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Requirement
Question: Financial Accounting Issues
Solution
Introduction
In this present paper, we will discuss the literature review of the corporate governance model, Islamic corporate governance, and the role of the sharia committee. The purpose of the paper is to analyze the Islamic corporate governance in Australia and Islamic financial products in Australia and on the basis of analysis the conclusion and recommendations are made. The corporate governance model is very significant to improve the value of the firm in the Australian financial market. The qualitative research method is used for analyzing the Islamic corporate governance and Islamic financial product in Australia with secondary data. The major limitation of the study is that the study is not analyzing the difference in Islamic and non-Islamic financial products in Australia. The research area in finance is focusing on corporate governance.
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Literature review
Corporate Governance Models
The corporate governance is defined as the process through which corporations are directed and controlled. The structures describe the roles and responsibilities of each and individual in the corporation. The core agency problem facing by the firm include separation of ownership from control. The importance of corporate governance was arrived after the separation of management and ownership control in the corporation. The reason of raising agent problem is due to conflict between the interest of shareholders and management. The Anglo-US model is characterized by share ownership of individual, increasing institutional, investors who are not affiliated with the investors. The framework describes the roles and responsibilities of three major players of an organization, namely, management, shareholders and directors. The other players include government agencies, self-regulatory companies, consulting companies, and stock exchanges. The model is created within the context of free market economy, by assuming the separation of ownership and control in publicly-held companies (Hassan et al., 2014). The Japanese model is characterized by the ownership of high level of stock by affiliated banks and organizations. The equity financing plays an important role in Japanese companies. They play an important role insider corporation and a whole system. The German model is mainly applied to German and Australian companies. The model has three unique characteristics, namely, two models pertain to board composition and one concern shareholders rights. Firstly, the model has separated into management and supervisory board. The two boards are distinguished, no one simultaneously serve on the management and supervisory board. The size is defined by the law not by the shareholders. The major players are German banks, and corporate shareholders. The model has included employee representative on German supervisory board.
Islamic Corporate Governance & Role of Shariah Committee
The Islamic finance is having 1% of share in the global market. The Islamic financial system has string and effective framework which shows improved performance of the system. The Islamic finance is benefiting from its structural and cyclical drivers. The GCC accompanied by the surge in Islamic finance and EMEs has grown from 15% to 20% in the past four years . The corporate governance provides rules and regulations which ensures good practices guide for the management of the institution. The structure of a company and the incentive system address print-agent issues which ensure that the executive management serves long-term benefits to the shareholders and the management of the company. The OECD principles of corporate governance include the endurance for an effective corporate governance framework, rights of shareholders and key ownership functions, equitable treatment of shareholders, role of shareholders in corporate governance, disclosure and transparency and the responsibilities of the board. The Islamic law prohibits the interest charged on the collection and payment of money it is called “riba” in Islamic disclosure. In the PLS mode rate of return on financial assets are fixed. The Islamic law prohibits financial risk and the law also prohibits the investment in haram businesses such as alcohol business. The corporate governance embeds in Islamic finance and focusing on three areas, namely, transparency, accountability and trustworthiness. The corporate governance is abiding by the Islamic law which is called as Shariah. The framework of corporate governance is consisted with best international practices and the framework is consisted with OECD principles and BIS guidelines. The framework for banks includes National CG framework, specific codes and standards of Islamic finance and Shariah. The Sharia Committee highlights the framework of Sharia governance independently as an important credential which enables the effective functioning of Sharia Committee. The global total asset exceeds the compound annual growth in the period of 2009-14 with 17.4% (Tricker et al., 2015). There are major four big global centers of Islamic finance. The Malaysia has made a highest achievement in the Islamic financial industry. The marketplace is for Islamic capital market for sukuk and equity. The Shariah committee consists of five members. The duties and responsibilities are governed by Shariah governance framework (Shafii et al., 2013). The duties of Committee includes responsibility and accountability, advice to the bank and board, endorse Shariah policies and procedures, endorse and validate relevant documentation, Audit and review the work of Shariah. According to AAOIFI the government standard of financial institution is No. 1. The SSB is an independent body of specialized jurists in fiqh muamalat. The SSB consist of three members. The guidelines issued by the government of Shariah committee through the "Garis Panduan Shariah 1" were affected from 1 April 2005. Another standard issues on governance known as GP8-i. It focuses on providing the basis for presenting disclosure of reports and financial statements of Islamic banks in carrying the financial activities (Hamza et al., 2013).
Discussion and Analysis
Islamic Corporate Governance in Australia
There are three Muslim minority countries Sri Lanka, the UK and Singapore which are included in the list of IFDR 2014. The Australia is some under top fifteen Muslim minority countries in the world. The corporate governance of Australia is having strong and structure regulating conventional finance. The Islamic financial industry is improving in state of corporate governance in 2015. The Fatwa and Shariah supervisory board is appointed to ensure the products and services are compliant with the Sharia banking. The functions of SSB in Islamic banks include: issue of formal legal opinions according to the Islamic law and ensure management of bank, review and assess the transaction to ensure the follow of Shariah, regular meetings to ensure the management of all the enquiries, preparing contracts with the coordination of legal advisor of the bank, preparing a research report to direct the zakat from the deserving parties. The corporate values of the bank include principle, professional, progressive, and partnership. The corporate culture of the bank offers halal banking services and the initiatives in the banking products and services. The Islamic banks place an importance of corporate governance which helps to regulate the banks and financial market (Islam et al., 2013). It is analyzed that there is no mechanism in Australia to compel the financial service provider to comply with regulations and the directions of international Islamic regulatory bodies. There are two international financial bodies, namely, Islamic financial service board and the Accounting and Auditing Organization for Islamic Financial institutions. The Islamic financial services is regulated and supervised by former which is an association of monetary authorities, central banks and others. The Australian legislation requires the regulators of Australia which is referred to the standard of AAOIFI and the IFSB which helps to fill the gap and facilitates the development of Islamic finance in Australia (Mollah et al., 2015). The several issues arises in Australia related to Islamic Finance which include more than a receptive market which helps to enable the legal environment for retail and wholesale market.
Islamic Financial Products in Australia
There are number of Islamic financial products in Australia such as equity and bond for takaful and re-takaful. The other Islamic financial product include Islamic collective investment scheme, wealth management products such as Islamic trust services it is also known as waqf. The Islamic financial instrument includes the risk which is related to mudarabah investment account. The Islamic bond which is known as Sukuk is also an Islamic financial product. The other financial product include Islamic real estate funds, Islamic wealth management funds, securitization, Sukuk, SPV, Islamic micro-finance, Screening for stock and property investing, Islamic derivatives, Arbun, Hamish jiddiya, Forex swap, profit rate swap, tahawut. All the financial products prohibits the acceptance and giving of riba (Newaz et al., 2016). The Gharar is prohibits according to the Islamic laws. The Maysir is prohibited according to the Islamic laws. The financial assets are deemed merely media of exchange and it does not include the commodities that are traded in the market. The Islamic finance methods include Murabaha, Mudarabah, Musharaka, Ijara, Suku and Takaful. The Islamic financial facilities are provided by eight local banks, eight foreign subsidiary banks, and forty branches of foreign banks in Australia. The Shariah is implemented on the commercial and financial products. The Australian three laws help to regulate the banking and finance industries. The Australia uses the combination of market mechanism and government mechanism to regulate the bank and financial market. The three laws are: Australian prudential regulation authority, Australian securities and investment commission, and Reserve bank of Australia (Demirgüç-Kun et al., 2013).
Conclusion and Recommendation
It is recommended that the Australian needs to develop a mechanism to compel the Islamic financial market. The Australia should require more than receptive market which helps to enable the legal environment for both markets. The country needs to make clear regulations coordinated with local financial regulations which clarify between the Islamic financial services and conventional services. The Shariah advisory board should make taxation friendly frameworks which enable the Islamic financial service companies to compete with conventional service companies. In the end it is stated that the corporate governance model include various models namely German model, Japanese model, Anglo-US model ad others. It is the process which helps to provide the framework for management and shareholders. It helps to overcome the issue of conflicting interest between the shareholders and management. The Islamic corporate governance provides rules and regulation to the Islamic financial services which helps to ensure good practices in the institutions. The PLS mode, rate of return on financial assets is fixed. The Australia comes under the top fifteen minority countries around the world. The corporate governance of Australia is very strong. The Australian legislation requires regulating the Australia by the Standard of AAOIFI and the IFSB which help to differentiate between the conventional services and Islamic financial services. The various Islamic financial products is offered in Islamic wealth management, Islamic derivatives, Sukuk, Islamic micro products and others.
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Hassan, M. K., & Hippler III, W. J. (2014). Entrepreneurship and Islam: an overview. Econ Journal Watch, 11(2), 170-179.
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Tricker, B. (2015). Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
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Shafii, Z., Abidin, A. Z., Salleh, S., Jusoff, K., & Kasim, N. (2013). Post Implementation of Shariah Governance Framework: The Impact of Shariah Audit Function Towards the Role of Shariah Committee. Middle-East Journal of Scientific Research, 13(7), 11.
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Hamza, H. (2013). Sharia governance in Islamic banks: effectiveness and supervision model. International Journal of Islamic and Middle Eastern Finance and Management, 6(3), 226-237.
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Islam, M. A., Cooper, B., Haque, S., & Jones, M. (2013). The Corporate Governance Regulation and Anti-Bribery Disclosure: Evidence from Australia. Available at SSRN 2357901.
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Mollah, S., & Zaman, M. (2015). Shari’ah supervision, corporate governance and performance: Conventional vs. Islamic banks. Journal of Banking & Finance, 58, 418-435.
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Newaz, F. T., Fam, K. S., & Sharma, R. R. (2016). Muslim religiosity and purchase intention of different categories of Islamic financial products. Journal of Financial Services Marketing, 21(2), 141-152.
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Demirgüç-Kunt, A., Klapper, L., & Randall, D. (2013). Islamic finance and financial inclusion. Policy Research Working Paper, 6642.
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