Determinants of compliance with AAOIFI standards by Islamic banks

Abstract

Purpose

The authors explore the level and determinants of compliance with Accounting and Auditing Organization for Islamic Financial Institution’s (AAOIFI) financial and governance standards by Islamic banks (IBs).

Design/methodology/approach

The sample consists of 43 IBs across eight countries. The authors use ordinary least squares regression analyses to examine the impact of bank-specific characteristics and corporate governance (CG) mechanisms concerned with Board of Directors (BOD) and Sharia Supervisory Board (SSB) on the levels of compliance with AAOIFI standards.

Findings

The paper finds that the average compliance level based on AAOIFI standards concerning the SSB is 68 per cent; corporate social responsibility (CSR) is 27 per cent; and presentation of financial statements (FSs) is 73 per cent. The aggregate disclosure based on the three indices is 56 per cent. The analysis also shows that size, existing Sharia-auditing department, age and CG of SSB are the main determinants of compliance levels.

Originality/value

The determinants of compliance with AAOIFI standards for IBs around the world have not been explored before, and therefore, this paper is the first of its kind to this issue.

Citation

El-Halaby, S. and Hussainey, K. (2016), "Determinants of compliance with AAOIFI standards by Islamic banks", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 9 No. 1, pp. 143-168. https://doi.org/10.1108/IMEFM-06-2015-0074