The Accountant's Role In

Principle Enforcement
Sharia Governance
Muhammad Iman Sastra Mihajat, Ph.D
SPV, Head of Compliance Division, Bank Mega Syariah
& Former Head of Sharia, Oman Arab Bank
 MUHAMMAD IMAN SASTRA MIHAJAT, Ph.D
Head of Compliance Division –
PT. Bank Mega Syariah
EDUCATION
• S3 - Institute of Islamic Banking and Finance (IIiBF),
International Islamic University Malaysia - Ph.D of
Islamic Banking and Finance (Scholarship from Islamic
Development Bank (IDB))
• S2 - International Islamic University Malaysia -Master of
Science in Islamic Finance - Scholarship from University
and Dompet Dhuafa
• S2 Institute of Islamic Banking and Finance (IIiBF),
International Islamic University Malaysia- Postgraduate
in Islamic Banking and Finance - Scholarship from
Government of Indonesia
• S1 - Al-Azhar University Cairo-Egypt - Shariah
(Specialized on Islamic law of Economic and Banking) -
Scholarship from Al Azhar University
WORK EXPERIENCE
Bank Mega Syariah - Indonesia
• 2022 - Present, SPV - Head of Compliance Division
Saudi National Bank – Saudi Arabia & PwC
• 2022. Islamic Banking Advisor
Badan Pengelola Keuangan Haji (BPKH) - Indonesia
• 2022, Advisor, Investor Relations for Middle-East
PT. Telkom Indonesia Tbk - Indonesia
• 2021-2022, Advisor, Investor Relations for Middle-East, South Asia
and Australia
Alizz Islamic Bank - Oman
• 2020-2021, Head of Shariah
Oman Arab Bank - Oman
• 2019-2020, Head of Shariah
• 2015-2018, Head of Shariah Audit and Shariah Complian
Others: Third Bridge UK, USA, and UAE, PT Takaful Indonesia,
Bank Negara Malaysia, Kuwait Finance House, LPPI, Zakirah
Group, PT. Bahana Artha Ventura
The Concept of Sharia
Governance
 DEFINITION OF ‘CORPORATE GOVERNANCE’
A defined set of relationships between a
company’s management, its Board of Directors, its
shareholders and other stakeholders which provides the
structure through which:
– the objectives of the company are set; and
– the means of attaining those objectives and monitoring
performance
are determined.

In the context of IIFS, good CG should

encompass:
– a set of organisational arrangements whereby the actions of
the management of IIFS are aligned, as far as possible, with the
interests of its stakeholders;
– provision of proper incentives for the organs of governance
such
as the Board of Directors, SSB and management to
pursue objectives that are in the interests of the
stakeholders and facilitate effective monitoring,
– thereby encouraging IIFS to use resources more
 Separation of Transparency &
Ownership & Control Market
Discipline
• Agency Problems • Timely & adequate
• Incomplete Contract information to IIFS
•Good CG is to ensure investors
managers meet • Systemic stability
wider obligations to •Suitable disclosures to
various stakeholders
enhance transparency.

Rationale
for
Corporate
Balancing Governance
Information
Stakeholders’ Asymmetries
Interest •Difficulties to evaluate
• Shareholders vs. stakeholders performance & conduct
of the manager.
• Managing conflicts of interests
•Large investors &
among various stakeholders managers may
manipulate BODs &
e.g. Between shareholders & exploit the private
IAH benefits of control
• Concerns of anti-money •Insider dealing &
laundering, fraud & misconduct abuse affect the
market
 Stakeholders’ Value of Corporate Gover-
Shareholders’ value nance
of Corporate
Governance How to construe firm’s
duties &
responsibilities
towards various
stakeholder groups?

Manager Depositor
Financing s
Employe Customers Local
e Communities
The Islamic Perspective on Corporate
Governance

Allah

Implicit 1 3 Implicit
Contrac Contrac
t Concept t
of
Istikhlaf

Individual Ummah
2
Explicit Contract

Shariah Islamiyah
 The Main Objective of
Corporate Governance in Islam
‫َمٓاَاْرَس ٰنْلَك ِااَّل َرْحَمًة ِّلْلٰع َلِمْيَن‬
“And We have sent you (O Muhammad) not but a mercy to the whole universe”(Al-Ambiya:107)

Alleviate Hardship Eliminate

Prejudice
Justice

Maqasid as-Shariah (The Objectives of Shariah)

Religion
Wealt
Intelec
h
Lif t Posterity
e

Preservation and
Promotion
 Strict Compliance With Corporate & Shariah Governance
Promote Financial Stability
Governance - An illustration
Ensures
Liabilities
• To safeguard interest of Investment Account
compliance
Holders (IAH)
with
 IBI’s fiduciary responsibilities in protecting depositors
Shariah
(profit sharing investment account)
rules &
 Proper disclosure & transparency
principles
Assets
• To manage risks associated with Mudharabah (profit-
sharing) & Musharakah (partnership) contracts :
equity- based
 Board to ensure IBIs have sufficient expertise &
capability
Sharia
 Establishment of dedicated oversight function e.g. in-
Governance house property development/ research department
for property investment & development activities
General Fiduciary  Allow appointment of Board representatives on
Corporate Duties in entities involved in such transactions as
Islamic monitoring mechanism
Governance
Banking … requires higher standards of corporate
Transactio governance by IBIs’ Board of Directors
n and
Management…
 WHAT IS SHARIAH GOVERNANCE?
IFSB-10 Guiding Principles on Shariah Governance Systems for Institutions Offering Islamic
Financial Services defines:

“A set of institutional and organisational arrangements through which Islamic financial institutions
ensure that there is an effective independent oversight of Shariah compliance over the issuance
of relevant Shariah pronouncements, dissemination of information and an internal Shariah
compliance review.”
This requires: Functions Common Corporate Governance Additional for IFI
1.A set of institutional and organisational
arrangement – Board of Directors, Shariah
committee, Shariah division, internal audit Governance Board of Directors Shariah Committee
function. Control Internal Audit Division, Internal Shariah Review, Shariah Review
External Auditor by Shariah Committee, Shariah Audit
2. An effective independent oversight on Shariah Compliance Regulatory and Financial Internal Shariah Compliance (Research)
compliance Compliance Division
Risk Risk Management Division Shariah Compliance Risk Management
3.Shariah pronouncements, disseminations of info and Managem (Credit, Market and
an internal Shariah review – ex-ante and ex-post aspects e nt Operational Risk)
of the Shariah compliance framework.
IMPLICATIONS OF SHARIAH NON‐
COMPLIANCES?

FINANCIAL NON-FINANCIAL

• Against the commands of

• Shariah non-compliant
due to Allah SWT
(‘aqad) income
invalidation of • Impediment of Allah’s SWT
• Capital contract blessing or barakah
adequacy ratio (CAR)

impact IMPAC • Jeopardize business reputation

TOF SNC

‫مخالفة‬
FINED

REGULATOR
Y
MODELS OF SHARIAH GOVERNANCE
SHARIAH COMPLIANCES
PROCESS

SHARIAH COMPLIANCES
PROCESS
 FOLLOW INTERNATIONAL BEST PRACTICE OF SHARIAH GOVERNANCE MODEL

High Sharia Authority/Central Sharia Board -

Central Bank/Authority Level (AAOIFI GSIFI No 8)

Sharia Governance Model

BOARD
BOARD RISK SHARIAH SUPERVISORY BOARD AUDIT
Overall oversight on
MANAGEMENT BOARD COMMITTEE
Shariah compliance &
COMMITTEE Oversight accountability on review
Shariah related matters
CEO

Chief Risk Officer Chief/Head of Islamic Chief Audit Officer

Banking

IFSB-AAOIFI Revised Shariah Head of Sharia External Sharia Audit

❖ Ensure executions of business & operations are in accordance
Governance Standard March 2022 with Shariah rules & principles
❖ Provide necessary support to the Shariah committee
(AAOIFI Auditing
Standard No 6)

Shariah Audit Unit

Shariah Risk Unit
Identify, measure, monitor,
report & control Shariah
non-compliance risk
Shariah Research
Provide independent
Shariah Compliance Unit Unit
assessment & objective
Review business operations Conduct comprehensive
assurance designed to value
on a regular basis to Shariah research prior to
add & improve IFI’s
ensure Shariah compliance submission to the Shariah
compliance with Shariah
committee
SHARIAH REVIEW AND SHARIAH AUDIT FUNCTIONS
Shariah Compliance Review
❖ To ensure that the activities and operations
carried out by the IFI do not contravene with
the Shariah
❖ Overall business operations, including the end‐to‐
end product development process (from product
structuring to product offering)
❖ Planning the review program (including
objectives, scope, reporting, rectification and
follow‐up actions followed by the execution of
the program);
❖ Documentation of the processes involved;
❖ Communicating the outcome & highlighting any
non‐compliances to the Shariah Committee &
the management; and
❖ Rectifying any instances of Shariah non‐
compliance to prevent such events from
recurring
❖ Developing a comprehensive internal Sharia
Compliance review program/plan/Sharia
checklist.
Shariah Audit
❖ To provide an independent assessment & objective
assurance to ensure a sound and effective
internal control system for Shariah compliance
❖ All aspects of the IFI’s business operations & activities,
including:
➢ audit of financial statements;
➢ compliance audit on organisational structure,
people & IT application systems; and
➢ review of adequacy of the Shariah
governance process.
❖ Understanding the business activities of the IFI –
to allow for better scoping of an audit exercise;
❖ Developing a comprehensive internal audit
program;
❖ Obtaining and making reference to relevant
sources (e.g. HSSA’s published rulings, the SSB’S
decisions, etc)
❖ Communicating results or findings to the Board
Audit Committee and the Shariah Committee; and
❖ Providing recommendations on rectification
measures taken as well as following‐up on the
implementation by the IFI.
 OTHER KEY INTERNAL
FUNCTIONS

Apart from Shariah review & audit IFIs are also expected to establish other functions that complement
and provide necessary support to Shariah compliance functions within the organisation
Objectives

❖ Identification
Scope & Functions & assessment of ❖ Form part of IFIs integrated risk
Shariah
Shariahrisk
risk Shariah risk would be systematically mgmt control function
management controlled & monitored
management
controlcontrol

Shariah
Shariah ❖ Ensure proper deliberation of Shariah ❖ Perform in-depth research on
research Shariah including providing day-to-
related matters
research day Shariah advice & consultancy
function
function ❖ Perform by qualified Shariah
officers
❖ May seek input from experts on
technical matters

❖ Provide necessary support to Shariah ❖ Coordinating meetings, compiling

Shariah
Shariah committee & IFI in implementing papers, disseminating Shariah
secretariat
secretariat Shariah governance decisions
function
Function / Sharia ❖ Engaging with relevant parties that
Coordinator need assistance
 In
summary…

COUNTRY SHARIAH AUTHORITY FINAL RESTRICTION

AUTHORITY
Centr
al IFI
Bank
Oman HSSA SSB HSSA 1) Members of HSSA cannot serve IFI
2) One SSB can only serve one
IFI in same category (Banking
& Takaful)
Kuwait n/a SSB SSB* No restriction is mentioned

UAE HSA SSA HSA No restriction is mentioned

Bahrain NSB SSC NSB No restriction is mentioned

Qatar N/A SSB No restriction is mentioned

*In case of dispute: Fatwa Board in the Ministry of Awqaf and Islamic Affairs
The Importance of Accountant’s
Role In In Principle
Enforcement
Sharia Governance
Management Accountant’s Role

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 What is Accounting?

Accounting is a language of
business.
As a language, accounting must contain some information
(which in this case is business information)
that is able to provide something useful from the sender (management)
to the recipient (stakeholders).
This information is conveyed through deep verbal communication in report form .
Functions of Accounting

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Accounting Cycle

1 - 25
Objective Accounting

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Accountant’s Role In Sharia
Governance
 Board of Directors,
Sharia Supervisory
Board And
Comitees

Role of Legal and

Policies and Vision Misison Regulatory

Accounting Procedures
Framework

In Sharia
Governance
Smart Goal Strategy

Sharia
Transparency
Organizational

Governance and
Accountability Objective
Hierarchy

Monitoring
and Internal
Control

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 Accountant’s Role In Sharia Governance

In relation to GCG principles, the accountant's role is significantly involved in

various activities for implementing each of the GCG principles, as follows:

01 Fairness
02 Accountability
03 Transparency
04
Responsibility
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