GCC states should avoid wholesale adoption of international accounting standards: study

A research seminar on "Islam and Harmonisation of Accounting Practices" presented by professors from the University of Wollongong in Dubai (UOWD) concludes that embracing harmonisation without due process has propensity to suppress elements of Islamic accounting because the templates used for harmonisation are unlikely to satisfy the needs of Islamic users.

The study was conducted by Nabil Baydoun and Roger Willett, professors of finance and accounting at the University. The paper will be published by Abacus, an Australian Journal of Accounting, Finance and Business Studies.

While acknowledging that for historical reasons most GCC countries had imported western accounting systems for one or more of the major categories of accounting, the study points out that Islamic values impose distinct requirements on accounting requirements and disclosure practices, including zakat (alms-giving) and riba (prohibition of interest).

'Accommodating the Islamic viewpoint in any process of harmonization mainly requires additional information and there are two basic ways in which this can be achieved', the study says. The more feasible solution is to modify the IFRS to an Islamic format, with exclusions and supplementations. As international standards do not deal with accounting issues like zakat and riba, it would be appropriate to incorporate these elements in financial reports, based on measures devised by bodies like the GCC Accounting and Auditing Organisation and the Accounting & Auditing Organisation for Islamic Financial Institutions.

The other alternative, less favoured by the authors, is to have two sets of corporate reports, one based on international standards and other incorporating Islamic accounting. However, the cost of having two sets of financial statements for each organization for each period would be high, and likely to result in errors and confusion.

The research paper concludes that effective accomplishment of an agenda to produce an Islamic accounting framework in the GCC requires the establishment of a strong accounting and auditing profession, trained in the GCC countries with a clear Islamic perspective.

"Given the close cultural and historical ties between the countries, a pan-GCC approach to the education and training of accountants might be a way to further such aims, under the leadership of organization like the GCC Accounting and Auditing Organisation."

The paper presented glimpses into existing accounting standards in each GCC country, and revealed that generally GCC countries accepted IFRS without adaptation, except for some special Islamic accounting rights restricted to financial institutions in Bahrain and some aspects of Islamic accounting which are applied to all firms in Saudi Arabia.