CH10 - Analysis of Behavioural Accounting Questionnaires

CHAPTER 10: ANALYSIS OF BEHAVIOURAL ACCOUNTING
QUESTIONNAIRES
10.0 INTRODUCTION
In the previous chapter (Chapter 9), the findings of the Islamic Accounting Questionnaire
were presented and interpreted. The questionnaire concentrated on four main areas, the ethical
objectives of Islamic organisations, the suitability/unsuitability of conventional accounting for
Islamic organisations, the objectives and users of Islamic Accounting and the nature and
characteristics of Islamic Accounting information. The findings indicated that Malaysian Muslim
accounting academics and professional accountants in practice, commerce and industry and
the public sector all favoured the development of an Islamic accounting system.
This chapter will discuss the results of the second part of the empirical study. This part of
the study is intended to elicit evidence on one particular area of this enquiry into the need for
Islamic Accounting i.e. whether conventional accounting leads to unIslamic behaviour in actual
practice in business organisations as opposed to the perceptions of respondents of Accountants
and Academics. This was carried out (as discussed in detail in chapter 7) using two
questionnaires; the finance questionnaire and the non-finance questionnaire.
The finance questionnaire was given to finance executives of Islamic, Muslim and non-
Muslim corporations, such as accountants and managers, who were responsible for investment,
financing decision and accounting functions. The results of the finance questionnaires are
reported and analysed in section 10.2 and the researcher’s interpretation of the results is given
in section 10.3.
The Non-finance questionnaire was given to employees of non-accounting function and
employees in the accounting function who were not managers. The purpose of this
questionnaire was to elicit information on whether accounting tools such as budgeting,
performance evaluation and financial reporting leads to unIslamic behaviour among non-
accounting personnel such as those in marketing, human resources or production and non-
managerial personnel in accounting functions. The results of this questionnaire are reported in
Section 10.4 and the researcher’s interpretation of the results is given in section 10.5.
The general conclusions of the chapter (reported in section 10.6) are that the results
provide some but not strong support, for the suggestion that conventional accounting leads to
unIslamic behaviour. However, Muslim users of conventional accounting in Islamic organisations
seem to weather the effects of conventional accounting better than Muslim and non-Muslim
organisations. Although conventional accounting1[1] does not seem to derail the objectives of
Islamic Business Organisations, this is less so in the case of Muslim organisations and least in
Non-Muslim organisations where conventional accounting profits drive the organisations and
may lead Muslims to unIslamic behaviour to a larger extent. Due to the difficulty in defining and
accessing the population of respondents and the non-feasibility of using a random sample, the
results cannot be inferred to the population. On the other hand, the similarity of results obtained
from two sets of sample (executive MBA students and those delivered directly) indicated the
general validity of the results, at least prima facie. There is definitely scope for further research
on this matter.
10.1 THE FINANCE QUESTIONNAIRE: AREAS OF ENQUIRY

Current dominant system of accounting originating in the practices and standards of Anglo-American
1[1]
professional accountancy bodies, multinational audit firms and Anglo-American dominated standard setting bodies
such as the IASC.
As discussed in chapters 3 and 6, the researcher argued that as Accounting has both
positive and negative behavioural consequences (Prakash & Rappaport, 1977; Miller & O’Leary,
1987) for employees and users within a firm. In particular it may lead to unintended unethical
and therefore unIslamic behaviour such as padding of budgets, friction and tension between
employees, an excessive focus on profits to the detriment of social and environmental
consequences.
The specific purpose of the finance was to investigate whether conventional accounting
leads to unIslamic behaviour in three specific areas:
 In the investment activities undertaken by the organisation
 In the financing activities undertaken by the organisation and
 In the operational areas, such as performance evaluation and employee treatment.
In addition, it was decided to explore the extent of Islamic commitment among various
components of the management team. Conventionally, senior management focuses on
maximising shareholder wealth and their own perks (Jensen & Meckling, 1976) which can be
at the cost of other stakeholders and the environment but such behaviour may be considered to
be unIslamic. As such, a low level of Islamic commitment by senior and middle management
can be seen to be evidence of the unIslamic behaviour impact of conventional accounting.
Although it is possible that Islamic behaviour can be induced by the accounting system
as accounting can construct social reality (e.g. Hines 1988) but the culture and values of the
organisation would have a higher impact on behaviour. Hence, an Islamic organisation set up to
operate within an Islamic ethos would tend to behave more Islamically. Muslims organisations,
which are headed or manned by Muslims, might also see some Islamic behaviour in the context
of Muslims attempting to change their social and economic environment around them,
especially, in the context of the current Islamic resurgence. However, in both these type of
organisations, there is a danger that conventional accounting with its financial profit focus may
slowly damage the Islamic values and induce unIslamic behaviour away from the goals of
Islamic organisations and Muslim managers and employees over time.
Non-Muslim organisations, however, headed by non-Muslims are not expected to exhibit
Islamic behaviour to any marked extent as their values and culture are different. However, in a
multicultural environment such as Malaysia, a significant number of employees in such
companies, especially in the lower levels are Muslims. Further, under the indigenisation policies
of the Malaysian government, corporations are encouraged and monitored on their employment
of indigenous “bumiputras” (who are mainly Muslims) in all employment categories from
managerial to technical. Under such conditions, the conventional accounting system may
exacerbate the unIslamic culture and may induce goal incongruence and other dysfunctional
effects not conducive to the spiritual growth of Muslim employees.
To gain insight to the behaviour in each of these organisations, the questionnaire was given to
Muslim managers in Islamic, Muslim and Non-Muslim organisations. The results of the study are
analysed by the three types of organisations; Islamic business organisations (IBO), Muslim
Business organisations (MBO) and Non-Muslim Business Organisations (NBO). The definition
of each type of organisation is the same as those followed in the Islamic Accounting
Questionnaire (see chapter 7).
Table 10-1 shows the frequency distribution of the respondents from the different type of
organisations. The table shows that of the 32 questionnaires returned, 4 could not be classified
into the type of organisation as no information was given to the appropriate question in section 2
of the questionnaire. It should be noted that there is a preponderance of responses from Islamic
business organisations (46.4% of the valid responses). Hence, if the type of organisation has
any impact on the behavioural effects of conventional accounting, the overall mean score could
be pushed higher or lower that it would otherwise be. Hence, the analysis of the questionnaire is
undertaken by organisation type, partly to overcome this problem.
TABLE 10-1:FINANCE QUESTIONNAIRE: RESPONDENTS BY COMPANY TYPE
Frequenc % Valid % Cumulative %
y
Valid
Islamic 13 40.6 46.4 46.4
Organisation
Muslim 5 15.6 17.9 64.3

Organisation
Non Muslim 10 31.3 35.7 100.0

Organisation
Total 28 87.5 100.0
Missing
System 4 12.5
Total
32 100.0
Various questions in each of the investing, financing and operational areas were asked,
although the questionnaire itself was not divided into the respective sections. The responses to
each category of questions are grouped together and analysed from section 10.2.1 onwards. In
addition, aggregate scores for financing, investment, operational and Islamic commitment are
computed and analysed to provide a summary.
A 1 to 5 ranking scale, a 1 being “not at all” to a 5 being “to a great extent”, was used to
measure responses in the finance questionnaire. As the number surveyed and the number of
respondents were low (32) and the responses were further classified by organisation type, it
was decided to summarise the response to a three point scale to make for easier summarisation
of the results. Thus a score of 1 and 2 was re-coded into the category “none to some” with a
point score of 1. A score of 3 was re-coded into the category “moderate” with a numeric score of
2 and scores of 4 and 5 was re-coded into the category “high to a great extent” with a numeric
score of 3.
10.2 FINANCE QUESTIONNAIRE: ANALYSIS OF FINDINGS

The analysis and findings of the finance questionnaire are presented in the sub-sections
below. The main areas of scrutiny are Investments comprising short-term, long-term, social and
environmental considerations and Islamic investment policies. In this category, fourteen
questions were asked of respondents, however only 12 are reported as two questions
(questions 1.3b and 1.3c) are left out of the analysis as it became increasingly apparent during
the interviews2[2] that answers to these questions, either way did not mean Islamic or unIslamic
behaviour. The results of these investment activities are summarised in section 10.2.5. In sub-
section 10.2.6 the results of the financing activities, categorised into the use of Islamic and non-
Islamic financing instruments of the organisations, are analysed and reported. Again the results
for this section are summarised in sub-section 10.2.9. The results of operational activities,
Some interviews were conducted with departmental heads before the questionnaires were handed out to the
2[2]
employees.
suitability of conventional accounting and Islamic commitment are reported in sub-sections
10.2.10, 10.2.11 and 10.2.12 respectively.
10.2.1 Short Term Investments

As discussed in chapters 3 and 7, it was shown that Islam bans the giving or taking of
interest. However, modern financial management teaches managers to maximise their income
by investing short-term surpluses in risk-free, short term, interest based investments. This is
prohibited and contrary to Islam. As the profit-focused conventional accounting system reports
these results as a performance indicator, it may lead to an Islamically unsanctioned behaviour
by users as efficient and effective performance of their duties (in increasing the shareholder
wealth). Although short-term, riskless investments are still a problem area for Islamic finance,
some short-term Islamic money-market instruments have been evolved, which are not entirely
risk-free and with absolutely fixed return as conventional interest-based instruments.
Nevertheless these provide an alternative to Muslim users but with the trade-off of greater risk
and less certainty of return. Since, the performance
evaluation tools of conventional accounting cannot reflect an organisation’s Islamic behaviour
favourably; this may lead them to continue to undertake investment activities contrary to Islamic
provisions.
The first two questions are meant to find out what is situation in this short-term
investment area .The responses are reported below:
TABLE 10-2: FINANCE QUESTIONNAIRE: RESPONSES TO QUESTIONS ON

SHORT-TERM INVESTMENT ACTIVITIES
1&2=none to some, 3= moderate, 4&5= high to great extent
No. Statement Org. Type----------> IBO MBO NMO Total
Response Values No. % No. % No. % No. %
1 We put short term surplus funds None to some 0 0 3 60 7 70 10 37
in Islamic Money Market or moderate 1 8 1 20 3 30 5 19
Islamic interest free investments high to great extent 11 92 1 20 0 0 12 44
Total 12 100 5 100 10 100 27 100
to increase profits. Org. Type----------> IBO MBO NMO Total
2 We put any short term surplus Response Values No. % No. % No. % No. %
funds in the conventional Money None to some 13 100 3 60 2 20 18 64
Market or Interest based moderate 0 0 1 20 0 0 1 4
investments to increase profits. high to great extent 0 0 1 20 8 80 9 32
Total 13 100 5 100 10 100 28 100
From the above, it can be seen that 37% of the respondents made little or no use of
Islamic instruments to invest their short-term surpluses while another 19% only made use of
them in a moderate way. Interestingly about 30% of respondents in Non-Muslim organisations
reported using Islamic instruments to a moderate extent, which may indicate a growing market
for Islamic financial instruments. Of the 12 (44%) of the respondents who made the greatest use
of Islamic instruments, all except 1 were from Islamic organisations. In contrast about 36% of
the respondents put their short-term investments in interest based funds with 80% of the
respondents in Non-Muslim organisations and 40% of the respondents in Muslim organisations
continuing to use short-term financial instruments contrary to Islamic provisions. None of the
respondents from the Islamic business organisations used interest-based instruments.
10.2.2 Long-term Investments
Companies in a capitalist framework invest directly or indirectly using interest-based
debt, equity or hybrid modes of financing. As discussed in chapters 3 and 7, the debt mode of
investment is prohibited in Islam when it carries a fixed return. Islamic companies should seek
to avoid debt-based investments. Further from a broader Islamic perspective of pursuing social
justice, Islamic businesses should not seek quick short-term profits and quick capital gains but
reasonable profits with corresponding risk over a longer-term, especially when investing in stock
markets. However, conventional accounting with its short-term quarterly and interim reporting
mentality focuses on quick profits which has already been criticised in the business and
accounting literature. Hence this may lead to a short- termist profit-focused strategy.
To find out whether this was so; the following questions indicated in Table 10-3 were put
forward to respondents. The results are indicated in the same table. The responses to Question
3a indicate that 76% of respondents favour quick profits from “a moderate to a great extent”.
What is interesting, is that 76% of the respondents of even Islamic business organisations seem
to favour quick profits. This does not seem to be consistent with the responses to the next
question (question 3d) where about 96% of the respondents seem to follow a policy of
reasonable profits (from a moderate to a great extent) over a longer term. Perhaps both the
policies are followed.
From the responses to question 4, it can be seen that about 40% of the respondents
would rather go for higher profits rather than sticking to Islamic norms. This figure jumps to 78%
and 60% for Non Muslim organisations and Muslim organisations. There is even one response
from an Islamic organisation taking the same stand! Overall the results indicate that
conventional accounting does seem to lead to a very short-term profit focus and thus unIslamic
behaviour irrespective of the type of organisation.
TABLE 10-3: FINANCE QUESTIONNAIRE: RESPONSES TO QUESTIONS ON
INVESTMENT STRATEGY
3 When we make direct or stock None to some 3 24 1 20 2 24 6 24
market
investments, we look for:- moderate 5 38 2 40 3 38 10 38
3a Quick Returns high to great extent 5 38 2 40 3 38 10 38

Total 13 100 5 100 8 100 26 100
3d Reasonable profits over a period of None to some 0 0 1 25 0 0 1 4
time with corresponding risk. moderate 1 8 1 25 1 13 3 13
high to great extent 11 92 2 50 7 88 20 83
Total 12 100 4 100 8 100 24 100
4 We choose conventional interest Response Values No. % No. % No. % No. %
based
financial instruments if their returns None to some 12 92 2 40 2 22 16 60
are
higher than Islamic financial moderate 0 0 2 40 0 2 7
instruments, assuming equivalent high to great extent 1 8 1 20 7 78 9 33
risk
levels. Total 13 100 5 100 9 100 27 100
10.2.3 Social and Environmental Investment Policy

Apart from avoiding a short-term profit focus and avoiding investment instruments
prohibited in Islam, Islamic organisations should also, in line with their Islamic world-view (as
discussed in Chapter 2), be aware of the social and environmental implications of their
investments. As the cause of prohibition of interest and uncertainty (gharar) in Islamic contracts
is based on the notion of avoiding injustice to the parties involved, investing in areas or
companies whose activities result in damage to the social /moral fabric of society or the
environment is itself a grave injustice. Undertaking such activities is akin to collaborating in “sin
and transgression” according to Qur’anic teachings. Hence Muslim investors must look at the
social and environmental consequences of their investments as well as the Islamic legal
position. Conventional financial accounting with its profit focus, however, may direct Muslim
behaviour towards profit irrespective of the social and environmental consequences of their
investments. To test whether this is the case, four questions (Questions 3h, 3i, 5 and 6) as to
whether the environmental and social consequences are considered when undertaking
investment decisions. The results are given in table 10-4.
In table 10-4, , from responses to Question 3h, it can be seen that 57% of the
respondents in Non Muslim Organisations and 75% in Muslim organisations do not take into
account the environmental consciousness of the investee company. This figure for Islamic
businesses was only 15%. The results are somewhat different when it comes to undertaking
their own investment projects, where 22% of respondents in Non Muslim organisations and 25%
of respondents in Muslim organisations and only 15% of respondents in Islamic businesses do
not care for the environmental consequences of their investment projects. Though only 22% of
the respondents of Non-Muslim organisations and none of the respondents from Muslim
organisations consider the environmental consequences of their projects, 54% of the
respondents from Islamic businesses do so from a moderate to a great extent.
Responses to questions 3i, indicate that 40%, 100% and 17% of respondents of Non-
Muslim, Muslim and Islamic business do not avoid luxury projects. In fact, except for 5
respondents from Islamic businesses and only 1 respondent for Non-Muslim businesses, the
other respondents do not give high priority to avoiding luxury investment. The total number of
respondents who answered this question, (merely 21 that represented only 65% of total
respondents) probably indicates that the respondents are not comfortable in answering this
question. Question 5 was a direct question on the trade-off between focusing on accounting
measure of return compared to social consequences of investment. Although the proportion of
respondents from Non-Muslim, Muslim and Islamic businesses who do not look into
TABLE 10-4: RESPONSES TO QUESTIONS ON SOCIAL AND ENVIRONMENTAL
CONSEQUENCES OF INVESTMENT
1&2=None To Some, 3= Moderate, 4&5= High To Great Extent
3 When we make direct or stock market None to some 2 15 3 75 4 57 9 37
3h Environment consciousness of the high to great extent 4 31 0 1 14 5 21
investee. Total 13 100 4 100 7 100 24 100
3i luxury avoidance projects. None to some 2 17 4 100 2 40 8 38
moderate 5 42 0 0 2 40 7 33
Total 12 100 4 100 5 100 21 100
5 When we appraise a project, we look Response Values No. % No. % No. % No. %
at the possible benefits or harm to the None to some 2 15 1 25 1 11 4 16
community as well its accounting moderate 4 31 2 50 5 56 11 42
measures of return before accepting high to great extent 7 54 1 25 3 33 11 42
it.
Total 13 100 4 100 9 100 26 100
6 When we appraise a project, we take Response Values No. % No. % No. % No. %
into account its environmental None to some 2 15 1 25 2 22 5 19
consequences. moderate 4 31 3 75 5 56 12 46
high to great extent 7 54 0 2 22 9 35
Total 13 100 4 100 9 100 26 100
social considerations at all were only 11%, 25% and 15%, the proportion who gave this
high and great importance were only 33%, 25% and 54% respectively. This may imply that
profits are given priority over social consequences. At 22%, 0% and 54% for the corresponding
categories, the responses to question 6, indicate a worse position for environmental
considerations. Overall, it can be concluded, that although conventional accounting does not
result in the abandonment of social and environment consideration in investment decisions,
these appear to be secondary and overridden by the profit motive.
10.2.4 Islamic Investment Policy

In addition to social and environmental considerations common to social and
environmental accounting, Islamic and Muslim organisations have to be concerned with
specifically Islamic moral and ethical issues. These moral/ethical issues delineated by the
Shari’ah are both a matters of law and morals as compared to the ethical criteria facing ethical
investors in a Non-Muslim environment. What is viewed by the Shari’ah as immoral (fawahish)
is also prohibited by Islamic Law (Shari’ah).
Hence these activities, for example, gambling, alcoholic drinks, pornography, interest-based
financing and pork products are all prohibited. Hence it is forbidden for Muslims and Islamic
organisations to invest in companies or undertake direct investments in which these prohibited
activities are carried out. Muslim organisations are supposed to follow suit and Muslims should
try to influence even Non-Muslims from carrying out these actives as co-operating in forbidden
acts even with Non-Muslims is forbidden.
In order to make the investment selection process more efficient, the Securities
Commission which is the regulatory body for the securities market in Malaysia has constituted a
“ Shari’ah Advisory Council” to advise on the permissibility of investing in listed companies on
the Kuala Lumpur Stock Exchange (Adawiah, 1999). This Board monitors and issues a list of
permitted companies, once every six months. The researcher (in Chapter 6) has discussed the
criteria used by this council for deciding permissibility.
Further, in contrast to investments in new projects, it is difficult to obtain a company
which is 100% halal (permitted). Therefore, in common with the criterion adopted by some
ethical fund managers, a cut off point based on the percentage of earnings decides
permissibility. However, in investing in these companies, Islamic funds or companies would
have to calculate the percentage of unlawful earnings and donate the portion to charity to
“purify” the profits. In order to elicit information on these areas, Questions 3e, 3f and 7 were
asked of the respondents. The results are in Table 10-5.
TABLE 10-5:RESPONSES TO QUESTIONS ON ISLAMIC INVESTMENT POLICY

3 When we make direct or stock None to some 0 0 3 75 3 50 6 25
market
3e Investments approved as halal by the high to great extent 13 93 1 25 2 33 16 67
S C Shariah Board Total 14 100 4 100 6 100 24 100
board Org. Type----------> IBO MBO NMO Total
No. Statement Response Values No. % No. % No. % No. %
3f The activities of the investee None to some 0 0 3 75 3 50 6 25
companies are halal. moderate 1 7 0 0 0 0 1 4
Total 14 100 4 100 6 100 24 100
7 In cases when we cannot find a purely Response Values No. % No. % No. % No. %
Islamic investment, we purify None to some 6 55 3 75 4 50 13 57
profits i.e. take the halal part of profits moderate 0 0 3 38 3 13
based on the proportion of halal and high to great extent 5 45 1 25 1 13 7 30
haram activities. Total 11 100 4 100 8 100 23 100
From table 10-5, it can be seen that 67% of respondents look to the shari’ah advisory
council (shari’ah board) of the securities commission for guidance to a high or great extent.
71% of the respondents ensure that the activities of the investee companies are halal. the
proportion of respondents from muslim organisations (25% for both the questions) and non-
muslim organisations (33% and 50% for the respective questions, however show a different
picture. only 30% of the respondents seem to purify profits in cases where pure islamic
investments are not available.
10.2.5 Summary Results for Investment Activities

A summary score SINVACT being the mean of the investment questions in the finance
questionnaire was computed. The results are shown in Table 10-6.
TABLE 10-6: DESCRIPTIVES FOR SUMMARY INVESTMENT ACTIVITY
1=none to some, 2= moderate, 3= high to great extent
Descriptive Statistics
Company Type N Minimum Maximum MeanStd. Deviation
.
SINVACT 4 1.00 3.00 2.50001.0000
Islamic Organisation
SINVACT 12 3.00 3.00 3.0000.0000
Muslim Organisation
SINVACT 5 1.00 3.00 2.00001.0000
Non Muslim Organisation

SINVACT 9 1.00 3.00 1.3333.7071
The above table shows that the mean of Investment activities for Islamic organisations
was 3 meaning Islamic organisations conduct their investment activities in an Islamic manner to
a high and very large extent. The mean of investment activities for Muslim organisations is 2
meaning only moderate adherence and for Non-Muslim companies with a mean of 1.333,
meaning slight to moderate adherence.
10.2.6 Financing Activities

As Islam does not allow Muslims to give or take interest, Muslims cannot finance their
businesses through debt instruments such as bonds or obtaining interest based loans, even
thought they might be cheaper than equity-based capital. Conventional accounting and finance,
through its pecking order theory and the need to reduce the cost of capital through choosing the
cheapest form of capital, would naturally lead to choosing Islamically prohibited instruments and
means to raise finance.
However, there is Islamically allowable alternatives, although some may lead to higher
administrative costs and may lead to a slight loss of control in managing company assets and
may even be more costly. Muslims are supposed to opt for these alternatives even though it
might result in a lower bottom line.
10.2.7 Islamic Financing Instruments

In order to see whether conventional accounting leads to financing behaviour in line with
Islamic injunctions, questions 8(a), 8(e) and 8(f) were asked of participants. The results are in
Table 10.7.
TABLE 10-7: RESPONSES TO QUESTIONS ON ISLAMICALLY ALLOWABLE

FINANCING METHODS
8 When we raise long and medium term Response Values No. % No. % No. % No. %
finance; we use: None to some 2 20 1 33 0 3 15
8a Equity shares moderate 0 1 33 1 14 2 10
Total 10 100 3 100 7 100 20 100
8d Islamic debt instruments Response Values No. % No. % No. % No. %
None to some 2 20 2 50 4 50 8 36
moderate 0 0 0 0 0
Total 10 100 4 100 8 100 22 100
8e Murabaha/Al-Ijara Response Values No. % No. % No. % No. %
None to some 1 13 2 50 4 57 7 37
moderate 0 1 25 2 29 3 16
Total 8 4 4 100 7 100 19 100
8f Mudhararaba Certificate Response Values No. % No. % No. % No. %
None to some 3 38 2 67 4 57 9 50
moderate 0 0 2 29 2 11
Total 8 100 3 100 7 100 18 100
From the table 10-7, it can be seen that 75% and 64% of total respondents use equity
shares and Islamic debt instruments to a high or great extent respectively while 47% and 39%
of the respondents use the purely Islamic instruments of Al-Ijara (Leasing) and Mudharaba
(Fixed term participation certificate) of financing to a high or great extent. As expected, Islamic
business organisations lead the pack with 80% for equity share and Islamic debt financing and
88% and 63% respectively for Al-Ijara and Mudharaba certificates. However, the respondents
from Non-Muslim Business organisations do not seem to use Islamic leasing and participation
certificates to any great extent.
10.2.8 Non-Islamic Financing Instruments

In order to see whether conventional accounting leads to financing behaviour contrary to
Islamic injunctions, questions 8(b),and 8(c) were asked of participants. The results are in Table
10.8.
TABLE 10-8: RESPONSE TO QUESTIONS ON NON-ISLAMIC FINANCING
INSTRUMENTS
8b Debentures/bonds/Fixed Return Response Values No. % No. % No. % No. %
Instruments None to some 5 71 1 25 1 14 7 39
moderate 1 14 1 25 0 2 11
Total 7 100 4 100 7 100 18 100
8c Interest-based bank loan Response Values No. % No. % No. % No. %
None to some 6 86 1 25 0 7 37
moderate 1 14 1 25 3 38 5 26
Total 7 100 4 100 8 100 19 100
From the Table 10-8, it can be seen that 61% and 63% of the respondents used fixed
return instruments and interest based bank loans respectively from a moderate to a great
extent. Analysing further, it can be seen that this included 28% of the respondents from Islamic
business organisations, 75% of respondents in Muslim business organisations and 86% of
respondents in Non-Muslim organisations used long-term fixed return instruments. Further,
14%, 75% and 100% respectively of respondents from Islamic, Muslim and Non-Muslim
organisations respectively used interest-based bank loans. This means that Islamic
considerations were not prominent when using financing instruments in both Muslim and Non-
Muslim organisations. Although, the use of interest-based financing instruments is not extensive
in Islamic business organisations, contrary to their establishment objectives, these organisations
still may be using prohibited financing instruments.
10.2.9 Summary Financing Behaviour

In order to elicit information on the financing behaviour as a whole, a multi-item score
SFINACT, was computed, using the mean of Questions 8(a)-8(f). Questions 8(b) and Question
8(c) were re-coded because these questions were posed in the reverse direction. This implies
that the higher the score, the more Islamic the behaviour. The results appear in Table 10-9.
TABLE 10-9: SUMMARY OF FINANCING BEHAVIOUR

Descriptive Statistics
Company Type N Minimum Maximum MeanStd.
Deviation
.
SFINACT 3 1.00 3.00 1.66671.1547

Islamic
Organisation
SFINACT 6 3.00 3.00 3.0000.0000

Muslim
Organisation
SFINACT 3 1.00 3.00 1.66671.1547

Non Muslim
Organisation
SFINACT 8 1.00 3.00 1.5000.9258

The Table 10-9 shows that the mean score for the financing behaviour of Islamic
organisations is 3.0 meaning that these organisations undertake their financing activities in line
with Islamic norms to a high or great extent. The mean score for Muslim organisations at 1.67
and Non Muslim organisations at 1.5 indicate that their financing activities are Islamic only to a
low or moderate extent.
It can be seen that 69% and 52% of the respondents banked in Islamic banks/Interest
free counters and paid Zakat on their earnings in addition to tax, to a high or to a great extent.
The high proportion was due mainly to the preponderance of respondents from Islamic
organisations. To avoid this bias, a break down by category shows a more accurate picture. It
can be seen that while 100% of the respondents in Islamic organisations bank with Islamic
banks to a high or great extent, 50% of respondents in Muslim organisations and 44% of
respondents in Non-Muslim organisations do not bank with Islamic banks or Interest-free
counters to avoid interest. Further 27% of the respondents from Islamic organisations 75% of
the respondents from Muslim organisations and 86% of respondents from Non-Muslim
organisations do not pay Zakat on their company’s wealth. Further 46%, 50% and 63% of
respondents from Islamic, Muslim and Non-Muslim organisations do not provide interest-free
loans to employees.
10.2.10 OPERATIONAL ACTIVITIES
From a broader Islamic perspective, Islamic organisations need not only follow the
Shari’ah in terms of complying with it for their financing an investment activity but should do so
in its day to day operations involving employees, transactions and its responsibility to pay the
Zakat (or the poor-tax). Questions 9,10,11 and 12 were asked of the respondents to elicit insight
in this area. The results are in Table 10-10.
TABLE 10-10 RESPONSES TO QUESTION ON OPERATIONAL ACTIVITIES

9 We bank with Islamic banks/Islamic Response Values No. % No. % No. % No. %
counters (e.g. SPTF) to avoid interest. None to some 0 2 50 4 44 6 23
moderate 0 0 2 22 2 8
Total 13 100 4 100 9 100 26 100
10 We pay Zakat on the company’s Response Values No. % No. % No. % No. %
earnings in addition to tax. None to some 3 27 1 33 6 86 10 48
moderate 0 0 0 0 0
Total 11 100 3 100 7 100 21 100
11 We pay Zakat on the company’s Response Values No. % No. % No. % No. %
wealth (net worth). None to some 3 27 3 75 6 86 12 55
moderate 0 0 0 0 0 0
Total 11 100 4 100 7 100 22 100
12 The company provides interest free Response Values No. % No. % No. % No. %
loans to its employees. None to some 6 46 2 50 5 63 13 52
moderate 0 2 50 0 2 8
Total 13 100 4 100 8 100 25 100
A summary score for operational activities, SOPACT was computed using the above four
questions. The higher the score the more Islamic the behaviour. The descriptive statistics for the
score are given in Table 10-11.
TABLE 10-11:SUMMARY BEHAVIOUR IN OPERATIONAL ACTIVITIES

Descriptive Statistics for variable SOPACT
Company N Minimu Maximu Mean Std.
Type m m Deviatio
n
All 1.00 3.00 2.00 .8165
Organisatio
ns
Islamic 12 1.00 3.00 2.4167 .7930
Organisatio
n
Muslim 5 1.00 3.00 2.6000 .8944
Organisatio
n
Non Muslim 10 1.00 2.00 1.1000 .3162
Organisatio
n
From table 10-11, it can be seen that the operational activities of Islamic and Muslim
organisations were viewed by the respondents as following Islamic norms to a great extent with
means 2.4 and 2.6 respectively, whereas Non-Muslim organisations had a mean of 1.1 which
shows that these organisations may not do likewise. The surprise finding here is that Muslim
organisations seem to exhibit more Islamic operational behaviour than Islamic organisations.
However due to the small proportionate number of respondents in this category this result must
be treated with caution.
Overall there appears to be a moderate level of Islamic operational behaviour in Islamic
and Muslim organisations. Non Muslim organisations behave more in an unIslamic manner than
Islamic or Muslim organisations.
10.2.11Suitability of conventional accounting
Ethical fund managers use financial statements to a great extent to provide information
regarding suitability of investments (Harte et al 1991). Conventional accounting may not provide
suitable information for managers to make Islamic investment decisions i.e. to direct investment
in companies or activities which are Islamically acceptable or recommended. In order to obtain
information on this question, the finance questionnaire included question 13. The results are
reported in Table 10-12.
TABLE 10-12: RESPONSES TO SUITABILITY OF CONVENTIONAL ACCOUNTING

13 Conventional financial statements Response Values No. % No. % No. % No. %
provide sufficient information for our None to some 5 45 3 75 4 57 12 55
Islamic investment decisions. moderate 4 36 0 2 29 6 27
Total 11 100 4 100 7 100 22 100
From Table 10-12, it can be seen that 55% of the respondents viewed conventional
accounting as almost totally unsuitable as almost no useful information is produced by
conventional accounting from an Islamic perspective for investment decisions. 27% of the
respondents viewed conventional accounting moderately useful in this area while only 18% saw
conventional accounting as useful in making Islamic investment decisions.
10.2.12 Islamic commitment
Commitment to the values and goals of an organisation, especially by management and

employees is essential to the achievement of an organisation’s goals. However, agency theory
(Jensen & Mackling, 1976) teaches us that management consumes perks at the expense of
other stakeholders because they tend to maximise self-interest. In many cases, accounting is
manipulated by income smoothing and other creative accounting activities, especially when
rewards depend on accounting numbers. The recent trend of emphasising shareholder value
has made accounting very important as accounting information affect share prices (Beaver,
1981). In the case of an Islamic organisation, the use of conventional accounting may direct
management and employee behaviour in a way detrimental to its social/ethical objectives. It is
thus important to have an Islamic culture in the organisation reflected by the commitment of the
directors, managers and employees to Islamic norms.
To elicit information on this area, questions 14(a) to 14(d) were asked of the
respondents. The answers are set out in Table 10-13. It can be seen from this table that only
42%, 40%, and 32% of respondents viewed the employee group, manager group, government
shareholder group, local directors groups, and non-executive directors group respectively as
Islamically committed to a high or great extent. Only 7% and 9% of the respondents viewed
foreign directors and labour union representatives as Islamically committed to a high or large
extent.
TABLE 10-13: ISLAMIC COMMITMENT
14 Would you say the following groups in Response Values No. % No. % No. % No. %
14a Your company are committed to run None to some 0 1 25 2 22 3 12
the company in accordance with moderate 4 31 2 50 6 67 12 46
Islamic values? high to great extent 9 69 1 25 1 11 11 42
a) Employees. Total 13 100 4 100 9 100 26 100
14b b) Management. Response Values No. % No. % No. % No. %
None to some 0 2 50 5 56 7 27
moderate 5 38 0 3 33 8 31
Total 13 100 4 100 9 100 26 100
14c c) Govt. Shareholder/Representative. Response Values No. % No. % No. % No. %
None to some 1 9 2 50 4 50 7 30
moderate 4 36 1 25 2 25 7 30
Total 11 100 4 100 8 100 23 100

14d d) Local Directors. Response Values No. % No. % No. % No. %
None to some 0 2 50 5 56 7 28
moderate 4 33 0 4 44 8 32
Total 12 100 4 100 9 100 25 100
14e e) Foreign partners/Directors, if any. Response Values No. % No. % No. % No. %
None to some 1 20 2 100 6 75 9 60
moderate 3 60 0 2 25 5 33
high to great extent 1 20 0 0 1 7
Total 5 100 2 100 8 100 15 100
14f f) Labour union representative. Response Values No. % No. % No. % No. %
None to some 0 1 100 2 33 3 27
moderate 3 75 0 0 4 67 7 64
high to great extent 1 25 0 0 1 9
Total 4 100 1 100 6 100 11 100
14g g) Non-Executive Directors. Response Values No. % No. % No. % No. %
None to some 1 13 1 33 4 50 6 32
moderate 3 38 0 0 4 50 7 36
Total 8 100 3 100 8 100 19 100
From the chart displayed in Figure 10-1, (analysed by organisation type), it can be
seen that except in the case of Labour union representatives, the proportion of
respondents from Islamic business organisations who viewed the level of Islamic commitment of
the various groups to a “high and great extent” is highest, ranging from 69% for employees to
% re s p o n d e n ts in o rg . c a te g o ry
20% for foreign partners/directors.
Islamic Commitment
FIG
80 UR
70 E
60
50 IBO 10-
40
30 MBO 1:
20
10 NMO
0
Group showing commitment to high and great extent
ISLAMIC COMMITMENT OF VARIOUS GROUPS: FINANCE QUESTIONNAIRE
The same groups in Muslim Business organisations, having Islamic commitment to aigh
and great extent came second, ranging from 50% for management and 0% for foreign directors.
The lowest proportion of respondents who viewed the groups (25% for Govt. Representative to
0% for foreign directors and union representatives) as having a high level of Islamic
commitment came from Non Muslim organisations.
The summary score SISLAMCOMI was computed using a mean of the scores of the
respective questions in each group. The results are given in Table 10-14.
TABLE 10-14: DESCRIPTIVE STATISTICS FOR ISALMIC COMMITMENT
Descriptive Statistics for Variable SISLAMCOMI
Company N Minimu Maximu Mean Std.
Type m m Deviatio
n
.
4 1.00 3.00 1.5000 1.0000
Islamic
Organisation
12 1.00 3.00 1.8333 .9374
Muslim
Organisation
5 1.00 2.00 1.2000 .4472
Non Muslim
Organisation
10 1.00 2.00 1.1000 .3162
Table 10-14 shows that the mean score of Islamic commitment is 1.5, meaning that it is
near the lower end of the moderate level. The level of Islamic commitment in Islamic
organisation is the highest at 1.83, which is towards the higher end of the moderate level. The
mean level of Islamic commitment in Muslim and Non Muslim organisations are 1.2 and 1.1
respectively meaning that the level of commitment is low.
10.3 INTERPRETATION OF FINDINGS OF FINANCE QUESTIONNAIRE
Figure 10-2 shows the mean scores for the four summary variables computed from the
finance questionnaire on the original scale of 1 – 5. In computing the variables, certain
questions have been re-coded as they were in the reverse direction. As such, a higher value of
the score must be interpreted as higher Islamic behaviour. From figure 10-2, it can be seen that
the mean scores for all three areas of activities; investment, financing and operational vary
depending on the type of organisation.
Finance Questionnaire: Mean
Response of Summary variable
F
5 I
G
Islamic behaviour
4.5
U
4 4.00
Islamic R
3.78
E
3.5 3.56 Organisation
3.35
3 3.00 Non Muslim

2.92
2.73 Organisation
2.5
2.2399 Muslim
2.075 2.06
2 1.9857 Organisation
1.6833
1.5
1
INVACT FINACT OPACT ISLCOMIT
Islamic Organisation
Activity Areas
10-2: MEAN RESPONSE FOR SUMMARY VARIABLES
This clearly implies that the type of organisation is a strong moderating variable
diminishing the power of accounting in influencing investing, financing and operational
behaviour. The culture of the organisation does have a profound effect on its behaviour. Islamic
business organisations tend to behave in a more Islamic manner than their Muslim counterparts
who in turn behave more Islamically than Non-Muslim business organisations. This implies that
the power of accounting is not enough to drastically overturn the mission, objectives and the
operations of Islamic organisations, but accounting has more effect in Muslim and Non-Muslim
organisations where the Islamic culture is not so strong. Hence, there seem to be no strong
evidence that conventional accounting is not suitable for Islamic companies as they tend to
cause dysfunctional behaviour.
However, there is also no strong evidence to support the contrary thesis that
conventional accounting provides information is suitable for the attainment of Islamic Company
objectives. In particular the response to question 13 (section 10.2.11) had a mean of only 2.2
and a t-test of mean=3 was rejected with a p value of 0.006 meaning that a moderate level of
usefulness for Islamic investment decisions had to be rejected at the 5% level. This implies
conventional accounting does not provide sufficient information for Islamic investment decisions.
Conventional accounting does not seem to influence short-term investment decisions in
Islamic business organisations as Islamic money market instruments are used to a large extent.
Further, while Islamic business organisations do not seem to use prohibited interest based
money market instruments, roughly half the respondents in Muslim business organisations and
about 80% of respondents in Non-Muslim business organisations report using interest-based
deposits or money market instruments to increase their profits. This shows that the conventional
accounting focus on profits does influence short-term investment behaviour in Non-Muslim and
Muslim organisations.
Perhaps, the best evidence of the negative influence of accounting is the response to
questions of investment policy. Roughly 40% of respondents from all types of organisations
reported seeking quick returns. This may be due to the short-termist attitude to investment
arising from the use of conventional financial accounting (e.g. quarterly and interim reporting
pressures) and management investment appraisal tools reported in the literature (e.g. Kaplan &
Atkinson, 1998). Although not technically prohibited in Islam, the broad objectives of the
Shari’ah do not encourage quick returns which most probably arises out of speculative activity.
In this case, even the Islamicity of the organisation does not seem to moderate this short-term
profit focus.
However, conventional accounting does not seem to influence Islamic organisations to
opt for prohibited instruments even if the returns are higher although this is not completely ruled
out. About 60% of respondents from Muslim organisations however, opt for the prohibited
instruments from a moderate to a great extent. This is higher in Non-Muslim organisations
where 78% of respondents reported opting for prohibited investments to a great extent if this
resulted in higher profits. It can thus be concluded that conventional accounting does seem to
influence all types of organisations to be focused on quick and short-term profits even at the
expense of infringing Islamic prohibitions, although Islamic organisations do not go to that extent
in most cases.
The response frequencies for the questions on social and environmental consequences
of investment show a higher concern for these considerations among Islamic business
organisations than for Muslim and Non-Muslim organisations. Islamic organisations seem to
make more allowances for the environment in their own projects but do not look too closely at
the environmental impact of investee companies. Luxury project avoidance also does not seem
to be a priority. There seems to be almost no concern for social and environmental effect of
investments by Muslim business organisation and Non-Muslim organisations do only slightly
better.
Conventional accounting does not seem to influence the investment behaviour of Islamic
business organisations when it comes to ensuring that the (non-financial instrument) investment
is halal or permitted by Islam. Almost all respondents from Islamic business organisations
reported that they ensured the permissibility of investments. However as only 25% and 13%
respectively of respondents in Muslim organisations and Non-Muslim organisations reported
positively on this matter, conventional accounting does seem to have a negative influence on
this investment behaviour.
From the financing side, Islamic business organisations seem to abide by the Islamic
Shari’ah rather than being influenced by pecking order finance theories when they clash with
Islam. Only one respondent form this type of organisation reported that they used Islamically
prohibited financing instruments. However at 50% and 86% respectively for Muslim and Non
Muslim organisations, accounting does seem to highly influence financing behaviour in these
two types of organisations.
The operational behaviour of organisations in relation to Islamic matters especially the
payment of the religious tax (Zakat) does not seem to too influenced by conventional accounting
as 73% of respondents reported paying Zakat on organisational profits. However only 25% and
14% of respondents reported paying Zakat in Muslim and Non-Muslim organisations. While this
might not be important if the majority of shareholders or employees in Non-Muslim or Muslim
organisation are non-Muslims (as Islam does not force non-Muslims to pay Zakat), if the
majority of employees or shareholders are Muslims, then this issue becomes important.
Finally, all types of organisations reported very low Islamic commitment among foreign
directors and Labour union leaders. This is not surprising as most foreign directors in Malaysian
companies tend to be Non-Muslim European, American, Japanese or Taiwanese expatriates.
However, if these people are employed in very senior positions in Islamic organisations, their
profit focused conventional accounting training may disorient the company from its Islamic
mission. Even in Islamic organisations only 20% of respondents reported a high level of Islamic
commitment among this group. However, generally Islamic commitment appears to be high
(around 55-70% of respondents reporting high commitment) among employees, managers,
local directors and non-executive directors. This is natural and to be expected due to the
organisation culture. However, it would be interesting to study how long the groups keep their
commitment in view of continuing global economic pressures.
The Islamic commitment in Muslim business organisation appears to be low for all
groups except Non-executive directors. In Non-Muslim organisations less than 25% of
respondents report any Islamic commitment in the groups mentioned.
Islamic commitment as a set of values may assumed to be strongly influenced by the
environment, upbringing and education of the individual. It is not clear whether conventional
accounting causes lower Islamic commitment or Islamic commitment serves to moderate its
effects. If Islamic commitment arises from prior education, culture of Islamic organisations
provides a suitable nurturing environment, then it may be the independent variable moderating
the negative effects of conventional accounting.
In order to discern the correlation of the type of companyXwith the overall behaviour, a
variable SISLBEH (summary Islamic behaviour) was computed using AXIS:COMPAN
the mean of investment,
Y TYPE:
financing and operational variables (sinvact, sfinact ,soptact discussed in section 10.2.5, 10.2.9
and 10.2.10 above. A correlation test was run using the computed 1= variable
IBO SISLBEH with the
company type (1 for IBO, 2 for MBO and 3 for NMO). The relationship 2= MBO between company type
and Islamic behaviour can be seen more clearly from the scatterplot in figure 10-3.
FIGURE 10-3:
SCATTERPLOT
OF 3 ISLAMIC
BEHAVIOUR VS
COMPANY TYPE
SISLBEH
The scatterplot in
figure
Y AXIS 10-3 above shows
that the AT
1= NONE summary variable
ALL TO
1 SISLBEH is
SLIGHT 1 2 3 negatively
COMPTYPE correlated with the
type
2= of company. As
Islamic
MODERAT business organisation and Muslim Business organisations were coded 1 and 2
respectively, this means that Islamic business organisations exhibited more Islamic behaviour
E
followed by Muslim business organisations and lastly NonMuslim Organisations.
3=TABLE
HIGH 10-15: CORRELATION TEST FOR CO TYPE AND ISLAMIC BEHAVIOUR
Correlation (Pearson)
Correlation of SISLBEH and COMPTYPE = -0.796, P-Value = 0.000
The Pearson’s correlation co-efficient test conducted (exhibited in table 10-15) showed
the correlation coefficient at –0.796 which shows a strong negative correlation between the type
of company and Islamic behaviour. The correlation was significant at the 1% confidence level.
Hence, overall, the results of the finance questionnaire indicate that although conventional
accounting does affect the behaviour of Muslim users and organisations, the type of
organisations has a strong moderating influence.
An initial Islamic commitment may serve to moderate or mitigate the unIslamic effects of
conventional accounting. An Islamically committed manager may not care so much for financial
performance as for the social and Islamic performance. The generally higher Islamic behaviour
of Islamic organisations indicated by the results of this survey (see figure 10-2) may be due to
this commitment rather than the positive consequences of conventional accounting. However,
as accounting constructs social reality and the environment, Islamic commitment itself could
become a dependent variable as an inverse function of conventional accounting. If this were
true, an alternative Islamic accounting could help to maintain Islamic commitment, whereas
conventional accounting would cause it to degrade and finally cause unIslamic behaviour. This
calls for an experimental design and case studies of companies over time. This is certainly an
area for future research.
10.4 NON-FINANCE QUESTIONNAIRE: AREAS OF ENQUIRY AND RESULTS
The “Non-finance” questionnaire was given to personnel working in non-accounting

functions such as marketing, production, personnel as well as non-managerial staff of the
accounting function such as clerks and supervisors. The objective of the questionnaire was to
elicit information on the effect of accounting on the behaviour of the personnel concerned.
Although the researcher tried to be unbiased as possible, the sample could not be random
because the population could not be defined. Hence, it is not possible strictly to draw inferences
to the population. However the similar results from the two sets of independent samples except
for performance evaluation adds some weight to the findings, as this is an indication of the
unbiased nature of the sample selected. However, since this is an exploratory study on one
aspect of the research, the objective was to gain some initial insights in the area as a prelude to
possible future research rather than to generalise theories about a universal phenomenon.
Specifically, the questionnaire was handed to personnel of Islamic business organisations
and given to part-time MBA students in the International Islamic University of Malaysia and
Institute Technology Mara who were full time working executives and managers in various
functions in different organisations in and around Kuala Lumpur. The number for each type of
respondent for the non-finance questionnaire is given in Table 10-16. It can be seen that about
71% of respondents were executives who were MBA students and 29% working executives and
non-executives who were not MBA students.
TABLE 10-16: RESPONDENTS TYPE: NON-FINANCE QUESTIONNAIRE
Respondent Type Number % Valid Percent Cum %

Working MBA Students 46 70.8 70.8 70.8
delivered personally 19 29.2 29.2 100
Total 65 100 100
The specific areas of enquiry of the questionnaire were:
 Whether budget pressures caused unIslamic behaviour
 Whether performance evaluation was accounting based and whether this affected the
respondent’s behaviour.
 Whether conventional accounting’s focus on profits resulted in any unIslamic behaviour.
A five point Likert scale 1= Strongly Disagree, 2= Disagree, 3= Neither Agree nor
Disagree, 4= Agree and 5= Strongly Agree was used to measure responses. As the sample was
quite small (65), the responses were aggregated into a 3 point scale, where 1= Strongly
Disagree and Disagree, 2= Neither Agree nor Disagree and 3 = Strongly Agree and Agree.
Summary multi-item scores (summary variables) were computed for each area. The
results are described under each area below. Unlike the finance questionnaire in the previous
section, the summary variables are computed so as to make a higher score to a mean more
unIslamic behaviour.
10.4.1 Budget Pressures
Since the Argyris article on the behavioural effects of budgets (Argyris, 1953), there has
been a proliferation of articles on how budgets affect behaviour. These studies show that
budgets influence people, sometime to be dishonest by padding- behaviour condemned by all
religions including Islam. In other instances, budgets give rise to friction between employees
and management and between employees. Budgets can be used as tools to punish people and
project power (Roberts, 1991). Competition between budget centres may lead to intra
organisation conflicts . Since budgeting is mainly in terms of accounting data and is itself an
accounting tool, therefore conventional accounting via budgeting may cause unIslamic
behaviour. Budgets have been used as controlling devices over geographical and cultural
boundaries. This tends to have a negative effect if control is imposed as a projection of power
without considering local conditions. The use of budgets as remote control levers of power to
manipulate people is not moral or Islamic.
In order to obtain information on this area, the following questions, shown in Table 10-17,
were asked of the participants in the non-finance questionnaire:
TABLE 10-17: SUMMARISED RESPONSE FREQUENCY

NON-FINANCE QUESTIONNAIRE:EFFECT OF BUDGET PRESSURES
1= strongly disagree & disagree, 2= neither disagree or agree, 3= agree and strongly agree
1.00 2.00 3.00
Quest No. Statement Count % Count % Count %
The budget based appraisal
SQ1.4 system in my company
17 27.9% 28 45.9% 16 26.2%
creates friction among
employees.
SQ1.5 system in my company
20 31.3% 26 40.6% 18 28.1%
creates friction between
employees and managers.
I am forced to cut corners, e.g.
SQ1.6 on safety, training and well
26 41.3% 16 25.4% 21 33.3%
being of subordinates in order
to achieve my budget.
I am forced to use sub
standard materials in our
SQ1.7
production or underqualified 31 50.8% 21 34.4% 9 14.8%
personnel in providing service,
in order to keep within budget.
I lose temper often at my
SQ1.8
subordinates for not achieving 36 59.0% 19 31.1% 6 9.8%
budgets.
My boss loses temper when I
SQ1.9
don’t meet budget 23 37.7% 20 32.8% 18 29.5%
expectations.
I am forced to pad my budgets
SQ1.10
to ensure adequate funding for 19 30.6% 21 33.9% 22 35.5%
my department.
From table 10-17, the proportion of respondents who indicate that budgets lead to
unIslamic behaviour i.e. inter-personnel friction, cutting safety and welfare standards and
padding of budgets is about one third. This is evidenced by responses to Questions SQ1.4,
(26.2%), SQ1.5(28.1%),SQ1.6(413%),SQ1.9 (37.7%) and SQ1.10 (35.5%). Similarly, the
proportion of respondents who indicate that budgets do not lead to unIslamic behaviour is also
about one-third indicating disagreement. The proportion of respondents who disagreed to
Questions SQ1.4, (27.9%), SQ1.5 (31.3%), SQ1.6 (33.3%), SQ1.9 (29.3%) and SQ1.10
(30.6%) evidence this. This means that about one-third of respondents neither agree nor
disagree as to whether budgeting causes unIslamic behaviour.
An exception to this is shown by responses to questions SQ1.8 where only 9.8% of the
respondents agreed that they (as bosses) lose their temper at subordinates when budgets are
not met. However, the answer to this question seems to be inconsistent to the response to
question SQ1.9 where 29.9% agreed that their bosses did lose their temper. Perhaps, this
throws some doubt on the validity of responses to SQ1.8 as human nature usually resists
perceiving oneself in a negative light. If we discount question SQ1.8 then the response seem to
be about equally divided in to three response categories agree, disagree and neutral.
The only other exception (beside SQ1.8) is the question (SQ1.7) where 50.8% of the
respondents disagreed that budget lead to compromises in material and service quality. This
again seem to be inconsistent with responses to question SQ1.16 (see table 10-21, section
10.4.3 below) where 72.9% of respondents agreed that safety and working conditions are
sacrificed to increase profits.
However, even discounting these two questions, we do not seem to have sufficient
evidence to conclude that budgeting pressures leads to unIslamic behaviour nor do we have
evidence to the contrary.
The descriptive statistics in table 10.18 indicates a mean of 1.91 and a median of 1.88
for the summary variable BUDPRES, which is computed as the mean of all the responses to the
questions in this section. These figures which are close to 2 implies that there is no evidence to
suggest budget pressures cause unIslamic behaviour or otherwise. The responses to question
SQ1.7 and SQ1.8 both with medians of 1 seem to suggest a lack of unIslamic behaviour in
these areas.
TABLE 10-18:NON-FINANCE QUESTIONNAIRE

DESCRIPTIVE STATISTICS (SUMMARISED RESPONSES) : BUDGET PRESSURES
1= Strongly Disagree & disagree, 2= Neither Disagree or Agree, 3= Agree and Strongly Agree
Statement Mean Median Percentile Percentile Std Valid
25 75 Deviation N
system in my company
SQ1.4 1.98 2.00 1.00 3.00 .74 N=61
creates friction among
employees.
SQ1.5 The budget based appraisal
system in my company
creates friction between 1.97 2.00 1.00 3.00 .78 N=64
employees and managers.
SQ1.6 I am forced to cut corners,
e.g. on safety, training and
well being of subordinates in 1.92 2.00 1.00 3.00 .87 N=63
order to achieve my budget.
SQ1.7 I am forced to use sub
standard materials in our
production or underqualified
personnel in providing 1.64 1.00 1.00 2.00 .73 N=61
service, in order to keep
within budget.
SQ1.8 I lose temper often at my
subordinates for not achieving 1.51 1.00 1.00 2.00 .67 N=61
budgets.
SQ1.9 My boss loses temper when I
don’t meet budget 1.92 2.00 1.00 3.00 .82 N=61
expectations.
SQ1.10 I am forced to pad my
budgets to ensure adequate 2.05 2.00 1.00 3.00 .82 N=62
funding for my department.
Media Percentile Valid

Variable Mean Percentile 75 Std Deviation
n 25 N
SBU
.459
DP 1.91 1.88 1.50 2.25 N=61
5
RES
Overall, there seem to be a lack of evidence that budget pressures lead to the use of
sub-standard materials and service and managerial tension. However there seem to be some
evidence for padding and inter-personnel friction, through the budgeting process but the
evidence is not strong.
10.4.2 Performance Evaluation
TABLE 10-19:SUMMARISED RESPONSE FREQUENCY

NON-FINANCE QUESTIONNAIRE:RESEARCH AREA: PERFORMANCE
EVALUATION
1= Strongly Disagree & disagree, 2= Neither Disagree nor Agree, 3= Agree and Strongly Agree
1.00 2.00 3.00
Divisional /personnel
SQ1.2
performance is based on 5 8.1% 17 27.4% 40 64.5%
budget achievement.
Rewards are based on
SQ1.3
accounting numbers e.g. 12 18.5% 9 13.8% 44 67.7%
profit, sales etc.
Extraneous circumstances,
e.g. economic circumstances
beyond the control of
SQ1.12
employees are taken into 7 11.1% 13 20.6% 43 68.3%
account when performance
assessment is made.
Performance review includes

SQ1.13 social/community/Islamic work 23 35.9% 14 21.9% 27 42.2%
done by employees.
From the above table of response frequencies (Table 10-19), response frequencies to
SQ1.2, SQ1.3 of 64.5% and 67.7% respectively scoring a three (Strongly Agree and Agree)
show the importance of budget achievement and accounting numbers in performance
evaluation of employees and divisions. The answer to question SQ1.13 shows that only 42.2%
of respondents agreed perceive their community and Islamic work are included in their
performance review while 35.9% of the respondents disagreed. This seems to imply that
financial considerations outstrip social ones when performance evaluation is undertaken but
again the evidence is not strong.
The descriptive statistics for this area in Table 10.20 shows that the first two questions
(SQ1.2 and SQ1.3) have median scores of 3 with means of 2.56 and 2.49 respectively. This
means that performance evaluation is based strongly on accounting numbers. Question 1.13
however has a mean of 2.57and a median of 2. This shows that the respondents tend to agree
or at best are neutral as to whether community work is included in performance evaluation.
However, the median of 3 for question sq1.12 indicates that extraneous circumstances are
considered for performance evaluation.
TABLE 10-20: NON-FINANCE QUESTIONNAIRE
DESCRIPTIVE STATISTICS (SUMMARISED RESPONSES)
Statement Percentile Percentile Std Valid
Mean Median
Performance Evaluation 25 75 Deviation N
SQ1.2 Divisional /personnel
performance is based on budget 2.56 3.00 2.00 3.00 .64 N=62
achievement.
SQ1.3 Rewards are based on
accounting numbers e.g. profit, 2.49 3.00 2.00 3.00 .79 N=65
sales etc.
SQ1.12 Extraneous circumstances, e.g. 2.57 3.00 2.00 3.00 .69 N=63
economic circumstances
beyond the control of employees
are taken into account when
performance assessment is
made.
SQ1.13 Performance review includes
social/community/Islamic work 2.06 2.00 1.00 3.00 .89 N=64
done by employees.
Summary
Performance
Percentile Percentile Valid
Evaluation Mean Median 25 75
Std Deviation
N
SPEREVAC 2.22 2.00 2.00 3.00 .61 N=60
A summary variable SPEREVAC was computed using the formula

mean.4(q1.2,q1.3,rq1.12,rq1.13) where the last two questions were re-coded as they were in
the opposite direction. A higher score would indicate more unIslamic behaviour. The above
table 10-20 (lower portion) shows the results for this variable. The mean score of 2.22 and
median of 2.00 shows that the performance evaluation use of conventional accounting tends to
lead to unIslamic behaviour (as a score of more than 2 would indicate agree and strongly agree
in some areas). Further the interquartile range lies between 2 and 3 makes the case stronger.
This shows that conventional accounting does lead to unIslamic behaviour in the area of
performance evaluation.
10.4.3
10.4.4 Profit Focus
One of the undesirable effects of conventional accounting is the isomorphic nature of its
performance measure through the bottom line. The problem of focusing on short-term profit
focus has already been debated in the management accounting literature (see for example,
Kaplan & Atkinson, 1998) but only in terms of business strategy and efficiency. From an Islamic
perspective, excessive profit focus leads to materialism and the forgetfulness of the importance
of accountability to God, society and the forgetfulness of the hereafter which is considered
everlasting by Muslims.
The researcher hypothesises that if Islamic business organisations and Muslim users rely on the
conventional accounts, their behaviour will also shift to a financial profit focus instead of the
holistic view of life which Islam demands in all human affairs including business. As such the
following questions set out in Table 10-21 were asked to ascertain whether conventional
accounting does affect behaviour in this area.
TABLE 10-21:SUMMARISED RESPONSE FREQUENCY
NON-FINANCE QUESTIONNAIRE: PROFIT FOCUS
1.00 2.00 3.00
Staff welfare , training and
SQ1.11
benefits are first to go, when 19 30.2% 9 14.3% 35 55.6%
there are budget cuts.
In my organisation, safety and
SQ1.16
working conditions are 5 8.5% 11 18.6% 43 72.9%
sacrificed to increase profits.
My company encourages its
SQ1.17 employees to offer their time
16 25.8% 18 29.0% 28 45.2%
and money to charitable and
community projects.
SQ1.18 My company takes employee-
6 9.8% 12 19.7% 43 70.5%
working conditions seriously.
I feel that I am compromising
some of my Islamic ideals to
SQ1.20 portray a good reflection by 14 25.0% 24 42.9% 18 32.1%
the company’s accounting
system.
The responses to Question 1.11 indicate that 55.6% of the respondents agreed that
employee welfare and benefits are the first casualty in times of budget cuts. As budget cuts are
made to ensure adequate profits to shareholders, this also evidences a profit focus. The
response to question SQ1.16 indicates that 72.9% agree that safety and working conditions are
sacrificed to increase profits. Only 8.5% disagreed. The response to both these questions is
strongly suggestive of a profit focus effect of conventional accounting. Further only 45.5%
agreed that their company encourages the employees to offer their time and money to
charitable projects. This is also suggestive of more effort towards making profits rather than
being socially concerned or at best the company is neutral (29.0%) in this area
Although only 32.1% agreed to negative inductance effect of the accounting system, only 25%
totally disagreed. The proportion of 42.9% who neither agreed nor disagreed at least evidences
that conventional accounting does not reflect Islamic behaviour in its reports and at worst induce
unIslamic behaviour.
However, the responses to SQ1.18 with 70.5% of the respondents agreeing indicate that
employee-working conditions are taken seriously. This does not seem to support the case for
unIslamic effect of conventional accounting. The response to this question seems to be
inconsistent with question SQ1.16.
The descriptive statistics for this area of enquiry are given in table 10-22. The mean of
2.64 and median of 3.00 for question SQ1.16 1.shows that unIslamic behaviour of sacrificing
safety and working conditions is very strong. Similarly, the mean of 2.25 and median of 3 for
question sq1.11 indicates that the profit focussing nature of conventional accounting leads to
sacrifices in staff welfare. The mean of 2.19 and the median of 2.00 for question SQ1.17
suggests the companies neither encourages nor discourages staff to offer their time for
community and charitable projects. Similary, the mean of 2.07 and the median of 2 for question
SQ1.20 indicates that conventional accounting does not seem to induce individuals to sacrifice
their Islamic ideals in order for themselves to be reflected well by the accounting system.
Although the response to question SQ 1.18 with a mean of 2.61 and a median of 3.00 seem to
indicate that working conditions are taken seriously, the response to this this question is
inconsistent with question SQ1.16 where the respondents note that working conditions are
sacrificed for profits. Perhaps, the company treats the employees well in good times but not
when profits are at stake. Even if this were true, this itself would be an indication of the profit
focus nature of conventional accounting.
TABLE 10-22:NON-FINANCE QUESTIONNAIRE

DESCRIPTIVE STATISTICS (SUMMARISED RESPONSES)
Statement Percentile Percentile Std Valid
Mean Median
25 75 Deviation N
SQ1.11 Staff welfare , training
and benefits are first
to go, when there are 2.25 3.00 1.00 3.00 .90 N=63
budget cuts.
SQ1.16 In my organisation,
safety and working
conditions are 2.64 3.00 2.00 3.00 .64 N=59
sacrificed to increase
profits.
SQ1.17 My company
encourages its
employees to offer
their time and money 2.19 2.00 1.00 3.00 .83 N=62
to charitable and
community projects.
SQ1.18 My company takes
employee working 2.61 3.00 2.00 3.00 .67 N=61
conditions seriously.
SQ1.20 I feel that I am
compromising some
of my Islamic ideals to
portray a good 2.07 2.00 1.25 3.00 .76 N=56
reflection by the
company’s
accounting system.
Mea Media Percentil

Percentile 75 Std Deviation Valid N
n n e 25
SPR
OF
2.04 2.00 1.8 2.20 .48 N=50
OC
U
Overall there is slight evidence of profit focus and negative inductance effect of
accounting on behaviour of employees. However, the median score of 2.00 for the summary
variable SPROFOCU, which is computed as the mean of all the above questions, seems to
indicate neutrality at best. The mean of 2.04 indicates some unIslamic behaviour. Again, the
evidence is not strong either way. Research methods other than self-reporting such as case
studies need to be conducted to gain further insight in this area.
10.5 TERPRETATION OF THE RESULTS OF NON-FINANCE QUESTIONNAIRE

Overall, there seem to be some evidence on the unIslamic behaviour effects of
conventional accounting in the area of performance evaluation (as evidenced by a mean of 2.11
and median of 2.23 for the summary variable SPEREVAC). There is strong evidence of the use
of financial numbers to evaluate personnel performance although circumstances beyond the
control of employees are taken into account in assessing performance.
The other areas of the questionnaire i.e. budget pressure and profit focus with means of
1.91 and 1.94 and medians of 1.88 and 2.0 indicate neutrality. This implies that there is no
evidence to indicate that conventional accounting leads to or does not lead to unIslamic
behaviour by causing tensions and profit focus. However, answers to some of the questions are
inconsistent raising some doubts on the reliability of the answers which border on neutrality or
especially considering the sensitive nature of the particular questions which may lead to a
reluctance of the respondents in answering the questions frankly.
As mentioned earlier, the results are not generalisable to the population executives and
other employees in Malaysia because of the non-randomness of the sample drawn and the
small size of the sample. The only exception to this is the case of executives who were MBA
students of the International Islamic University (where all students were given the
questionnaire).
Lastly, correlation tests on the results between MBA and non-MBA respondents indicate
that there is no significant correlation except in the area of performance evaluation where the
correlation is significant at the 5% level. See Table 10-23 below.
TABLE 10-23: CORRELATION TESTS BY RESPONDENT TYPE
RSPEREVA * MBA
Crosstab
Count
MBA Total
MBA NonMBA
RSPEREVA 1 11 8 19
2 6 5 11
3 28 6 34
Total 45 19 64
Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 5.075(a) 2 0.079
Likelihood 5.139 2 0.077
Ratio
Linear-by-Linear 3.969 1 0.046
Association
N of Valid Cases 64
a 1 cells (16.7%) have expected count less than 5. The minimum expected count is 3.27.
Symmetric Measures
Value Asymp. Std. Error(a) Approx.
T(b)
Interval by Interval Pearson's R -0.251 0.121 -2.042
Ordinal by Ordinal Spearman -0.261 0.121 -2.127
Correlation
N of Valid Cases 64
Test Statistics(a,b)
SBUDPRES SPROFOCU SPEREVAC
Chi-Square 1.646 1.424 9.291

df 2 2 2
Asymp. Sig. .439 .491 .010
a Kruskal Wallis Test
b Grouping Variable: Company Type
Further, a Kruskall-Wallis test of the summary variables shows that only the differences
in performance evaluation measure is significant at the 1% level among different types of
companies.
The implication of both these tests is that in the area of performance evaluation, non-
financial factors such as community work is taken into account to some extent in Islamic
companies more than others. This is true as most non-MBA respondents were from Islamic
companies as well. This is consistent with the findings of the finance questionnaire in section
10.4 where Islamic companies seem to able to moderate the negative effects of conventional
accounting better.
Despite the limitation of the sample, the researcher feels the purpose of the survey (i.e.
to gain an initial insight into the unIslamic behavioural consequences of conventional
accounting) is served. The results are mixed. Possibly there are unIslamic effects but the notion
that conventional accounting is neutral cannot be asserted with certainty. There is a need to
carry out a more extensive survey and case studies to determine the extent of unIslamic
behaviour among employees in various types of organisations.
The overall result is that there seems to be a lack of strong evidence on either side i.e.
whether conventional accounting tool of budgeting leads to or does not lead to unIslamic
behaviour although the results border on a negative answer. Bearing in mind the sensitive
nature of the questions, there is a need for indepth case studies to gain deeper insights into this
issue.
10.6 CONCLUSION
The results of the finance and non-finance questionnaires have been discussed in this
chapter. Both questionnaires were designed to elicit information as to whether conventional
accounting leads to unIslamic behaviour in Islamic, Muslim and Non-Muslim organisations.
Results from the finance questionnaires given to managers in the finance functions of
various organisations indicate that conventional accounting does have some negative
behavioural effects on the financing, investing and operating activities of the organisations.
However the evidence is not strong. Further the negative effects seem to be moderated by the
type of organisational culture. Islamic organisations seem to be most resistant to the negative
effects although not exempt form them. Muslim and Non-Muslim organisations seem to be more
affected by conventional accounting and thus display more unIslamic behaviour. Due to the
small size and the non-randomness of the sample, the results are not generalisable to all
organisations. However there is certainly a case for further indepth study to determine the
extent (or lack of) unIslamic financing, investing and operating behaviour.
The results of the second questionnaire on the direct effect of conventional on personnel
of various organisations are mixed. Roughly equal proportions of respondents view take all
three positions, agree, disagree and neutral. The evidence in some areas for example,
performance evaluation are more clear cut than others. Since there is no indication that
conventional accounting does not make people behave in an UnIslamic manner there is a need
for more in-depth research specially over a time period to study the effects over time.

CH10 - Analysis of Behavioural Accounting Questionnaires

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CHAPTER 10: ANALYSIS OF BEHAVIOURAL ACCOUNTING

10.1 THE FINANCE QUESTIONNAIRE: AREAS OF ENQUIRY

Muslim 5 15.6 17.9 64.3

Non Muslim 10 31.3 35.7 100.0

Total 28 87.5 100.0

10.2 FINANCE QUESTIONNAIRE: ANALYSIS OF FINDINGS

10.2.1 Short Term Investments

TABLE 10-2: FINANCE QUESTIONNAIRE: RESPONSES TO QUESTIONS ON

3a Quick Returns high to great extent 5 38 2 40 3 38 10 38

10.2.3 Social and Environmental Investment Policy

10.2.4 Islamic Investment Policy

TABLE 10-5:RESPONSES TO QUESTIONS ON ISLAMIC INVESTMENT POLICY

10.2.5 Summary Results for Investment Activities

Non Muslim Organisation

10.2.6 Financing Activities

10.2.7 Islamic Financing Instruments

TABLE 10-7: RESPONSES TO QUESTIONS ON ISLAMICALLY ALLOWABLE

10.2.8 Non-Islamic Financing Instruments

10.2.9 Summary Financing Behaviour

TABLE 10-9: SUMMARY OF FINANCING BEHAVIOUR

10.2.10 OPERATIONAL ACTIVITIES

TABLE 10-10 RESPONSES TO QUESTION ON OPERATIONAL ACTIVITIES

TABLE 10-11:SUMMARY BEHAVIOUR IN OPERATIONAL ACTIVITIES

10.2.11Suitability of conventional accounting

TABLE 10-12: RESPONSES TO SUITABILITY OF CONVENTIONAL ACCOUNTING

1&2=none to some, 3= moderate, 4&5= high to great extent

10.2.12 Islamic commitment

Commitment to the values and goals of an organisation, especially by management and

No. Statement Org. Type----------> IBO MBO NMO Total

Group showing commitment to high and great extent

ISLAMIC COMMITMENT OF VARIOUS GROUPS: FINANCE QUESTIONNAIRE

10.3 INTERPRETATION OF FINDINGS OF FINANCE QUESTIONNAIRE

3 3.00 Non Muslim

10.4 NON-FINANCE QUESTIONNAIRE: AREAS OF ENQUIRY AND RESULTS

The “Non-finance” questionnaire was given to personnel working in non-accounting

TABLE 10-16: RESPONDENTS TYPE: NON-FINANCE QUESTIONNAIRE

Respondent Type Number % Valid Percent Cum %

10.4.1 Budget Pressures

TABLE 10-17: SUMMARISED RESPONSE FREQUENCY

TABLE 10-18:NON-FINANCE QUESTIONNAIRE

Media Percentile Valid

TABLE 10-19:SUMMARISED RESPONSE FREQUENCY

Performance review includes

SPEREVAC 2.22 2.00 2.00 3.00 .61 N=60

A summary variable SPEREVAC was computed using the formula

TABLE 10-22:NON-FINANCE QUESTIONNAIRE

Mea Media Percentil

10.5 TERPRETATION OF THE RESULTS OF NON-FINANCE QUESTIONNAIRE

SBUDPRES SPROFOCU SPEREVAC

Chi-Square 1.646 1.424 9.291

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