Is there a political economy of accounting in financial reporting standardization for the Islamic financial
institutions?
Discussant Comments
Njoku Jonathan
Kuwait Maastricht Business School
Kuwait
Jonathan @kmbs.edu.kw
This paper addresses the question of whether there is a political economy of accounting in financial
reporting standardization for the Islamic financial institutions. The question emanates from cross road that
Indonesian Islamic financial institutions (IIFIs) find themselves with respect to financial reporting
standards. The problem was cast on the premise that the Indonesian Islamic financial industry faces the
dilemma of navigating between adopting generally accepted international standards and adopting Islamic
compliant financial reporting standards. The paper notes that the major concern of the Indonesian Islamic
Financial Industry emanates from the lack of compliance of the generally accepted international standards
with Islamic values.
The paper, therefore, aims to explore the influences that shape the adoption of international financial
reporting in Indonesia and how they impact the IIFIs. It specifically pursues the objective of exploring
why Indonesian Islamic financial institutions (IIFIs) adopted the International Financial Reporting
Standards (IFRS) and to assess their subsequent perceptions on whether or not IFRS is seen as the way
forward for standardizing the Islamic financial institutions in Indonesia.
It is noted that currently, IIFIs do not fully adopt Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI) standards or country specific regulation based standards alone. Rather,
IIFIs adapt the International Accounting Standards (IASs). The adaptation of IAS followed the Indonesian
government signing of a loan agreement with the World Bank during the 1980s and 1990s and the
agreement by the President during the G20 meeting in 2008 to fully adopt IFRS by early 2012.
The paper addresses an important topic with some originality. However, it requires to be more effectively
structured. In particular, conclusions reached should be more effectively drawn from analyses.
Suggestions for Revision and Topics for Conference Discussion
1. In its current form, the paper is overly too lengthy (48 pages, 1.5 inches line spacing). The paper should
be strongly shortened. In particular, the contextual background of the Indonesian economy and political
landscape (Section 3) can be summarised into few pages. Currently, the section alone stretches from
pages 5 to 24 (about twenty pages). Some of the contents are already incorporated in the discussions on
the standardization of financial reporting and critical perspectives (section 2). Indeed, the current section
3 could be merged with section 2.
2. The research questions posed are: to what extent do the Indonesian Islamic financial institutions (IIFIs)
perceive IFRS standardization and how do internal and external factors influence accounting
standardisation process in Indonesia? It is, therefore, not clear how the claim to “analyse the impact of
IFRS on the IIFIs” contributes to answering the questions.
3. It was noted that accounting as a profession was pioneered by Price Waterhouse. This observation
should be supported with references.
4. The section: “Contextual background of the Indonesian economy and political landscape” contains 14
pages of materials that would appear superfluous to the study, including country demography, country
history, Indonesian economy and the problem of corruption in Indonesia, economic crises in Indonesia,
IMF contribution to the economic crises, political landscape and instability of Indonesia and Indonesian
perspectives on economic liberalization. This section could be summarised and incorporated into the
current section 2.
5. The analyses of how the global institutions affect the accounting standards development efforts of
Indonesian Association of Accountants (now called Ikatan Akuntan Indonesia) and the Committee for
Indonesian Accounting Principles (known as Komite PAI) could be more adequately supported with data.
6. The study contains the following remarks:
“Therefore, this paper has addressed an important issue on the role of Islamic financial institutions to face
consequences of IFRS adoption”.
The statement does not appear to reflect the research question. Indeed, it is not clear how the issue of “the
role of Islamic financial institutions to face consequences of IFRS adoption” has been addressed.
7. No conceptual framework. The absence of conceptual framework makes it difficult to understand the
structure of the study. This problem is amplified by the absence of interview guide. The interview guide
(IG) referred to in Appendix 2 is not enclosed.
8. Demonstrate how the interview analyses progressed from codes to themes.
9. Twenty four interviewees participated in the study. Nonetheless, the analyses reported do not appear to
build themes out of the responses of the entire set of interviewees on any particular issue. Whereas, the
quotes from interviewees may be illustrative, the analyses of the set of 24 interviewees are necessary in
reaching plausible conclusions. This major flaw repeated in all the individual issues analysed.
10. The review of the Neo Institutional Sociology theory and the related arena concept should come much
earlier, say after the introduction. The theory is scantily developed in the study and should be more
extensively reviewed.
11. The study contains the following remarks:
“It is evident from Figure 4.1 above that the political entities located in the Ministry of Finance, banking
authorities and the capital market authorities are coercively involved in the financial reporting
standardization in Indonesia”.
Figure 4.1 is not included in the report. There appears to be no analyses producing both the figure 4.1 and
the conclusion reached.
12. The study contains the following remarks:
“It appears that at macro levels, accounting standardisation has been stimulated by the globalization
project, in which global omnipresent competition requires universal standardization in financial reporting
standards. This is to facilitate opening new markets, and to have free inflow and outflow of financing
activities through common information presented in the financial reports. The views of the pros and cons
regarding this issue are mixed”.
The analyses producing these findings would appear missing in the study.
13.
Figure 2
Financial reporting standardization process in the institutional arena
Political and Government Institutions
Macro-level
G20-MoF
BI, Capital Market, FSA
Meso-level
Issue Amplifiers
IFIs
Interests
Acade
micians
DSNMUI
Researc
hers
Professional
Interests
Standard Setters
AAOIFI
IIA
IASB
Micro-level
IFIs
Standard Setters
Other
Countries
AAOIFI/IASB/IIA
Associations
Coercive
Input providers
Accountants
Consultants
Normative
Mimetic
Figure 2 is presented as the financial reporting standardization process in the institutional arena which
claims two main predictions as follows:
(i)
Actors in political sectors in Indonesia have a more powerful influence in IFRS
standardization in general; and
(ii)
Actors in the Islamic financial industry show stronger lobbying to lead the direction of
financial reporting standardization for the IFIs than other actors in the arena with the purpose
for quick recognition of profit.
The conclusions are not clearly drawn from the analyses. Link the analyses more effectively to
conclusions reached.
14. The study contains the following remarks:
“As has been illustrated that Indonesia is a country with rich natural resources, but it is still at the stage of
refining its economy hence various models to regulate its economies are introduced, including regulation
for financial reporting standardization for the IFIs. Thus, the predictions above are considered to be
political and economic imperialist motives. Since these motives cannot be ruled out, we suggest
scrutinizing the economic and political interests of IASB and international financial institutions, i.e. the
World Bank and IMF that heavily influence the process of financial reporting standardization in
Indonesia”.
The study has not analysed political and economic motives as to reach the conclusions.
22. The study contains the following remarks:
“With conflicts regarding the Murabahah profit recognition method, we are of the opinion that IFRS has
indirectly framed the IFIs as being the ones mainly accountable to the shareholders”.
It is not clear how the analyses lead to this conclusion.