TOPIC 7- Auditing in islamic Financial institutions Flashcards
Role of the shariah committee
- To perform an oversight role on shariah matters that are related to the institutions business operations (through shariah review and shariah audit functions)
- so that the shariah committee can identify the issues arised
what is Auditing
1) the accumulation and evaluation of
- establish information and criteria
- accumulation and evaluation of evidence
- competent
2) help to obtain the reasonable assurance about whether the financial report is free from material misstatement
Auditor’s opinion
- auditor should give true and fair view : FS is not misleading, not contain misstatement
What is the difference between reasonable and complete assurance ?
- Report of the auditors is independent assurance which emphasized on the integrity and fairness of FS
- evidence will be accumulated on sample basis because transaction is complex
- The report on shariah committee will need to indicates a statement opinion reflecting a complete shariah compliance (but shariah committee dont need to perform the audit)
Mission of Internal Audit (Shariah Audit)
- to provides independent. objective assurance and consulting services
- designated to add value and improve the organization’s problems
- help organization to achieve their objectives
Why is there is need for shariah audit for Islamic Financial Institutions
- external financial auditors : audit the conventional financial, and operational systems
- Internal auditors : internal control and operational mattes
(therefore, there is a need to designed a shariah audit programs)
what is shariah committee
Shariah committee : will be responsible for forming and expressing an opinion, and assist the management to comply with shariah rules
BOD : will responsible for compliance to the shariah, and to provide SC all informations
Islamic practices : the matters are audited to ensure it also complies with the shariah rules and principles
What is Hisbah ?
concept of enjoying the good and forbid the evil
to assist human being to worshipping Allah, relates to the right of Allah
How to make sure that the shariah non compliance risk management be effective
Shariah risk management
shariah review
shariah audit
What is three lines of defend related to shariah functions?
first line defence : business unit
second line defence : shariah review
Third line defence : shariah audit
What is shariah audit ?
- provides an independent assessment on the quality and the effectiveness of the IFI’s internal control, risk management system and governance
- an IFI must ensure that its internal auditors who perform the shariah audit is qualified (have the requisite knowledge) to perform an internal audit
what is the detailed function of the shariah audit ?
- establish an audit methodology to assess the risk profile
- generate an audit plan for the assignment to be performed
- establish clear documents audit programs
- communicate the result to the board and shariah committee
What is shariah review?
- refers to a functions that conducts regular assessment on the compliance (business, affairs and IFI)
- they must be qualified to undertake compliance function responsible, and have understand the relevant shariah requirements
What is the function of shariah review
- identify, assess and monitor the compliance of the IFI’s business operations and activities with Shariah
- report to the board. shariah committee and senior management if there is shariah non compliance issues and findings
- update regarding the latest development in legal and regulatory requirements
- ensure adequate training and guidance are provided to the officers
Scope of shariah audit
- audit of FS of IFI
- review adequacy of shariah governance process
What is the shariah audit reference
- rulings and decisions of the shariah committee of IFS
- Other relevant and applicable pronouncement issued by BNM
- Approved product manuals
evidence used :
oral testimony, written communication with outsiders. legal documentation
The process of Shariah Audit
Planning
Execution
Reporting
Follow up
Process (Planning)
1) understand the bank operations - products, size of the operations , properly documented - selection criteria and size taking into consideration
2) perform the shariah risk assessment on the audit universe
3) determine the number of audit assignments
Process (execution)
1) understand the management awareness, commitment and compliance control
2) observe process and operations
3) audit profit computation and distribution ‘
4) assessing the internal control systems
Process (reporting)
Shariah Audit Report
1) report the non compliance or potential shariah non compliance
2) highlight the causal factors that led to shariah non compliance
3) assess the degree of risk and impact to the bank
4) conclude the internal systems
the summary also of method used, evidence gathered need to be disclose
Process (follow up shariah audit issues)
1) Shariah risk management - track the rectification efforts using the shariah non compliance
2) Shariah audit will also follow up which will conducted on monthly basis and will be presented to Audit committee
Murabahah contract (shariah compliant checklist)
- Lawful goods and services
- penalty
- delay in payment
Tawidh- compensation (shariah compliant checklist)
- the fee must be minimum
- the fee cannot be compounded
- the bank can earn penalty fee to cover the costs
Ijazah contract (shariah compliant checklist)
- delay in payment
- penalty
- maintenance costs
