Difference between Islamic and Conventional Accounting

Below is a snapshot of the definition, similarity and differences between Islamic Accounting and Conventional Accounting.

Definition Of Islamic Accounting

  • the “accounting process” which provides appropriate information (not necessarily limited to financial data) to stakeholders of an entity which will enable them to ensure that the entity is continuously operating within the bounds of the Islamic Shari’ah and delivering on its socioeconomic objectives.
  • Islamic accounting is also a tool, which enables Muslims to evaluate their own accountabilities to God (in respect of inter-human/environmental transactions).

Similarities Of Islamic Accounting With Conventional Accounting

  • Both Islamic and conventional accounting is to provide information
Differences Between Islamic Accounting And Conventional Accounting

  • The objectives of providing the information
       Islamic Accounting enable users to ensure that Islamic organisations (whether business, government or NFP) abide by the principles of the Shari’ah or Islamic Law in its dealings and enables the assessment of whether the objectives of the organisation are being met.

  • The type of information which Islamic accounting identifies, measures is different. Conventional accounting concentrates on identifying economic events and transactions, while Islamic accounting must identify socio-economic and religious events and transactions. Islamic Accounting is more holistic in its approach as both financial and non-financial measures regarding the economic, social, environmental and religious events and transactions are measured and reported. 

  • Islamic accounting may require a different statement altogether to deemphasize the focus on profits by the income statement provided by conventional accounting.

  • Islamic Accounting recognizes that all including the society are the users of the reports. The reason being that society as a whole can make corporations accountable for their actions and ensure they comply with Shari’ah principles and do not harm others while making money ethically and achieve a equitable allocation and distribution of wealth among members of society especially the stakeholders of the concerned corporation.

Source: basiccollegeaccounting.com