Adoption of the COSO methodology for internal Sharīʿah audit
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Published:2022-06-29
Issue:2
Volume:14
Page:221-235
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ISSN:0128-1976
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Container-title:ISRA International Journal of Islamic Finance
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language:en
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Short-container-title:IJIF
Author:
Bouheraoua Said,Djafri Fares
Abstract
PurposeIslamic financial institutions (IFIs) are required to establish a Shariīʿah Governance Framework (SGF) to strengthen their Sharīʿah-compliance mechanism and ensure that all relevant IFI regulations are in line with Sharīʿah rules and principles. Effective implementation of the Shariīʿah-compliance function will further promote stakeholder confidence, as well as the integrity of IFIs, by reducing Shariīʿah non-compliance risks. This study aims to examine the internal control framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and explore the extent to which it can be incorporated in the Sharīʿah-compliance function of IFIs.Design/methodology/approachThis study adopts a qualitative method of inquiry, utilizing the inductive method and content analysis to build comprehensive knowledge that will assist in exploring the framework of COSO methodology and the extent to which it can be adopted by IFIs.FindingsThe findings indicate that the existing frameworks of Sharīʿah governance, whether that of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or Bank Negara Malaysia (BNM), need to be further developed. Therefore, the adoption of COSO methodology in the internal Sharīʿah audit of IFIs, as suggested by AAOIFI, is not only possible but desirable. The study also finds that the COSO framework places the highest priority on risk management in that it makes it an integral part of the decision-making process in all the institution's activities. As a result, incorporating the comprehensive COSO risk management structure within the Sharīʿah-compliance function will enhance risk management in IFIs.Originality/valueThis study highlights the importance of the COSO internal control framework and examines its components, principles and the possibility of its adoption by IFIs. The findings of this study are expected to contribute to enhancing the Sharīʿah-compliance function of IFIs.
Publisher
International Centre for Education in Islamic Finance
Subject
Economics and Econometrics,Finance,Development
Reference34 articles.
1. AAOIFI (2018), “Exposure draft of the governance standard for Islamic financial institutions: waqf governance”, available at: http://aaoifi.com/wp-content/uploads/2019/03/Waqf-Governance-Exposure-Draft-v-8.4-Final-for-Publishing-.pdf (accessed 3 August 2020).
2. AAOIFI (2019), “Governance standard for Islamic financial institutions (GSIFI) No. 9 ‘Sharīʿah compliance function’”, available at: http://aaoifi.com/gsifi-9-Sharīʿah-compliance-function/?lang=en (accessed 3 May 2019).
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