Ethics and Social Accounting vs. Islamic Accounting

 by  : Hanan Gabil, Wed Al-Nafie and Wejdan Al-Harbi

In early history of accounting, the first name to describe the system of debits and credits in journals and ledger which in fact still the basics of today’s accounting is called Luca Pacioli, year 1494.


Accounting is defined as a valuable knowledge to be performed and it is considered to be the main index for all countries’ economy. Accounting is also an essential part in processing information of business and economy activity into financial statements. In other words, accounting is the universal language of business and economics as well as finance. However, unfortunately, there is still fraudulent and dishonest practices in business and economic activities. Accounting can be divided into 6 categories as follows:

  1. Finance Accounting
  2. Management Accounting

iii.  Auditing Accounting

  1. Taxation
  2. Funds
  3. Forensic Accounting.


There is no certain activity that could be possible done without relying on accounting, because accounting deals with information that consists of financial status and profitability of economic enterprises.


Islamic accounting has existed since the 1500s and has its own principle that not only can decrease the degree of unexpected activities pertaining to accounting process but also increase the welfare of both internal and external parties of the business. That’s because Islamic accounting has an aspect that has more meaning and value which is a similar aspect of conventional accounting too. It comprises of all values required to the most preferable accounting process. This essay details the differences between Social accounting and Islamic accounting.



Ethics in accounting has been posed after scandals that had the greatest impact of the recent century such as examining collapse hiding, law breaking, fraud and violating moral standards. This setback drove companies towards a common strategic goal – principles of accounting. Thus, the following four elements of principle are essential in ethics:

  1. Honesty and trustworthiness

This rule requires a complete and honest presentation of relevant financial and non-financial information. Information presented should be adequately transparency and must not be used for an ethical advantage. A high degree of integrity and discretion is essential.



  1. Objectivity

Objectivity requires all professionals and information to be fair and unbiased. Professional judgment must be free from conflict of interest such as hospitality and family relationship. It is strongly recommended to refrain from personal relationships and accepting gifts on duty.


  1. Confidentiality of information

Unless absolutely necessary and required by the relevant accounting and auditing standards, confidential information should not be disclosed or be used to gain any unethical advantage.


  1. Professional competence and conduct

Professionals are required to have an appropriate level of academic and work competence, preferably related to their field. Any offers of professional duty for which one does not possess sufficient skills to execute the task effectively should be declined. Professionals must always comply with relevant accounting and auditing standards and perform their duties diligently.


According to the ethical code of conduct, having a code does not eliminate fraudulent activities. In fact, it is a guide to accountants which needs to be fully accepted by professionals before it can be effectively adopted into practice. Therefore, there are two additional codes that are incorporated into Islamic accounting:


  1. Faith-driven conduct

Under Islamic accounting, self-monitoring is fundamental. Self-monitoring may be defined as being constantly conscious of one’s actions and their accountability before Allah on the day of judgment. It is also important to seek Allah’s satisfaction instead of pleasing people while performing professional duties which are consistent with Islamic values and the Shariah. One must always be diligent and sincere in his work and actions. This also stresses on keeping promises and honouring agreements.


  1. Legitimacy

Legitimacy requires all professional duties to be according to the Shariah. Accountability to Allah is given priority over accountability to the management. Professionals must have competent knowledge of the Shariah rules and principles through education and formal training. All business activities and transactions must be Shariah compliant and should be verified for religious legitimacy by professionals who are responsible for executing them.


Social Accounting

Social accounting is also coined as Social Responsibility Accounting because of its responsibility to measure and inform the public about the social activities undertaken by the enterprise and their impact on the society. It is the vision of  which a business seeks to make a valuable impact on social operations. In simpler words, social accounting can facilitate the identification and management of social risks.


Business is a socio-economic activity and its objective is the welfare of the society. It requires full responsibility for providing solutions for social issues. Therefore, the concept of social accounting is to manage huge amounts of funds at their disposal and invest substantial amounts in social activities so as to nullify the adverse effects of industrialization.



The benefit of social economy is to act as an evidence of social commitment, fulfill its obligations, and advise the government and the general public to form correct opinions that are just and ethical. However, it does have its limitations. It can be labor intensive if strategic planning has not been set, or also been not useful for benchmarking.


Islamic Accounting

In an Islamic society, accounting should establish purposes according to Islamic teachings in relation to contemporary accounting thought. Those which are Shariah-compliant are pursued and those that are not are discarded.


Certain Islamic ethical principles have a direct impact on accounting policy and principles.

These principles are derived from the Holy Qur’an and the Sunnah, that stresses on the need for justice, truth, and fairness, and are considered to be a society’s priority and responsibility. This also contains specific standards for accounting practices. In Islamic financing principles, it must follow specific elements which gives it distinctive religious identity. These elements  are:

  • Riba (interest): The payment and taking of interest as occurs in a conventional banking system is explicitly prohibited by the Holy Qur’an.
  • Zakat: The process of repetitive distributions of income and wealth is inherently in Islam to guarantee a fair standard of living for every people especially the poor. Zakat is different from a tax, A tax is an obligation of citizens toward the society, whereas zakat is an obligation of a Muslim not only to society but also to Allah.
  • Haram: Islamic banks cannot finance activities or items forbidden in Islam,

Islamic banks give priority to essential production which caters to the needs of

the majority of the Muslim community.

  • Takaful (joint-guarantee): The only type of insurance that would appear to be lawful according to the Shari’ah insurance.


Muslims ought to conduct their business activities according to the requirements of their religion which are moderation, justice, kindness, honesty, spending to meet social obligations. Unfairness and greed should be avoided at all times.


Applying Islamic accounting principles leaves a beneficial impact directly and indirectly on the internal and external parties of the business; some of which are highlighted below.


  • Less possibilities of unexpected activities by the accountant such as fraud in business and society.
  • The creditor will feel more secure in investing their funds in the business.
  • Financial statement and reporting will facilitate better and more accurate decision making by the users.
  • One of the Islamic accounting purpose is to be concerned about the employees and their families when performing their jobs. It can be useful in reducing poverty and increasing the welfare of the society within the company. This increases the purchasing power of the underprivileged which indirectly contributes to the economic growth.


The company also benefits from increased profits, customers’ loyalty, trust, positive brand attitude, combating negative publicity, and having a rightful place in the business world.



Overall, accounting is the recording of financial transactions and focuses on presenting the information in financial statements, These reports must be prepared according to accounting principles. Accounting also provides essential information to the management to keep the business financially healthy. It places high importance on ethical values. It is of utmost importance for a business to provide accurate evaluation, truth in operations, clear revenues and expenses.


Social accounting differs from Islamic accounting. The general concept of Corporate social responsibility (CSR) is to guarantee sustainability which is forbidden under Islamic accounting Exception is only made if it can be regenerated. CSR activities has a direct impact on the social environment. Therefore, it is required by law for CSR activities and information about its operations to be truthfully disclosed to the general public.


Because Islamic accounting obligates businesses to follow the Sharia strictly, it is considered a religious responsibility. Economic responsibility requires financial statements to be viable, profitable and efficient whereas ethical accounting is obliged to respect societal and religious values.


Therefore, Islamic accounting is considered to be much more complex than the social CSR concept in terms of providing the economy with accurateness, justice without taking or giving interest.


Lewis, M. K. (2001). Islam and accounting. Accounting Forum,25(2), 103-127. doi:10.1111/1467-6303.00058


Yarahmadi, H., & Bohloli, A. (2015). Ethics in Accounting. International Journal of Accounting and Financial Reporting,5(1), 356-360. Retrieved April 27, 2017, from


Schneider, B. (2017). Accounting Basics: History Of Accounting. Retrieved April 26, 2017, from


Mishra, S. (2015). Social Accounting: Concept, Definition, Features and Benefits | Financial Analysis. Retrieved April 27, 2017, from


Islam, M. A. (2015). Social Compliance Accounting Managing Legitimacy in Global Supply Chains. Cham: Springer International Publishing.


Asfadillah, C., et al. (2012). The Importance of Islamic Accounting in Modern Era. Cambridge, UK.


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