Shari`ah disclosure practices in Malaysian Islamic banks

Abstract

This study examined the level of compliance on Shari’ah disclosure in the Malaysian Islamic banks’ annual reports. This study also determined the gap in perception between the Shari’ah practitioners and customers on the importance of Shari’ah disclosure. Shari’ah practitioners consist of Shari’ah committees and officers while customers were lecturers and final year Islamic accounting students. The study used the Institutional Theory and Theory of Reasoned Action (TRA) to develop the hypotheses. Two instruments were developed to collect data. The first instrument was the Shari’ah disclosure index checklist based on Bank Negara Malaysia guidelines and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards for mandatory and voluntary disclosure items. Annual reports for 2016 of 16 Islamic banks were used to determine the level of Shari’ah disclosure. The second instrument was a questionnaire survey. A total of 64 and 200 questionnaires were distributed to the Shari’ah practitioners and customers, respectively. The response rate was 41% and 65% respectively. The results indicated that the highest level of mandatory Shari’ah disclosure among 16 Islamic banks was about 96.29%. Only one item was not disclosed by the bank. Moreover, some of these banks disclose the voluntary items. Further results show that, the Shari’ah practitioners and customers perceive all Shari’ah disclosure items are important to be disclosed. Particularly, the perception of Shari’ah practitioners on Shari’ah items is positively correlated with the level of disclosure. Another result shows that the customers perceive Shari’ah disclosure to be important due to the Shari’ah perception towards Islamic banks. Moreover, customers perceive that the mandatory Shari’ah disclosure items are more important than voluntary items. Finally, the result shows that there is some significant difference between both groups. However, the least gap between the selected customers and practitioners may be reasonable, as the group of customers are informed customers. The results provide useful insight to the regulators as well as Islamic banks itself on the importance of Shari’ah disclosure items from the customers’ and Shari’ah practitioners’ point of view.