The role of AI integration and governance standards: Enhancing financial reporting quality in Islamic banking

Abstract

The objective of this research is to investigate the impact of Artificial Intelligence (AI) on improving the quality of financial reporting in the Islamic banking industry. The study is conducted within the theoretical framework of the Unified Theory of Acceptance and Use of Technology (UTAUT). The study utilized Partial Least Squares Structural Equation Modelling (PLS-SEM) to examine the data collected from a sample of 364 professionals working in the field of Islamic banking. The results of our study suggest that Performance Expectancy, Effort Expectancy, and Social Influence are important factors in predicting individuals' Behavioural Intention to use Artificial Intelligence (AI). Additionally, the presence of Facilitating Conditions further enhances the impact of these factors on individuals' actual Use Behaviour. Significantly, it was shown that Use Behaviour played a significant role in determining the perceived quality of financial reporting. Nevertheless, the study did not find empirical evidence to demonstrate the direct influence of Behavioural Intention on Financial Reporting Quality. This implies that the actual implementation of Artificial Intelligence is required to fully realize its advantages. The use of artificial intelligence (AI) into governance frameworks presents a potentially advantageous pathway for Islamic banks to uphold Shariah principles, while concurrently bolstering accountability and fostering ethical banking practices.

The influence of AI on financial reporting quality: A critical review and analysis

“…This interest stems from AI's potential to significantly enhance the quality of financial reporting, making it more accurate, timely, and comprehensible for all stakeholders involved. Mbaidin et al (2023) explore this potential within the Islamic banking sector, highlighting how AI can improve financial reporting quality by leveraging the Unified Theory of Acceptance and Use of Technology (UTAUT) framework. Their findings underscore the importance of performance expectancy, effort expectancy, and social influence in adopting AI technologies, which, in turn, positively impacts the perceived quality of financial reporting.…”

“…One of the key hurdles is the need for a robust governance framework that ensures the accuracy, reliability, and ethical use of AI technologies. Mbaidin et al (2023) argue that integrating AI into governance frameworks is crucial for Islamic banks to maintain Shariah compliance while enhancing accountability and ethical banking practices. This highlights the broader applicability of AI in financial reporting, where governance standards play a critical role in ensuring that AI's benefits are fully realized without compromising ethical standards or regulatory compliance.…”