DUBAI May 8 Auditors of Islamic financial
institutions need better training to make sure they can conduct
accurate assessments of products and practices, a major industry
conference was told this week.
Internal teams of auditors check whether Islamic banks and
other financial firms are obeying religious principles. They
work with companies' boards of scholars, who then issue rulings
on whether specific financial instruments and activities comply
with sharia law.
The relationship between auditors and boards of scholars is
a delicate one which Mufti Aziz Ur Rehman, sharia manager at
Dubai-based Mawarid Finance, said was not always certain to
deliver careful and consistent supervision of companies.
In a speech to the annual meeting of the Accounting and
Auditing Organisation for Islamic Financial Institutions
(AAOIFI) in Bahrain, Rehman questioned the ability of auditors
to conduct proper reviews if their knowledge of sharia law was
not as extensive as that of the scholars.
He also questioned whether AAOIFI's training programmes and
certifications for Islamic finance professionals were adequate.
"How many sharia auditors are fully qualified?" Rehman asked
AAOIFI, one of the world's top standard-setting bodies for
Islamic finance, has said it will conduct a wide-ranging review
of its guidelines, and Rehman's speech may encourage it to focus
on auditing as an area for potential reform.
In his speech, the Pakistani-born Rehman said the
relationship between auditors and scholars was vulnerable to an
imbalance of knowledge between the two.
For example, auditors might not understand products or
practices, and so might not report them clearly to scholars. Or
auditors might end up relying on scholars to explain complex
products, undermining the independence of the audit team.
Training is a way to bridge the knowledge gap, but there are
concerns over whether AAOIFI's two industry certifications for
Islamic finance professionals are rigorous enough, Rehman said.
Rehman, who holds both certifications, said there were no
pre-conditions for eligibility; candidates were required to have
no specific experience or education except for Arabic
proficiency. A trainer and university lecturer himself, he also
questioned the quality of the training and whether the
curriculum fully covered all of AAOIFI's standards.
In an interview before the AAOIFI conference, Rehman told
Reuters that the audit process needed greater clarity in its
roles and responsibilities. AAOIFI might achieve this, he said,
by "disciplining the sharia advisory process and addressing
conflict of interest issues and corporate governance matters".
In his speech, Rehman suggested that the next steps for
AAOIFI could be to standardise sharia audit procedures. This
could take the form of clearer reporting lines to senior
management and formalising the output from audit teams.
At present, auditors' reports can vary widely in format and
content. Usually, they are only circulated internally with
little scrutiny by shareholders or other external parties.
(Editing by Andrew Torchia)