Islamic vs Conventional Accounting

The differences between Islamic accounting and conventional accounting are presented on Table1.Table 1: Differences between Islamic Accounting and Conventional Accounting |

S/No. | Basis of Differentiation | Islamic Accounting | Conventional Accounting |

1 | Objective of providing information | Decision relating to assessment of compliance with the Shariah in organizational dealings and the extent of meeting its objectives (Islamic accountability). | Decision relating to efficient allocation of scarce resources mostly buy, sell or hold decisions on their investments (Decisions usefulness). |

S/No. | Basis of Differentiation | Islamic Accounting | Conventional Accounting |

2 | the type of the information that is identified, how it is measured, recorded and communicated | Identify socio-economic and religious events and transactions and records them using both historical cost and current valuation (current valuation is used at least on accounting for Zakat). It also engages in reporting/disaggregating items into haram and halal elements. For example, finance income would have to be splitted in to conventional interest and income from the various types of Shariah compliant contracts. | Concentrates on identifying economic events and transactions and record them using historical costs (or net realizable value, whichever is lower). Conventional accounting has tried in the past to overcome the limitation of historical accounting through inflation accounting and current value accounting, but the ideas were given up due to their complexity and lack of objectivity. |

3 | Users of the information | Give fairly good focus to a whole gamut of stakeholders recognised by the corporate accounting to enable them assess compliance with Shariah and enables the assessment of whether the socio-economic objectives of the organization are being met ethically, without harm to others and the achievement of equitable allocation and distribution of wealth among members of the...