Question 3.

4:
Islamic Bank A is a medium size Islamic bank which a subsidiary of a conventional bank in
Malaysia. One of the most popular products is Islamic investment account based on mudarabah
(unrestricted). Head of Internal Audit Division is suspicious of one of the investment account
holder. He is a government officer of one local authority and recently deposited RM1 million.
They are suspicious that the source of fund could either be from money laundering activity or
bribery. The Head on Internal Audit asked for opinion whether the investment is Shari’ah
compliance and ethical. Should they accept a suspicious source of funds? What would be the
proper course of action(s) for the Bank to undertake.
Solution
 company A do not accept suspicious sources until the Auditor give clear opinion
whether the depositor’s fund is from illegal activities or not if the funds from laundering
or bribery they should not accept it , because the original sources of the Islamic fund has
to be ascertained from a halal sources and complied with shari,ah of Islam and also free
from bias and riba.
 The proper course of action that company would undertake will be to avoid any
investment that related haram.
 They also to set gudlines or policy that based on shariah of islam

Question 3.5:
Islamic Bank B is a full fledge Islamic bank in Malaysia. In 2005, the bank has invested in one
listed company i.e. Company X. They purchased 2,000,000 units of ordinary shares at an open
market at the price of RM6.50 each (considered as a fair valuation by the investment unit of the
Bank). They have referred to Securities Commission list, and the company was considered as a
Shari’ah compliance company. In January 2009, SC has withdrawn Company X from the list as
one of the newly acquired subsidiaries of the company is involved in a gaming business. The
present quoted price of the shares is currently at RM3.50. Based on the securities analyst
opinion, the price is expected to be about 20% of the present price for at least the next 1 year.
The Head of Investment unit asked the management and the Shari’ah supervisory board of the
bank. Should they
dispose the shares immediately or wait until the price reach RM1.50 to avoid significant
impairment loss?

Solution
They should dispose the shares and do not wait until the price increase, according to the law of
Islam you should be free of illegal sources as soon as you know it, if you try to ovoid significant
impairment loss you will suffer the punishment of Allah.
Question 3.6:
3. As a senior accounting executive of an Islamic bank, you have been asked by the chief
financial officer to present a working paper to train a group of new recruit’s i.e. recent graduates,
on the importance of Islamic ethics for accountants in Islamic bank. You are required to
determine the objectives of the training and explain the rules of conducts that may be important
for the new accountants

Objectives of the training

 To provide Islamic banking to the workers
 To improve the productivity of the workers and the Islamic bank
 Aware of relevant Shari’ah rules and principles especially regarding financial
transactions
Rules of ethical conduct:
Trustworthiness
– high degree of integrity, truthfulness, honesty and respect of confidentiality of information.
i. Present and relevant financial and nonfinancial information honestly, truthfully and with
adequate transparency
ii. Refrain from using confidential information for unethical advantage.
iii. Refrain from behaviors that may jeopardize the institution’s religious and ethical
objectives
Legitimacy –
all professional duties must be according to Shari’ah.
I. Priority of accountability to Allah over accountability to others.
II. Aware of relevant Shari’ah rules and principles especially regarding financial
transactions through formal training.
III. Ensure Shari’ah compliance of all business activities and transactions.
Objectivity
– fair, impartial and unbiased, free from conflict of interest and independence in fact, and as
well as in appearance.
I. Refuse gift, that would threaten objectivity of professional judgment.
II. Avoid actual or apparent conflict of interest such as personal or family relationships.
III. Avoid situations that would impair independence in fact and in appearance such as
owning significant number of shares in client’s firm (in the case of auditor).
IV. Refrain from engaging in other professional activities while auditing the client.
Professional competence and diligence –
performing duties diligently and properly
I. Acquire appropriate level of academic and professional competence, sufficient
knowledge of Shari’ah related to financial transactions, and keeping abreast with new
development of accounting profession and standards.
 II. Provide high quality work of professional services in accordance with Shari’ah rules and
principles, and relevant laws.
III. Ensure report are complete, clear and supported by appropriate analyses of relevant and
reliable information.
Professional conduct and technical standards –
comply with relevant standards as adopted by the society as long as it does not violate the
Shari’ah rules and principles.
I. Comply with relevant accounting and auditing standards.
II. Refrain from engaging in activities and conducts that may jeopardize integrity,
objectivity and independence such as marketing and promoting yourself in ways not
commensurate with his ability.