professional Accountants

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

STIMP 98 16 22 60 0.0000 3.400

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

STIMP 98 3.4490 0.7064 0.0714 6.29 0.0000

Accounting Academics

Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

STIMP 96 21 19 56 0.0001 3.300

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

STIMP 96 3.4130 0.7012 0.0716 5.77 0.0000

The results in table 9-9 indicate that, for both the professional accountants and

accounting academics, the p value was less than 0.05, indicating that the
Chapter 9 Page 416

median/mean was (significantly) more than 3. Hence the null hypothesis is rejected

and we accept the alternative hypothesis, that stakeholders other than shareholders

are perceived by Malaysian Muslim accountants and accounting academics, as

important as, if not more important than, shareholders, as users of Islamic accounting

information.

9.4.4 The characteristics of Islamic accounting

Conventional accounting tends to emphasise financial information in line with its

monetary measurement concept. It does not measure what is not reducible in

monetary terms. Hence externalities i.e. negative and positive consequences caused

by the accounting entity are not reported, as they do not have a direct financial cost

or benefit for the entity itself. The consequences of this have been documented by

Tinker (1985) and have been referred to in chapter 3.

From the Islamic perspective, however, economic institutions such as businesses are

also social institutions having a responsibility to Allah, their stakeholders and

environment (see Chapter 5). As such, externalities, especially negative

consequences, irrespective of financial considerations, should be reported by an

Islamic accounting system. The system should also provide non-financial information

concerning employee-employer relationships, discharge of contract, details of

prohibited transactions under Islamic law, (if any, and their reasons), environmental

and communal responsibilities undertaken and the amount of Zakat payable and paid

(Khan 1994).

The researcher further believes an integrated system of reporting both financial and

non-financial information is in line with the integrative concept of Islamic enterprise,

although Chen (1975) suggests two reports; one financial and another social. This

would induce Muslim users to look for integrated performance measures when

evaluating their investments and not motivated to look for the profit figure first, as in
Chapter 9 Page 417

conventional annual reports. In addition, the accounts should be Shari’ah audited; the

term “Shari’ah” used in a broad sense encompassing not only strict legal compliance

but also social compliance- an Islamic equivalent of the social audit. As discussed in

chapter 6, the researcher also believes that as the calculation of a Zakatable base

requires the use of current values, a current valuation system would be adopted by

Islamic accounting.

The non-financial information is especially relevant to Muslim users of Islamic

organisations because, the user requires assurance that the organisations have

conducted their activities within the Shari’ah, for which purpose, the institution was

set up in the first place. In order to elicit empirical evidence on the type of

information, Islamic accounting should disclose the following hypothesis is tested.

HYPOTHESIS NO. 10:

H0: Malaysian Muslim accountants and accounting academics believe that
Islamic accounting do not emphasise Islamic and social information .
H1: Malaysian Muslim accountants and accounting academics believe that
Islamic accounting emphasises Islamic/social information.

FIGURE 9-17: HYPOTHESIS ON THE INFORMATION CHARACTERISTICS OF ISLAMIC

ACCOUNTING
To operationalise the hypothesis, another score, SEI consisting of 14 questions of

the Islamic Accounting Questionnaire (see figure 9-18) was computed using the

formula:

SEI=mean.13(q3.4a,q3.4b,q3.4c,q3.4d,q3.4e,q3.4f,q3.6,q3.7,q3.8,q3.9,q3.10,q.3.11,

q.3.12,q3.13).

As there were fourteen questions, the ruling adopted i.e. 10%x14=1.4, rounded to the

nearest whole number leaves one question to be deducted, thus making a minimum

of thirteen responses as a criterion for calculating the score.

The hypothesis tested was as follows:

Chapter 9 Page 418

H0: mean/median of SEI ≤ 3

H1: mean/median of SEI>3.

Both the sign test and the t test of mean were used. The results are indicated in

Table 9-10.

3.4 Islamic accounting should provide information on:

a) Impact of the organisation’s activities on the Environment.

b) Internal Employee-Manager relationships and working conditions.
c) Distribution of salaries, perks and wages among different levels of
managers and employees.
d) Prohibited (haram) activities or financing undertaken by the organisation.
e) Social impact on the community.
f) Allocation of wealth between National and Foreign interests.

3.6 ‘Accounting’ in the Islamic context should NOT be restricted to a mere

monetary account rendering.
3.7 Islamic accounting (IA) needs to de-emphasise the focus given by
conventional accounting to cash flow, profits and financial position.
3.8 IA should provide wider holistic information on the activities undertaken
(or not undertaken) by the Islamic organisation.
3.9 IA should attempt to recognise and measure externalities.
3.10 IA should use current values in the balance sheet in order for Zakat to be
calculated fairly.
3.11 IA should recognise unrealised profits in order to attribute an equitable
share of profit/loss as between present and future shareholders.
3.12 Accounts and annual reports of large Islamic business organisations
should be Shari’ah audited to ensure that the organisation has conducted
its activities in accordance with the Shari’ah.
3.13 Islamic accounting should integrate non-financial information reflecting
significant activities, which cannot be reliably measured in monetary
terms.

FIGURE 9-18:QUESTIONS ON THE CHARACTERISTICS ON ISLAMIC ACCOUNTING

INFROMATION

It can be seen from Table 9-10 that, for both academic and professional accountants,

the p value for both tests is less than 0.05. Thus, the null hypothesis is rejected, as it

is very improbable that the sample is drawn from a population with a mean/median

value of 3. Hence, we accept the alternative hypothesis that Malaysian Muslim

Chapter 9 Page 419

accountants and accounting academics believe that Islamic accounting emphasises

Islamic/social information.

TABLE 9-10:RESULTS OF HYPOTHESIS TESTING OF SEI

Professional Accountants:
Sign Test for Median

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

SEI 91 2 2 87 0.0000 3.786

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

SEI 91 3.7849 0.5331 0.0559 14.05 0.0000

Accounting Academics:
Sign Test for Median
Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

SEI 90 0 1 89 0.0000 4.071

T-Test of the Mean

Test of mu = 3.0000 vs mu > 3.0000
Variable N Mean StDev SE Mean T P
SEI 90 4.1233 0.4592 0.0484 23.21 0.0000

The SEI score included one question, which asked the whether financial information

(cash flow, profit, financial position) should be de-emphasised by Islamic accounting

points scored a mean and median around 3.5. This suggests that financial

information needs to be de-emphasised in Islamic accounting.

9.5 INTERPRETATION OF RESULTS

Out of the 10 hypotheses tested, in general, it can be seen that Malaysian

professional accountants and academics seem to agree that there is a need for
Chapter 9 Page 420

Islamic accounting. This is due to the fact that Islamic organisations are based on

different socio-economic principles compared to their capitalist counterparts and

need an alternative to conventional accounting whose objectives, characteristics and

consequences are not conducive to the attainment of the objectives of Islamic

organisations.

The respondents believe that Islamic organisations do not emphasise profits as much

as social welfare and do not participate in activities, which are not in line with Islamic

socio-economic principles (Hypotheses 1 & 2).

The respondents of both categories are of the firm belief that the basic sources of

Islam provide adequate principles on which an alternative socio-economic regulatory

framework to meet the contemporary needs of various types of organisations can be

developed (Hypothesis No.3). This score (QSREL) was very negatively skewed,

indicating almost total agreement. In fact a separate test conducted to see whether

the hypothesis holds for H1; median >4 (see Table 9-11), indicated that this was so

in the case of this score and Q3.1 on the objectives of Islamic accounting. This

means the Malaysian Muslim Academics and Accountants expressed strong

agreement on this issue. Although this might be a matter of religious conviction rather

than based on practical experience, many of the respondents were Western

educated with a very basic (equivalent to O level) level of education in Islam, and

were mainly from the upper middle class level of society. This makes it a remarkable

finding. Hence, while only the future will tell if their conviction is rightly placed, there

is at least a belief in the Islamic solution to accounting problems!

Both Malaysian Muslim Accountants and accounting academics consider that

conventional accounting conventional accounting provides information, which

motivates Muslims in the wrong direction and may lead them to unIslamic behaviour

(Hypotheses 4). However, the respondents view that information provided by

conventional financial statements do not impede proper wealth allocation between

Chapter 9 Page 421

stakeholders nor hinder the making of appropriate decisions to control Islamic

organisations (Hypothesis 5). However, a separate test shows that except for

government accountants, the respondents consider that conventional financial

statements do not provide the information necessary to disclose proper Islamic

accountabilities. Due to the negative wording of the questionnaire and the small

number of respondents answering these questions, the results are not very

conclusive.

On the other hand, the respondents strongly reject the view conventional accounting

principles tested i.e. historic cost, prudence and monetary measurement are

unsuitable for Islamic organisations. However, the researcher considers that further

research is necessary in this area. The response could have been due to one of the

following reasons:

Conventional accounting principles such as historic cost having stood the test of time

(Ijiri, 1971) add a semblance of stability to the system. In the case of alternatives put

forward in the West for a change to other valuation systems such as replacement

cost (Edwards & Bell, 1961), the establishment has rejected the changeover. The

failure of SSAP 16 in the UK and the failure of the conceptual framework projects to

address this issue (Solomons, 1986 & AICPA, 1973) indicate this. This demonstrates

the fact that when it comes to changing something basic and practical, which has

been working, although somewhat imperfectly, for many years, it is natural to feel

uncomfortable to change. Therefore, despite their agreement to the need for an

alternative Islamic accounting system, the respondents may adopt a similar

tendency. Another more plausible reason could be that, there is still a lack of

awareness of the very real consequences of adopting the monetary measurement

concept for example, the inability to recognise externalities. Further, it may be

wrongly thought that Islam approves of prudence to protect the investor and thus

historical cost would be entirely in line with Islam. Abdelgader (1994) for example, is
Chapter 9 Page 422

of the opinion, that since it is very difficult to have equitable apportionment of profits

to different investors in different accounting periods, it is a compromise to accept

historical cost profit as a basis for profit distribution.

The researcher is of the opinion that further education of Muslims and research into

alternative measurement systems is necessary before Muslims can compromise on

this issue. In any case, for calculation of Zakat, historic cost is certainly not

acceptable in Islam.

TABLE 9-11RESULTS OF TESTS OF IAQ HYPOTHESIS AT MEAN/MEDIAN=4.0

Sign Test for Median: academics

Sign test of median = 4.000 versus > 4.000
P Median
Q3.1 0.0000 5.000
ETH1 0.0038 4.167
ETH2 0.8759 4.000
CAINF 0.8759 4.000
UNISL 0.9999 3.750
QSREL 0.0000 5.000
OBIA 1.0000 3.667
STIMP 1.0000 3.400
SEI 0.3375 4.000

Sign Test for Median: professional accountants

Sign test of median = 4.000 versus > 4.000
P Median
Q3.1 0.0000 5.000
ETH1 0.9746 3.833
ETH2 1.0000 3.500
CAINF 1.0000 3.500
UNISL 1.0000 3.500
QSREL 0.0000 4.750
OBIA 1.0000 3.667
STIMP 1.0000 3.400
SEI 0.9965 3.786

The results on the objectives and characteristics of Islamic accounting indicate strong

agreement on the Islamic accountability objective of Islamic accounting. A further test

(see Table 9-11), conducted on the main objective of accounting, but with the null

hypothesis that the mean/median response of the population is 4.0 with the

alternative hypothesis that mean/median of q3.1 is more than 4.0, led to the rejection
Chapter 9 Page 423

of the null hypothesis. This indicates support that the population mean and the

median were more than 4 (agree). This means that Malaysian accounting academics

and accountants agree that decision-usefulness is not the main objective of Islamic

accounting as opposed to conventional accounting. In fact only three out of the entire

sample of 200 respondents chose decision-usefulness. Additional support for the

social objectives of Islamic accounting as indicated by Hypothesis No. 8 provides

evidence that the non-financial objectives of Islamic accounting are more important

than financial objectives such as increasing shareholders’ wealth.

Again the results of testing hypothesis No.9 indicates that that Islamic accounting

views stakeholders other than shareholders as more important. This contrasts with

the position of conventional accounting, which is addressed to investors

(shareholders) and creditors in line with a decision-usefulness emphasis. There is,

however, a caveat here as the extent of difference in importance is not found to be

very much. A further test of median by the researcher showed that the null

hypothesis could not be rejected at median STIMP=3.2 against alternative

STIMP>3.2. This suggests that the difference in importance in shareholder and other

stakeholders is not very marked. Hence, it would be safer to assume that other

shareholders are at least as important although not more important than other

stakeholders.

Conventional accounting, despite the efforts of critical and social accountants, gives

primary importance to financial information. This is also reflected in a change of

emphasis in accounting terminology, where the profit and loss account and balance

sheet are now termed “financial” statements rather than accounting statements. Profit

and loss account has become the “income statement”. Accounting has also split into

“financial” and management accounting. All this indicates the tendency of accounting

to overemphasis financial activity as opposed to delivering a report of accountability

in a holistic sense. However, it would appear that the Malaysian professional

Chapter 9 Page 424

academics and accountants support the hypothesis that Islamic accounting

emphasises Islamic/social information. They support Islamic accounting providing an

integrated, holistic accountability report of not only economic but social and Islamic

matters as well. It must also provide current valuation for Zakat calculation and the

accounting statements should be Shari’ah audited which will be more comprehensive

than the current financial statement audit.

In conventional accounting, the ideal of the balanced scorecard has been advocated

recently by Kaplan and Norton (1996). These authors have realised that the

traditional accounting measures focused on financial profitability and net worth are

outdated for enterprises in the global environment of the 21st Century. They advocate

measures based on financial, customer, internal business processes and learning

and growth measures. Despite its primary objective of financial success, the non-

financial aspects of organisations are receiving increased focus. Social and

environmental accounting is also making some inroads into mainstream accounting

broadening the scope of accounting in the process. Hence Islamic accounting may

take a cue and develop broad Islamic based indicators, perhaps an Islamic scorecard

statement which might include the concept of giving scores to Islamic/social activity.

Such a shift in emphasis away from profits is conducive to Islamic behaviour and

Muslims.

As the objective of conducting the empirical work, from an Islamic perspective, was

to obtain consensus, a further test to obtain evidence of proportion of the population

supporting these various hypothesis was conducted. The population proportion of

the participants not favourable to Islamic accounting was hypothesised to be 40%.

This would mean at least 60% consensus. The alternative hypothesis was that the

proportion was more than 40% unfavourable to Islamic accounting. Table 9-12 lists

the results.
Chapter 9 Page 425

It can be seen that the null hypothesis cannot be rejected at 5% confidence level

except for conventional accounting principles (variable pcap). This means that there

is at least 60% consensus to all the issues discussed earlier except for the

unsuitability of conventional accounting principles, in which case about 73% to 80%

of the respondents disagreed indicating consensus against. Hence, overall, there is

evidence of consensus for Islamic accounting.

TABLE 9-12: PROPORTION TEST OF VARIABLES FOR ACADEMIC AND PROFESSIONAL

ACCOUNTANTS

Professional Accountants:Test and Confidence Interval for One Proportion

Test of p = 0.4 vs p > 0.4

Success = 1 (score 1 to 3)
Exact
Variable X N Sample p 95.0 % CI P-Value
peth1 6 98 0.061224 (0.022797, 0.128508) 1.000
peth2 29 91 0.318681 (0.224874, 0.424670) 0.956
pcainf 29 91 0.318681 (0.224874, 0.424670) 0.956
punisl 45 94 0.478723 (0.374556, 0.584268) 0.074
pqsrel 0 98 0.000000 (0.000000, 0.036942) 1.000
pobia 10 99 0.101010 (0.049511, 0.177925) 1.000
pstimp 40 101 0.396040 (0.300087, 0.498256) 0.570
psei 4 98 0.040816 (0.011231, 0.101218) 1.000
pcap 79 97 0.814433 (0.722673, 0.886152) 0.000

Accounting Academics:Test and Confidence Interval for One Proportion

Test of p = 0.4 vs p > 0.4

Success = 1 (score 1 to 3)

Exact
Variable X N Sample p 95.0 % CI P-Value
peth1 2 99 0.020202 (0.002456, 0.071076) 1.000
peth2 23 91 0.252747 (0.167455, 0.354728) 0.999
pcainf 23 91 0.252747 (0.167455, 0.354728) 0.999
punisl 32 96 0.333333 (0.240381, 0.436883) 0.926
pqsrel 2 98 0.020408 (0.002481, 0.071782) 1.000
pobia 6 98 0.061224 (0.022797, 0.128508) 1.000
pstimp 40 98 0.408163 (0.309923, 0.512107) 0.473
psei 1 98 0.010204 (0.000258, 0.055545) 1.000
pcap 71 97 0.731959 (0.632416, 0.816849) 0.000
Chapter 9 Page 426

9.6 CONCLUSION

The researcher has reported the tests conducted and the findings of the analysis of

the Islamic Accounting questionnaires through the means of hypothesis testing of

means and medians. In general, the result indicate:

(i) The respondents (both Malaysian Muslim accounting professionals and

accounting academics) believed that Islamic and Muslim businesses should aim

at social welfare, avoid damage to the environment, ensure just and fair

treatment of all stakeholders and pay sufficient wages to their employees

(Hypothesis 1). However, this do not seem to mean sacrificing profit

maximisation, as long as the organisations operate within the ethical and

Shari’ah boundaries.

(ii) The respondents also believed that Islamic business organisations should not

take financing or invest in debt securities, futures and options, short selling and

contra trading i.e. quick ways of making money without effort (Hypothesis 2).

(iii) The respondents also very strongly believed that the principles in the Islamic

sources are capable of being developed into business/legal framework to meet

the current needs of various types of profit and non-profit organisations

(Hypothesis 3).

(iv) The respondents also agreed that conventional accounting leads to unIslamic

behaviour and accounting needs a major overhaul before it can lead to

appropriate behaviour by Muslim users. This together with hypothesis

demonstrates clear support for an alternative accounting (Hypothesis 4).

(v) The respondents (except for accountants in the government sector)also agreed

that financial statements prepared in accordance with conventional accounting

principles do not provide proper information as regards Shari’ah compliance and

to discharge accountabilities. However, they did not perceive (Hypothesis 5).

 Chapter 9 Page 427

that the information might impede the equitable allocation of wealth between

stakeholders and hinder the making of appropriate Islamic decisions.

(vi) In contrast to the other hypotheses, the respondents strongly rejected the

hypothesis that conventional accounting principles of historical cost, prudence

and money measurement were inappropriate for Islamic organisations

(Hypothesis 6).

(vii) The respondents very strongly supported Islamic accountability to be the main

objective of Islamic accounting (Hypothesis 7). Decision usefulness as the main

was almost rejected totally rather than decision usefulness.

(viii) The respondents also believed that non-financial objectives of accounting are

more important than financial objectives, although the latter were not rejected

(Hypothesis 8).

(ix) The respondents also believed that stakeholders such as employees,

government, community, customers and benevolent loan creditors were equally

important, if not more important than shareholders as users of Islamic

accounting (Hypothesis 9).

(x) The respondents also showed strong support for the holistic (integrated) and

varied (financial and non-financial, qualitative and quantitative, “internalities”

and externalities, current valuation) character of Islamic accounting information

rather than a focus on money and profits (Hypothesis 10).

From the above, it can be seen the results of at least eight out of ten hypotheses

suggest the need for an alternative Islamic accounting. Although the support of the

respondents for the view that conventional accounting is inappropriate, is not as

strong, the support for developing Islamic accounting with different objectives and

characteristics can be said to be overwhelming. However, there is no evidence from

this research that conventional accounting principles tested are not appropriate for
Chapter 9 Page 428

Islamic accounting. Further research needs be conducted in this area to determine

the scope and extent of the appropriateness and to test other conventional

accounting principles.

The next chapter (chapter 10) reports on the results of the survey on the unIslamic

behavioural consequences of conventional accounting on Muslim users; executives

and other employees of Islamic, Muslim and Non-Muslim organisations.

Chapter 9 Page 429

APPENDIX 9-1: RESULTS OF IAQ HY POTHESIS TESTING BY SECTORS

TABLE A9-1: MEANS TEST OF HYPOTHESES BY SECTOR

T-Test of the Mean

Sector: Government

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

ETH1 25 3.9520 0.3280 0.0656 14.51 0.0000
ETH2 24 3.5417 0.8395 0.1714 3.16 0.0022
QSREL 21 4.6310 0.4718 0.1030 15.84 0.0000
UNISL 22 3.5909 0.7775 0.1658 3.56 0.0009
CAINF 23 3.1304 0.9561 0.1994 0.65 0.26
CAINF_2 23 3.0435 1.0651 0.2221 0.20 0.42
CAPRIN 20 2.3583 0.9053 0.2024 -3.17 1.00
Q3.1 25 4.5200 0.9183 0.1837 8.28 0.0000
NFOB-MFO 24 0.531 0.681 0.139 3.82 0.0004(mu=0vs.mu>0)
STIMP 25 3.5200 0.6557 0.1311 3.96 0.0003
SEI 24 3.8100 0.5401 0.1103 7.35 0.0000

Sector: Commerce

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

ETH1 41 3.8890 0.4847 0.0757 11.74 0.0000
ETH2 39 3.4487 1.1531 0.1846 2.43 0.010
QSREL 37 4.5878 0.4648 0.0764 20.78 0.0000
UNISL 40 3.5500 0.8847 0.1399 3.93 0.0002
CAINF 36 3.0694 1.0833 0.1806 0.38 0.35
CAINF_2 41 3.3415 0.9383 0.1465 2.33 0.012
CAPRIN 32 2.6823 0.9469 0.1674 -1.90 0.97
Q3.1 45 4.4889 0.7869 0.1173 12.69 0.0000
NFOB-MFO 40 0.506 0.717 0.113 4.46 0.0000(mu=0vs.mu>0)
STIMP 44 3.5636 0.7247 0.1092 5.16 0.0000
SEI 43 3.8837 0.4687 0.0715 12.36 0.0000

Sector: Public practice

Test of mu = 3.0000 vs mu > 3.0000

Variable N Mean StDev SE Mean T P

ETH1 34 3.8485 0.3886 0.0666 12.73 0.0000
ETH2 30 3.6944 0.6732 0.1229 5.65 0.0000
QSREL 34 4.4338 0.4700 0.0806 17.79 0.0000
UNISL 31 3.0645 0.9036 0.1623 0.40 0.35
CAINF 29 2.7241 1.0401 0.1931 -1.43 0.92
CAINF_2 32 3.5625 1.0453 0.1848 3.04 0.0024
CAPRIN 31 2.3978 0.8920 0.1602 -3.76 1.00
Q3.1 34 4.2647 1.1886 0.2038 6.20 0.0000
NFOB-MFO 33 0.583 0.898 0.156 3.73 0.0004(mu=0vs.mu>0)
STIMP 34 3.2941 0.6915 0.1186 2.48 0.0092
SEI 29 3.6374 0.5924 0.1100 5.79 0.0000

Sector: Education

Q2.5A(CAINF_2)93 3.462 1.048 0.109 4.25 0.000

Chapter 9 Page 430

TABLE A9-2:MEDIAN TESTS OF HYPOTHESES BY SECTOR

SIGN TESTS FOR MEDIAN

Sector: Government

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH1 25 0 0 25 0.0000 4.000
ETH2 24 5 2 17 0.0085 3.500
QSREL 21 0 0 21 0.0000 5.000
UNISL 22 4 1 17 0.0036 3.625
CAINF 23 4 10 9 0.1334 3.000
CAINF_2 23 4 13 6 0.3770 3.000
CAPRIN 20 14 4 2 0.9997 2.333
Q3.1 25 1 1 23 0.0000 5.000
NFOB-MFO 24 1 7 16 0.0001 0.6250 (med=0vs med>0)
STIMP 25 2 8 15 0.0012 3.400
SEI 24 0 2 22 0.0000 3.742

Sector: Commerce

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH1 41 2 1 38 0.0000 4.000
ETH2 39 11 3 25 0.0144 3.500
QSREL 37 0 0 37 0.0000 4.750
UNISL 40 10 4 26 0.0057 3.750
CAINF 36 13 9 14 0.5000 3.000
CAINF_2 41 6 19 16 0.0262 3.000
CAPRIN 32 16 8 8 0.9680 2.833
Q3.1 45 2 2 41 0.0000 5.000
NFOB-MFO 40 4 10 26 0.0000 0.3750 (med=0vs.med>0)
STIMP 44 5 10 29 0.0000 3.400
SEI 43 1 0 42 0.0000 4.000

Sector: Public practice

Sign test of median = 3.000 versus > 3.000

N Below Equal Above P Median

ETH1 34 1 0 33 0.0000 3.800
ETH2 30 1 6 23 0.0000 3.500
QSREL 34 0 0 34 0.0000 4.125
UNISL 31 15 3 13 0.7142 3.000
CAINF 29 16 6 7 0.9827 2.500
CAINF_2 32 5 12 15 0.0207 3.000
CAPRIN 31 18 6 7 0.9927 2.333
Q3.1 34 5 2 27 0.0001 5.000
NFOB-MFO 33 6 4 23 0.0012 0.5000 (med=0vs.med>0)
STIMP 34 8 6 20 0.0178 3.400
SEI 29 1 0 28 0.0000 3.643

Sector: Education
RQ2.5A(CAINF_2)93 17 26 50 0.0000 4.000