Shari’ah Disclosures in Malaysian and Indonesian Islamic Banks: The Shari’ah Governance System
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Purpose - We aim to contribute to the discussion on Shari'ah governance systems by examining the extent of disclosure on the Shari'ah Supervisory Board (SSB) as well as the content of the Board's report in the annual reports of 23 Islamic banks in Malaysia and Indonesia. We also investigate the disclosures about zakat (Islamic levy). Design/methodology/approach - The study is a cross-sectional analysis of annual report disclosures in the year 2009. We use both disclosure indices and content analysis to measure the extent of disclosures about SSB and zakat. We also test hypotheses examining the relationship between SSB characteristics and the extent of the SSB-related and zakat disclosures. Findings - Our results indicate that SSB-related and zakat disclosures are still limited, with only four banks disclosing more than half of the SSB Index. What is noticeable is the low level of disclosure on sensitive matters. Among the factors associated with SSB-related disclosures are cross-membership with other SSBs and the expertise of SSB members in accounting, banking, economics or finance. Originality/value - Our study is the first to provide an in-depth analysis of Shari'ah disclosures in Malaysian and Indonesian Islamic banks. As such, this study makes an important contribution to the debate on Shari'ah governance systems and has implications for regulators and standard setters. The Malaysian and Indonesian standard setters could play an important role in ascertaining appropriate disclosure requirements relating to the SSB as our study suggests that the level of disclosure is less than expected. Our evidence also suggests the need for mandatory enforcement of standards on these types of disclosures.
Journal of Islamic Accounting and Business Research