Factores que condicionan la Comprensión de la Lectura

This sub-section encompasses the third research question, namely, how does financial disclosure in an annual report ensure transparency and prevent IFIs financing unethical activities. The previous studies discussed on the special accounting standard to disclose certain religious requirements (Hasan and Lewis, 2017; Gambling and Karim, 1993; Lewis, 2001)

This sub-section will further examine empirically the industry practice especially regarding the disclosure of non-Shariah compliant income and charitable bodies in the annual report combined with an adherence to Anti Money Laundering Act from the perspective of Shariah personnel in Malaysia as illustrated in Table 24.0. Having said there was a specific circular issued by BNM on reporting of non-Shariah events to the

central bank i.e. BNM/RH/GL 002-23 (BNM, 2013). From the survey, only 36 out of 38 respondents answered this section, while only 35 out of 38 respondents answered question number 34.

Table 24.0: Disclosure of Non-Shariah Compliant Income Questionnaires (Q32-Q41) Percentage Strongly Agree Agree Strongly Disagree Disagree

Q32. All products and transactions must be in compliance with the requirements by Shariah law. Otherwise, the income received from the transaction cannot be treated as revenue for an Islamic financial institution.

Answered Question: 36 Skipped: 2

72.22% 27.78% 0% 0%

Others (Not applicable as a choice of answer)

Q33. Disclosure in Islamic banking is very important compared to Conventional banking due to the profit-loss sharing model.

Answered Question: 36 Skipped: 2

33.33% 47.22% 2.78% 16.67% Others (Not applicable as a choice of answer)

Q34. All stakeholders of Islamic banks must be well informed on non- Shariah compliant income received in its annual report to ensure full transparency and fair information. Answered Question: 35

71.43% 25.71% 0% 2.86% Others (Not applicable as a choice of answer)

Skipped: 3

Q35. All stakeholders of Islamic banks should be well informed and communicate the amount purified and the recipients in its annual report to ensure full transparency and fair information.

Answered Question: 36 Skipped: 2

72.22% 25% 0% 2.78%

Others (Not applicable as a choice of answer)

Q36. All non-Shariah compliant amount reported must be reviewed by an appointed external auditor to ensure correct amounts and accounting entries disclosed.

Answered Question: 36 Skipped: 2

52.78% 41.67% 2.78% 2.78% Others (Not applicable as a choice of answer)

Q37. A Shariah advisory body should monitor the end-to-end process of channelling non-Shariah compliant income to approved recipients.

Answered Question: 36 Skipped: 2

55.56% 38.89% 2.78% 2.78% Others (Not applicable as a choice of answer)

Q38. Each bank has their own list of charitable body to dispose of non- Shariah compliant income.

Answered Question: 36 Skipped: 2

30.56% 55.56% 2.78% 11.11% Others (Not applicable as a choice of answer)

that non-Shariah compliant income is disposed of to assist with terrorist activities.

Answered Question: 36 Skipped: 2

Others (Not applicable as a choice of answer)

Q40. Every institution must comply with AMLATFA (Anti Money Laundering and Terrorist Financing Act), failure to comply will be subjected to a penalty imposed by the act.

Answered Question: 36 Skipped: 2

83.33% 16.67% 0% 0%

Others (Not applicable as a choice of answer)

Q41. A Gharamah (Penalty) amount charged to the client of Islamic banks should be disclosed and reported in the annual report as revenue to the bank.

Answered Question: 36 Skipped: 2

36.11% 25% 11% 11%

Others (Not applicable as a choice of answer)

Table 24 Disclosure of Non-Shariah Compliant Income

This survey records that 100% of respondents agreed that all income received from non-Shariah compliant transactions cannot be recognised as income for the IFIs. However, about 19% of respondents did not see that the disclosure in Islamic banking was more essential compared to conventional banking, due to its financing or investment structure such as Musharakah or profit-sharing model. This in line with the previous studies where disclosure of financial information has an impact on the degree and nature of investment choices made by investors, reputation, decision of investors and market (Singhvi and Desai, 1971; Healy and Palepu, 2001; Kreps, 1992;

Harahap, 2003; Al-Baluchi, 2006; Archer and Karim, 2007; Harahap, 2003). Only 5.56% of the respondents believed that non-Shariah compliant income and the process of channelling tainted income should not be reviewed by appointed external auditors and monitored by the Shariah Committee of the IFIs. This empirically demonstrates that the majority of IFIs in Malaysia are equipped with capable Shariah personnel to safeguard the importance of income recognition according to Islamic principles and its disclosure in financial reports as it will serve the interest of the public at large (Lewis, 2001).

Table 25.0 Cross-tabulation of group respondents – The Relationship between Transparency and Experience.

Sum of Respondent s

All stakeholders of Islamic banks must be well informed on non- Shariah compliant income received in its annual report to ensure full transparency and fair information.

Work Experience Agree Disagre e Skipped Strongly Agree Grand Total 1 - 5 years 3 1 1 4 9 6 - 10 years 4 1 13 18 Less than a year 1 1 2 more than 10 years 1 1 7 9 Grand Total 9 1 3 25 38

Table 25 Cross-tabulation of group respondents – Relationship between Transparency and Experience

Table 25.0 evidences that experienced respondents who had more than 6 years’ experience were positive that IFIs should ensure full transparency and fair information by disclosing any non-Shariah compliant income in audited financial reports.

As can be seen from Questionnaire survey no. 39 as well, a total of 33.33% respondents shared that there were no negative perceptions towards the relationship between non-Shariah compliant income and terrorism financing as established in the previous literature reviews established the cash movement to terrorist groups through charitable bodies (Levitt, 2003; Haigner et al., 2012; Brisard, 2002; Wilkinson, 2005; Freeman and Ruehsen, 2013; Chapman, 2016). However, a majority of the respondents (66.67%) believed so, with 41.67% of respondents answering firmly. Apart from that, 100% of respondents affirmed that IFIs must comply with AMLATFA (Anti Money Laundering and Terrorist Financing Act) and a penalty could be imposed if the act was contravened. On the other hand, about 14% of respondents claimed that they did not maintain a list of charitable bodies for the disbursement of illegitimate income in Malaysia.