Independence and effectiveness in internal Shariah audit with insights drawn from Islamic agency theory

Abstract

Purpose This paper aims to examine bases of effectiveness in internal Shariah auditing undertaken in Islamic financial institutions (IFIs). Design/methodology/approach This paper is theoretical in approach taking, as its starting-point, an extensive literature review. From a general agency theory, an Islamic agency theory is articulated and then applied to ascertain attributes of internal Shariah audit effectiveness revolving around the concept of independence. Findings Effective internal Shariah auditing, as a mechanism of assuring Shariah compliance by IFIs, varies directly with the degree of independence enjoyed by internal Shariah auditors themselves. The research propounds that an articulated Islamic agency theory holds potential to serve as a theoretical foundation to build a multi-dimensional conceptual framework based on independence utile for evaluating internal Shariah audit effectiveness. Research limitations/implications Evidence is drawn strictly from secondary sources. Practical implications To assure effectiveness of internal Shariah auditing, IFIs ought to increase the level of independence of internal Shariah auditors. Originality/value Internal Shariah audit effectiveness in IFIs has not been extensively studied in comparison with both studies of external Shariah audit effectiveness in IFIs and internal audit effectiveness undertaken by conventional financial institutions. This research fills that gap.

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“…Istilah wakalah atau wikalah merupakan kata benda yang berasal dari kata wakala yang memiliki beberapa arti, termasuk melakukan suatu tugas atas nama orang lain atau menjadi wakil. Secara teknis wakalah mengacu pada kontrak yang di mana seorang muwakkil (pihak utama) memberikan wewenang kepada salah satu pihak sebagai wakil (agen) untuk melakukan tugas atasnamanya (Khalid & Sarea, 2020). Menurut AAOIFI (2017), wakalah adalah tindakan dari satu pihak yang mendelegasikan yang lain untuk bertindak atas Namanya dalam apa yang dapat menjadi pokok bahasan pendelegasian.…”

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