The development of Islamic banking financial institutions in the world is a neces- sity. Therefore, there is great potential for using Islamic accounting in these institu- tions. Furthermore, based on this, in the implementation of Islamic accounting in banking, several things need to be considered, which include::
• The application of Islamic accounting refers to the Al-Quran Surah Al-Baqarah verse 282;
• The application of Islamic Ethical principles of Islamic accounting must consider the principles of (i) Accountability; (ii) Brotherhood; (iii) Justice; (iv) Truth;
(v) Benefits; (vi) Balance; (vii) Universalism.
• The implementation of Islamic bank financial statements generally consists of activities financial reports and social activities financial reports.
© 2022 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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1. Pusaka Media: Lampung; 2017
Islamic Banking and Islamic
Accounting in Indonesia: History and Recent Development
Mahfud Sholihin and Dian Andari
Abstract
Islamic banks (IBs) have distinctive characteristics compared with the conventional ones. IBs only perform permissible (halal) financial transactions viewed from Islamic perspective and avoid usury (riba) and overspeculation
(gharar). Consequently, IBs require special accounting to accommodate their nature.
In terms of accounting, Indonesia is unique, as it has two accounting (for business organizations) standard setters: Financial Accounting Standard Board (Dewan
Standar Akuntansi Keuangan-DSAK) and Sharia Financial Accounting Standard Board (Dewan Standar Akuntansi Keuangan Syariah-DSAS). This chapter discusses the development of IBs in Indonesia, a country with majority of its citizens being Muslim.
Further, it explains the development of Islamic Financial Accounting Standards (IFAS) including how the standards are developed (the due processes). Finally, this chapter describes whether Islamic financial accounting standards developed in Indonesia has sufficiently fulfilled the accounting standards needed by Islamic banks in Indonesia.
Keywords: Dewan Standar Akuntansi Syariah (DSAS),
Institute of Indonesia Chartered Accountants (IAI), Indonesia, Islamic accounting, Islamic banking
1. Introduction
This chapter discusses Islamic banking and Islamic accounting development and implementation in Indonesia. The first part of this chapter elaborates on the emergence and development of Islamic banks (IBs) in Indonesia. Then, the next part discusses the history and role of Islamic accounting in Indonesia. The chapter intended to develop understanding related to Indonesia Islamic banking and accounting as a unique case of Islamic finance state of the art.
As the most Muslim populous country in the world, the development of Islamic banking in Indonesia is not without challenges. The emergence of Islamic banks in Indonesia was triggered by internal and external factors. The growth of demand in permissible (halal) financial services started in the Middle East encouraged Indonesia to join the opportunity to pave its way in the banking sector after the formation
of Islamic financial institutions at the grassroot level [1–3]. PT. Bank Muamalat
Indonesia (BMI) was the first Islamic bank in Indonesia established in 1990 in Jakarta, Indonesia. The stagnant development in its first years led to the enactment of the Indonesian Law No. 21 of 2008 about Islamic banking (or Sharia Banking) that set the definition and legal foundation for Islamic banks to grow in Indonesia.
Upon the establishment, the development of Islamic banks became more steady and apparent over time. In 2020 itself, the growth of Islamic banking (yoy) had double-digit increment for 13.11 percent (yoy). Even though the Islamic banking industry growth is increasing, the inferior competitive advantage only contributes to less than 10 percent of national banking assets [4]. Hence, in 2021, the ministry of state-owned enterprise combined three state-owned Islamic banks (PT. Bank Syariah Mandiri, PT. Bank Negara Indonesia Syariah, and PT. Bank Rakyat Indonesia Syariah) into PT. Bank Syariah Indonesia (BSI) through merger. This merger resulted in the improvement of the competitive advantage of BSI to its conventional counterparts [4]. This momentum marked the commitment of the government and stakeholders to boost the development of Islamic banking in Indonesia.
Accountability is important to ensure the relevance and reliability of informa- tion in Islamic banks. It can be said that the development of Islamic accounting in Indonesia is driven by the growth of Islamic banking and finance [5]. There is a demand to accommodate accounting standards for Islamic transactions; hence, reliable information can be used by users for making a sound decision. Dewan Standar Akuntansi Syariah Ikatan Akuntan Indonesia or Sharia Financial Accounting Standard Board of the Institute of Indonesia Chartered Accountants (DSAS IAI) was formed to review, to study, and to issue accounting standards for Islamic financial transactions.
The standard must be embedded with Islamic values and norms; hence, the process also demands knowledge in Islamic law, accounting, and business.
Until today, the Islamic or Sharia accounting in Indonesia has developed to myriad activities and transactions performed by Islamic banks (i.e. mudarabah (investment), murabaha (cost-plus), and ijarah (leases),). Islamic-based transactions also
encompass social or charitable activities that need guidance and standard to operate accountably. Accounting standards for Islamic social or charitable activities such as zakah (Islamic compulsory alms), sadaqah, and waqf (charity) were set to allow both nonprofit and profit organizations to perform a systematic financial reporting.
Indeed, these activities are also committed by Islamic banks and other Islamic profit- oriented organizations as manifestations of their Islamic ethical identity. Therefore, it is expected that Islamic accounting is able to fulfill its goal to assist Islamic Banks to be accountable to their stakeholders and God by being fair and transparent in business.
2. Islamic banks (IBs) in Indonesia