TOPIC 7- Auditing in islamic Financial institutions

Question 1

Role of the shariah committee

Answer 1

• 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

Question 2

what is Auditing

Answer 2

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

Question 3

Auditor’s opinion

Answer 3

• auditor should give true and fair view : FS is not misleading, not contain misstatement

Question 4

What is the difference between reasonable and complete assurance ?

Answer 4

• 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)

Question 5

Mission of Internal Audit (Shariah Audit)

Answer 5

• to provides independent. objective assurance and consulting services
• designated to add value and improve the organization’s problems
• help organization to achieve their objectives

Question 6

Why is there is need for shariah audit for Islamic Financial Institutions

Answer 6

• 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)

Question 7

what is shariah committee

Answer 7

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

Question 8

What is Hisbah ?

Answer 8

concept of enjoying the good and forbid the evil
to assist human being to worshipping Allah, relates to the right of Allah

Question 9

How to make sure that the shariah non compliance risk management be effective

Answer 9

Shariah risk management
shariah review
shariah audit

Question 10

What is three lines of defend related to shariah functions?

Answer 10

first line defence : business unit
second line defence : shariah review
Third line defence : shariah audit

Question 11

What is shariah audit ?

Answer 11

• 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

Question 12

what is the detailed function of the shariah audit ?

Answer 12

• 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

Question 13

What is shariah review?

Answer 13

• 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

Question 14

What is the function of shariah review

Answer 14

• 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

Question 15

Scope of shariah audit

Answer 15

• audit of FS of IFI
• review adequacy of shariah governance process

Question 16

What is the shariah audit reference

Answer 16

• 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

Question 17

The process of Shariah Audit

Answer 17

Planning
Execution
Reporting
Follow up

Question 18

Process (Planning)

Answer 18

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

Question 19

Process (execution)

Answer 19

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

Question 20

Process (reporting)

Answer 20

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

Question 21

Process (follow up shariah audit issues)

Answer 21

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

Question 22

Murabahah contract (shariah compliant checklist)

Answer 22

• Lawful goods and services
• penalty
• delay in payment

Question 23

Tawidh- compensation (shariah compliant checklist)

Answer 23

• the fee must be minimum
• the fee cannot be compounded
• the bank can earn penalty fee to cover the costs

Question 24

Ijazah contract (shariah compliant checklist)

Answer 24

• delay in payment
• penalty
• maintenance costs

Question 25

What is the challenges in Shariah audit

Answer 25

• the needs of dedicated shariah auditors
• competent (have the skills) and independent auditors
• systematic through the audit program