Shari’ah Mechanisms of Audit

By Yousef A Basodan, Mohd Ma’Sum Billah

Abstract

It is the common regulatory culture that, an annual audit is mandatory for every company, regardless of size, that is registered under the Saudi and Malaysian Companies Act.  For this reason, the term ‘auditing’ is most commonly associated with the statutory audit of a company’s accounts or financial statements as provided under the Acts.  The Acts also stipulate that an external independent auditor referred to in the Act as ‘approved company auditor’ must perform a company’s annual audit. An audit of financial statements increases the reliability of financial information for users (e.g.: managers, investors, creditors and regulatory agencies).  An auditor plays an important role in this process by providing objective and independent reports on the reliability of information. By adding the audit function in the business environment, the users of the financial statements have reasonable assurance that the financial statements do not contain material misstatements or omissions. The auditing profession is currently operating in a very dynamic environment as numerous forces are affecting the responsibilities and activities of the public accountants.  Lately, critics have charged that the current audit has failed to meet user expectations (e.g.: Enron case). Therefore it is important for the profession to reflect as to the nature and ethics of auditing in hope that by practicing ethically this will restore the confidence of the public. The purpose of this term paper is to explore auditing under the Shari’ah guidelines.  Perhaps the best solution to the above critics is by developing an auditing standard and guidelines with reference to the Shari’ah rulings.