On Wednesday, August 21st 2024, students from the PhD program in Islamic Economics and Halal Industry, along with students from the Master’s program in Islamic Economics at the Graduate School of Gadjah Mada University, collaborated with the Master’s program in Accounting at the Faculty of Islamic Economics and Business at Gadjah Mada University held a guest lecture on the topic “Shariah Audit and Shariah Governance in Malaysia,” held in the Auditorium of the Master’s in Accounting, FEB UGM.
The guest lecture aimed to provide insights into the application of shariah audit and governance in Malaysia. The speaker, Prof. Noraini Mohd Ariffin from the Department of Accounting at the International Islamic University of Malaysia (IIUM) and a member of the Shariah Committee at United Overseas Bank Malaysia. She stated that Bank Negara Malaysia (BNM) has begun implementing a revised shariah governance policy for shariah financial institutions in Malaysia.
This policy, effective since April 1st 2020, introduces a limit on the tenure of members of the Shariah Advisory Council (SAC) to nine years. Other significant changes, including new provisions in paragraph 12.5, began on April 1st 2023, to allow time for adjustment for related institutions.
The goal of this policy is to strengthen shariah governance by integrating it into the business strategies and risk management of shariah financial institutions, ensuring clear accountability for the Board, Shariah Committee, and other oversight functions. Additionally, the policy promotes a strong shariah compliance culture through effective training, supervision, and reporting. It is hoped that this policy will enable shariah financial institutions to enhance their shariah governance, increase public trust, and ensure compliance with the shariah principles underlying their operations.
Shariah governance is also expected to ensure that the operations and structures of shariah financial institutions comply with shariah rules and distinguish them from conventional financial institutions. Shariah financial institutions must effectively manage the risks of non-compliance with shariah, using an integrated approach within their overall risk management.
The functions of shariah control include shariah review, which involves routine assessments of the compliance of shariah financial institutions’ operations; shariah risk management, which identifies, measures, monitors, and reports on non-compliance risks; and shariah audit, which provides independent assessments of the quality and effectiveness of internal control systems and risk management to ensure all activities of shariah financial institutions comply with shariah principles.
Furthermore, Prof. Noraini highlighted several challenges faced by shariah audit, such as the lack of auditors with specialized expertise in shariah audit, particularly regarding educational background and qualifications. Auditors should possess a foundation understanding of accounting or have a strong background in shariah. Another challenge is the need for more comprehensive and risk-based audit methodologies (Risk-Based Internal Audit – RBIA), which help shariah financial institutions focus on areas with high non-compliance risks requiring stricter oversight. This approach also ensures that audits are more relevant to risks that could significantly impact shariah compliance. Additionally, there is a difference in focus between internal audits, which emphasize operational controls, and external audits, which focus more on compliance with regulations.
During the discussion session, several relevant issues concerning shariah audit and governance in shariah financial institutions were addressed, including the imposition of sanctions for entities that do not implement shariah governance in Malaysia and the potential need for the adoption of Artificial Intelligence (AI) in the shariah audit process.
The event, moderated by Dewi Fatmawati S.E., M.Ec., Ph.D., a lecturer in the PhD program in Islamic Economics and Halal Industry, concluded with closing statements and a group photo with the speaker, moderator, and participants.
This activity aligns with the implementation of SDG Goal 4 on Quality Education and Goal 17 on Partnerships for the Goals.
Author: Nurfitri Harkunti Kemala Hayati
Editor: Arni Wistriatun