Management accounting systemsin Islamic and conventional

financial institutions in MalaysiaSiti Zaleha Abdul Rasid

International Business School, Kuala Lumpur, Malaysia

Abdul Rahim Abdul RahmanDepartment of Accounting, Kuliyyah of Economy and Management Science,International Islamic University, Malaysia, Kuala Lumpur, Malaysia, and

Wan Khairuzzaman Wan IsmailInternational Business School, Kuala Lumpur, Malaysia

Abstract

Purpose The purpose of this paper is to explore whether there is any difference in the managementaccounting systems (MAS) of conventional and Islamic Financial Institutions (IFIs) in Malaysia.

Design/methodology/approach The paper was based on a survey of 45 conventional and IFIslisted on the Malaysian Central Banks web site. The respondents were the chief financial officers(CFO). Post-survey semi-structured interviews were also conducted with eight respondents to gainfurther insights into the survey findings.

Findings The survey results indicate that IFIs use MAS information that is broader in scope, moretimely, more integrated and more aggregated than conventional financial institutions. The post-surveyinterviews provide deeper and contextualised insights into this issue. The interview findings illustratethat IFIs normally develop and adopt an integrated accounting and enterprise system. Within thiscomprehensive enterprise system, the management accounting function is integrated with otherfunctions of the organization.

Research limitations/implications Since this study was conducted in the context of Malaysianfinancial institutions, the results may not be generalizable to other organizations. The findings of thisstudy highlight the importance for IFIs to have integrated enterprise systems. Besides assisting incomplying with Shariah and regulatory requirements, the integrated systems also support betterdecision making.

Originality/value The paper fills a gap in the literature, as very few studies have examined theissue of management accounting in financial institutions. The paper is also one of the limited studiesthat explore the issue of MAS in IFIs.

Keywords Malaysia, Islam, Financial institutions, Accounting systems,Management accounting systems, Shariah

Paper type Research paper

1. IntroductionManagement accounting systems (MAS) refers to the systematic use of managementaccounting techniques to achieve organizational goals. The International Federation ofAccountants (IFAC, 1998) defines management accounting as the process ofidentification, measurement, accumulation, analysis, preparation, interpretation, andcommunication of information (financial and operational) used for the planning, controland effective use of resources by an institutions management. Thus, management

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1759-0817.htm

MAS inMalaysia

153

Journal of Islamic Accounting andBusiness ResearchVol. 2 No. 2, 2011

pp. 153-176q Emerald Group Publishing Limited

1759-0817DOI 10.1108/17590811111170557

accounting becomes an integral part of the management process in an organizationproviding information essential for:

. controlling the current activities of an organization;

. planning its future strategies, tactics and operations;

. optimizing the use of its resources;

. measuring and evaluating performance;

. reducing subjectivity in the decision-making process; and

. improving internal and external communication (IFAC, 1998).

In short, the use of MAS can be expected to satisfy a managers information needs(Govindarajan, 1984; Mia and Chenhall, 1994).

In the past, financial services were highly regulated with many of theproducts offered and the rates charged controlled. There were also strict regulationand control of geographic expansion. In a highly regulated industry, there was less needof management accounting information for performing day-to-day and longer termtasks. However, deregulation, rapidly advancing technology, competitive forces andglobalization have all put an end to this complacent approach (Kafafian, 2001).In addition, emphasis on financial innovation and shareholder value as well as mergersand acquisitions activities between insurers, banks and asset management companies,have resulted in the emergence of financial conglomerates that further exacerbates thecompetitive environment, especially for stand-alone entities. To function effectively in adynamic environment undergoing rapid transformation, financial institutions have toenhance their competitive advantage. A managers ability to make informed decisions isclosely linked to the quality of management accounting information available (Kafafian,2001; Rezaee, 2005). A good management accounting programme serves as an importanttool for providing good decision-making information (Cole, 1988) and this is particularlyimportant in the case of financial institutions as their collapse would affect the stabilityof the whole economy. Hence, it is critical for all financial institutions to have efficientMAS for internal decision making, planning and control (Siti Zaleha and Abdul Rahim,2009) in order to maintain their stability.

The Malaysian financial system is based on the dual banking system in whichthe conventional financial system operates alongside the Islamic financial system.The development of the Islamic Financial Institutions (IFIs) has contributed to thestrengthening of Malaysia as an International Islamic Financial Centre (MIFC). IFIsare different from conventional financial institutions as their objectives, operations,principles and practices must conform to the principles of Islamic Shariah( Jurisprudence) and Islamic ethics as enunciated by Shariah. The IFIs have to adhereto the Shariah compliance framework and they are also exposed to certain risks that arespecific only to them. The complex nature of the IFIs requires a governance structurethat is more comprehensive. Besides adhering to Shariah, they are also required toremain competitive in order to survive in the changing business environment. MAS,which has a wider scope covering internal, external, past, future, financial andnon-financial information and able to be provided in an integrated, aggregated andtimely manner, are ideal for providing the necessary information to aid decision making,planning and control. However, MAS for IFIs has received limited attention as mostprior literature on accounting for IFIs focuses mainly on financial accounting related

JIABR2,2

154

to measurement and reporting issues (Abdul Rahim, 2003; Abdel Karem, 1990; Talib,2000). Hence, the purpose of this paper is to explore whether there is any difference in theMAS of conventional and IFIs in Malaysia. The current study is intended to fill the voidin the literature on management accounting in IFIs.

The remainder of the paper is structured as follows. The next section reviews therelevant literature and develops the hypotheses, followed by the research method inSection 3. Results and discussion are presented in Section 4 and finally, Section 5presents the conclusions.

2. Literature reviewA well-designed MAS will assist managers to be more effective in decision making.Traditionally, management accounting information has been delineated in financialterms, but recently it has been expanded to include non-financial (operational orphysical) information, including quality and process times, as well as more subjectivemeasurements such as customer satisfaction, employee capabilities and new productperformance (Atkinson et al., 2001). The enhanced role of MAS to assist managers inattention directing and problem solving has resulted in the evolution of MAS toincorporate external and non-financial data focusing on marketing concerns, productinnovation, strategic planning and predictive information related to these areas (Miaand Chenhall, 1994). Hence, MAS are now viewed in a broader aspect (Mia, 2000;Hussain, 2000). Besides fulfilling the traditional function of providing quantitative andfinancial information, MAS have expanded to include information relevant forinnovation, marketing and organizational design. In fact, there is little difference todaybetween the information provided by MAS and that provided by a managementinformation system (MIS) (Mia, 2000).

The challenge faced by financial institutions is in sustaining their competitive edgeby being cost efficient without compromising the quality of their services. In fact,financial problems and failures in financial institutions are no longer considered unique(Hussain, 2000). The key to survival is to have an internal management reporting systemthat can signal problem areas and allow management to react swiftly and assuredly.Following the deregulation of the financial sector and the rapid advances in technology,information on pricing, product mix and market share strategies have become moreimportant to the financial services sector (Rezaee, 2005; Kafafian, 2001) and suchinformation will be available through the MAS within an organization.

The current pace of technological and economic innovation in the financialmarkets illustrates the critical need for information as an aid to sound decision making byfinancial institutions (Hussain, 2000). By providing financial and non-financialinformation, MAS facilitates the decision-making process, as the scope has expandedto include effectiveness, control, market analysis, quality assessment, customersatisfaction, empowerment and competitive status management (Ostinelli and Toscano,1994 as cited in Hussain, 2000). MAS in a financial institution can play an important roleby providing information on the effectiveness of a sales promotion programme, revenueby business units, product lines and customer category (Rezaee, 2005; Kafafian, 2001; Miaand Patiar, 2001). By having MAS as an internal information system, the investmentsrequired for a programme and their outcomes can be monitored closely. Managers canuse MAS information to benchmark the organizations performance against competitorsto determine whether they are offering products and service attributes to customers

MAS inMalaysia

155

at a competitive price. This is possible since MAS provides information on performanceof each business unit, each product and even each customer. With an integrated system,performance can be monitored to every possible detail, as performance management isseen as the main task of the management accounting function (Otley, 2001).

The management of financial institutions depends on concise and relevantinformation to help them carry out their daily duties. Well-managed firms should havegood information structures and MAS can be seen as a tool for managing resources,measuring performance, warning of risks, aiding decisions, and providing data forplanning. Cole (1988) specifically argues that a good MAS does the following:

. tells the cost and profitability of doing business by organization, product, andmajor customers;

. avoids surprises;

. allows all managers to explain their performance as it is reported;

. allows everyone to participate in planning via plan-to-actual reporting used as amanagement tool;

. provides timely, accurate, relevant, and understandable reporting;

. ensures that only one set of numbers is circulating within the organization; and

. reduces or eliminates complaints about information non-availability.

Some financial institutions have turned to activity-based costing (ABC) as a way tomeasure accurately the consumption of shared resources by a particular customer orproduct (Max, 2004; McDonald, 2004; Robinson and Chappelear, 2002; Kafafian, 2001).In fact, Max (2004) asserts that the application of ABC in the financial services sectortoday identifies new and unique ways to leverage cost and profitability information,including:

. activity-based pricing, particularly for business-to-business services;

. linking ABC information to performance management scorecards and processes;

. providing information on a process view of costs, both to support costimprovement needs and to enable ongoing accountability for management by thebusiness process; and

. information on the profitability of discrete customer relationships.

As financial organizations continue to consolidate, diversify, and become morecompetitive, the management accounting and information functions need to also growrapidly and become more important. Table I presents a summary by Kafafian (2001) ofthe types of management information that is currently utilized by the financial industryto meet new challenges.

Table I shows that in the planning process, strategic planning and budgetinginformation are used. In addition, financial institutions also utilize Asset/LiabilityManagement (ALM) information, responsibility reporting and profitability analysis.Furthermore, financial institutions also have a number of support functions that providevarious information to aid management decision making, planning and control.

The information needs of MAS can be considered in terms of its general informationcharacteristics scope, timeliness, integration and aggregation (Chenhall and Morris,1986; Chia, 1995; Lal and Hassle, 1998; Bouwens and Abernethy, 2000;

JIABR2,2

156

Moores and Yuen, 2001; Tillema, 2005; Agbejule, 2005). MAS is considered sophisticatedwhen it produces information that is broad in scope, timely, integrated and aggregated.

The balance scorecard (BSC) is an example of a MAS tool having all the fourinformation characteristics (Tillema, 2005) while ABC systems provide information thatis only integrated and aggregated (Choe, 2004). Owing to the challenges of deregulation,diversification and competition, the financial services sector needs to use sophisticatedMAS. The development of management accounting and information functions shouldmove in tandem with the changing environment of the financial services sector.

2.1 Relevance of MAS to IFIsThe management of IFIs needs management accounting information as an organizationalcontrol mechanism. Since all IFIs activities should comply with the norms of Shariah andIslamic ethics, they need more management information for decision making, planningand control activities to meet both business and religious objectives. The process ofproduct innovation in IFIs is more tedious and more stringent to ensure that the contractsassociated with the transactions are not in violation of Shariah. In fact, the presence of theShariah Supervisory Board (SSB) requires MAS to be more sophisticated as this boardhas the power to examine all information related to Islamic bank transactions todetermine whether religious objectives are met (Islam et al., 2000).

The need of MAS can also be argued from the sources of funds perspective. Unlikeconventional banking systems where customers are entitled a guaranteed return, thereturn on investment for Islamic bank investment holders is uncertain since they sharethe profit or loss incurred by the bank (Haron and Shanmugam, 2001; Errico andFarahbaksh, 1998; Mannan and Fazlul Hoque, 2006). In fact, they are also exposed tothe risk of losing all of their initial investment. Therefore, their decision to invest willdepend on their evaluation of the banks ability to realize acceptable rates of returnand to maintain its capital at a level sufficient for solvency purposes (Noraini, 2005).Potential investment account holders will normally refer to the annual reports,web sites and brochures before making their decisions. For this reason, transparency

The planning process Strategic planningBudgeting

ALMResponsibility reportingProfitability analysis Line of business

OrganizationalBranchProductCustomer/relationshipMarket segmentOpportunity

Support functions Funds transfer pricingItem costing/activity-based-costing/performance measurementData warehousingMarketing customer information fileData mining/data mapping

Source: Kafafian (2001)

Table I.Types of managementinformation utilized by

financial institutions

MAS inMalaysia

157

in reporting plays an important role (Noraini, 2005). Reporting can be more transparentif external reporting is supported by the internal reporting functions supplied by theMAS because it serves as an organizational control mechanism facilitating control viareporting and creating visibility in the action and performance of its members (Chia,1995). Thus, the implications of the Shariah compliance framework on the use of MASinformation need to be explored.

The research on this issue is still scant, with the only study available to date being oneby Islam et al. (2000). Islam et al. (2000) studied the information adequacy of MAS in thebanks in Bangladesh. They argue that the adoption of a profit-sharing system ofmudarabah and musharakah by Islamic banks in their financing activities requires adifferent set of MAS information in terms of scope and integration. In mudarabahactivities, where banks share the profit and bear the losses of their business, themanagers need a relatively broad scope of information about the day-to-day businessoperations and prospects of their clients. A broad scope of information is also required inmusharakah activities as they involve direct participation of the banks. In contrast,non-Islamic bank managers place more emphasis on securing collateral from businessclients instead of entering into venture capital with their clients, and consequently theyrequire a narrower scope of information (Islam et al., 2000).

The results of Islam et al. (2000) show that managers of Islamic banks in Bangladesh, incontrast to those in non-Islamic banks, believe that they have better designed MAS interms of scope and integration. Their findings support the argument that profit-sharingsystems in the financing activities of mudarabah and musharakah in Islamic banks requirebroad scoped and integrated MAS information (Islam et al., 2000). However, more researchis needed to confirm their conclusion as the study only considers the profit-loss sharingmode of financing, which is not widely practiced by Islamic banks. This issue should beargued from a broader Shariah compliance perspective that includes information requiredin managing the various types of products that need a variety of contracts. In addition,similar issues should be considered for other IFIs, such as Islamic insurance organizations.

2.2 Development of hypothesesThe scope of an information system consists of three sub-dimensions, which are focus,quantification and time horizon (Gordon and Miller, 1976; Gordon and Narayanan,1984; Chenhall and Morris, 1986). A broad scope MAS provides information which isexternally focused (e.g. economic conditions, etc.), non-financial (e.g. customerpreferences, etc.) and future oriented (e.g. probabilistic) (Chenhall and Morris, 1986;Gul and Chia, 1994; Choe, 1998; Bouwens and Abernethy, 2000).

The main difference between IFIs and conventional financial institutions is thattheir objectives and operations, as well as principles and practices, must conform to theprinciples of Islamic Shariah ( Jurisprudence) and Islamic ethics as enunciated byShariah. The principles are:

(1) prohibition of riba (interest);

(2) application of al-bay (trade and commerce);

(3) avoidance of gharar (ambiguities) in contractual agreements; prohibition ofmaisir (gambling); and

(4) prohibition of conducting business involving prohibited commodities (SaifulAzhar, 2005).

JIABR2,2

158

Transactions in IFIs involve different Islamic contractual relationships in which variousunderlying Shariah principles have been used. In the Islamic banking sector forexample, the relationship between investment account holders and the banks and therelationship between the banks and their customers (borrowers) are different fromconventional banking systems. In conventional banking system, all deposits are treatedas liabilities. In Islamic banks, savings are categorized into Al-Wadiah (safe custody)and Al-Mudarabah (profit sharing) saving accounts. Under Al-Wadiah, banks act as atrustee for its customers (Alam, 2000; Razali, 1999) while under Al-Mudarabah, banksact as a manager for the funds of its customers. The deposits will be invested and profitsand losses will be shared with the account holders based on mutual agreement (Alam,2000; Razali, 1999). Looking at the asset side of the balance sheet, in conventionalbanking systems, the banks are the lenders and customers are the borrowers and alltransactions are subject to interest payment. Hence, IFIs require a broader scope ofinformation to comply with the various Shariah principles.

Although equity-based financing (mudarabah and musharakah) is not widely used atthe moment, some arguments related to MAS information may still be considered.Equity-based financing is risky since there is no fixed assured return to the banks(Taylor, 2003; Sarker, 1999). It takes into consideration risk-sharing, thus the capitalinvolved in trade might grow or decrease over time (Haron and Shanmugam, 2001;Mannan and Fazlul Hoque, 2006; Hassan and Ahmed, 2002). In the case of mudarabahfor example, profits are to be shared according to an agreed proportion but losses will beborne by the bank (Taylor, 2003; Alam, 2000; Dar and Presley, 2000). Therefore, Islamicbanks have to carefully scrutinize the feasibility and projections provided by thecustomers and at the same time undertake stringent credit analysis and risk assessment(Taylor, 2003). In short, they have to be selective in choosing clients to finance underequity-based financing modes (Sarker, 1999). Islam et al. (2000) argue that the adoptionof this equity-based form of financing requires a different set of MAS information interms of scope and integration. A relatively broad scope of information is required toassess the prospects of their clients and to carry out day-to-day business operations.Thus, we offer the following proposition:

H1. There is a significant difference regarding the scope of MAS between IFIs andconventional financial institutions.

Timeliness of information refers to the provision of information on request and thefrequency of reporting collected information. Timeliness influences the managersability in responding quickly to events. MAS, together with timely information, is able toreport upon the most recent events and provide rapid feedback on decisions (Chenhalland Morris, 1986; Bouwens and Abernethy, 2000). In Islamic banks, the profit rate fortheir financing are fixed. However, the return on the deposits fluctuates depending onmarket conditions. Therefore, to prevent mismatch between assets and liabilities, timelyinformation is required by IFIs in calculating their profit distribution. At the same time,IFIs take a partnership position in their equity-based financing, and timely informationis required so that decision making, planning and control can be made effectively sincethe IFIs themselves become a stakeholder in the businesses to which they providefinancing (Greuning and Iqbal, 2007). By being partners with their customers, it iscritical for IFIs to have reliable and timely information (Greuning and Iqbal, 2007). Basedon the arguments above, the following proposition is proposed:

MAS inMalaysia

159

H2. There is a significant difference in the use of timely MAS between IFIs andconventional financial institutions.

Coordination of the various segments within a sub-unit is an important aspect oforganizational control. Integrated MAS characteristics that may assist coordinationinclude information about the activities of other departments within the firm andinformation on the impact that decisions in one department have on the performance ofanother. The information may relate to input, output, operating processes and thetechnology employed by other departments (Bouwens and Abernethy, 2000; Chenhalland Morris, 1986).

In the Islamic banking system, different products require different contracts, whichlead to different kinds of relationship. For example, unlike financing in conventionalbanking where the bank is the lender and the customer is the borrower, in murabahah(deferred sale) financing, the customer is the buyer and the bank is the agent who buysand sells the product to the buyer. Therefore, it is a trading contract which is permissibleby Shariah. In ensuring compliance with Shariah, a regulatory body called the SSB isset up (Abdul Rahim, 2006; AAOIFI, 2001; Haron and Shanmugam, 2001). The Islamicinsurance operators are also answerable to their SSBs. They are only allowed to investtheir funds in Shariah-approved avenues. In order to comply with Shariah, the extentand nature of MAS information needed by IFI managers for day-to-day monitoring anddecision making will be more complex than that required by managers in conventionalfinancial institutions (Islam et al., 2000). The presence of SSB requires MAS to be moreintegrated since this board has the power to examine all information about an IFIstransactions to ensure adherence to Shariah principles (Islam et al., 2000). The study byIslam et al. (2000) found evidence that the extent of integration of information is greaterin Islamic banks than in non-Islamic banks. Hence, it is proposed that:

H3. There is a significant difference in the use of integrated MAS between IFIsand conventional financial institutions.

Information aggregation deals with a variety of ways to collect and summarize the datawithin periods of time or area of interest, such as responsibility centers or functionalareas (Choe, 1998). Aggregate information represents summarized information thatcovers periods of time or diverse management area while disaggregated informationrepresents excessively detailed information that may include only one period or onefunctional area (Choe, 1998). Owing to the unique nature of the IFIs, they are alsoexposed to specific risks in addition to the normal credit, market and operational risksfaced by conventional FIs. These specific risks include equity investment risks,displacement risks, liquidity risks and Shariah risks. Contrary to conventional FIs, IFIsinvest on the basis of equity-based assets (including partnership based Mudarabah andMusharakah investments) that expose the IFIs to volatility in earnings due to liquidity,credit and market risks associated with equity holdings (Iqbal and Mirakhor, 2007). Lossof capital is also possible in Mudarabah and Musharakah contracts despite propermonitoring. Therefore, aggregated information by product is required by IFIs todetermine the capital charge for each type of product. Thus, we offer the followingproposition:

H4. There is a significant difference in the use of aggregated MAS between IFIsand conventional financial institutions.

JIABR2,2

160

3. Research methodData were collected using postal questionnaires and semi-structured interviews. Thisstudy considered the whole population of finance and insurance companies listed on theMalaysian Central Bank web site. The population was 106 financial institutions with45 FIs randomly selected for this study. The choice of single industry will minimizeenvironmental heterogeneity (Moores and Yuen, 2001). The environment is furthercontrolled by selecting institutions that provide banking and insurance services only.Although restricting the sample will limit the ability to generalize the results, it isbelieved that specific industry analysis will substantially raise the internal validity overa multi-industry analysis (Ittner et al., 2003).

3.1 Development of questionnaireA questionnaire was developed to measure the extent of use of information provided bythe MAS in the surveyed organizations for decision making, planning and control.The characteristics of the information were divided into four main dimensions, namely,scope, timeliness, levels of integration and levels of aggregation. The characteristics ofthe MAS information were measured based on Bouwens and Abernethy (2000), Chongand Chong (1997) and Chenhall and Morris (1986). The measurement developed byChenhall and Morris (1986) has been shown to be robust across a variety of settings(Chenhall, 2003). The extent of use of these MAS information characteristics were alsoused by other studies (Mia and Chenhall, 1994; Chong and Chong, 1997; Agbejule, 2005).

The dimensions of scope (six items), timeliness (four items), integration (four items) andaggregation (six items) were measured based on Bouwens and Abernethy (2000) andChenhall and Morriss (1986). Following Bouwens and Abernethy (2000), the wording of theitems were changed slightly to ensure that the instrument was applicable to the context ofthis study. Likert scales of 1 (not at all) to 5 (to a very great extent) were used for this section.

The questionnaire was first pre-tested on seven academics from the local universities.They were either experts in management accounting and financial systems or experts inresearch methodology. Pilot testing is important to ensure validity and reliability ofresearch instruments (Sekaran, 2000). Pilot testing was also conducted with two seniorfinance managers and six managers from the financial institutions. A revised version ofthe questionnaire was prepared accordingly.

3.2 Administration of questionnaireThe questionnaire was mailed to the chief financial officer (or the most senior position inthe Finance Department) of each financial institution. They were chosen because theywere the ones responsible for management accounting in the organizations. Accordingto Rodeghier (1996), in using the survey research, contacts are very important and thereshould be at least three contacts with the sample, each slightly different in tone andcontent, to ensure a high return. Thus, one week after the survey packets were sent,phone calls were made to ensure that the organizations had received the packets. Fiveweeks after the first mailing, another set of questionnaires was sent to non-respondents.Follow-ups were made again through email and telephone calls after the second mailing.

3.3 Profiles of respondents and financial institutionsAs shown in Table II, the largest category of respondents was head of finance/generalmanager finance/vice president finance (35.6 per cent), followed by finance manager

MAS inMalaysia

161

(24.4 per cent), senior manager finance/assistant vice president finance (17.8 per cent),CFO/Director of Finance (15.6 per cent), and others (6.7 per cent). A total of25 (55.6 per cent) respondents have been holding their current position between one andthree years, 14 (31.1 per cent) between three and ten years, and 4 (8.9 per cent) for morethan ten years.

Table III summarizes the profile of the organizations involved in the survey. About27 (60 per cent) organizations offer only conventional financial services, while18 (40 per cent) offer only Islamic financial services. The majority of the organizations(conventional 85.1 per cent and Islamic 55.7 per cent) had more than 100 employees. Thisindicates that the majority of the organizations involved in this survey may beconsidered large in size. In terms of total annual revenue, 70.3 per cent of theconventional FIs and 44.5 per cent of the IFIs had a total annual revenue of more thanRM100 million. In terms of total assets, 51.8 per cent of the conventional FIs and61.2 per cent of the IFIs had more than RM1 billion worth which further suggest thatmost of the firms surveyed were large in size. The majority of the conventional FIs(71.1 per cent) had been in operation for more than five years. However, most of the IFIs(66.7 per cent) had been in operation for less than five years. It has been only in the lastfive years that the growth of IFIs has contributed to the strengthening of Malaysia as anInternational Islamic Financial Center (MIFC). Most of the IFIs (88.9 per cent) werelocally owned while only 51.9 per cent of the conventional FIs were locally owned.

3.4 Post-survey semi-structured interviewsSemi-structured interviews were conducted to gain in-depth understanding of the issuessurveyed. The respondents who were involved in the questionnaire survey provided thebasis for the sample selection for the interviews. Eight interviews were conducted withrespondents with similar backgrounds: they were in senior position and experiencedenough to represent their organization as almost all of them were in the top managementteam, with an average age of 44 years, and had on average served the company for11 years and had on average held their current position for four years. All the eightinterviewees were from IFIs (Table IV).

Conventional(n 27)

Islamic(n 18)

Total(n 45)

Background variable Categories Freq. % Freq. % Freq. %

Job designation CFO/director of finance 4 14.8 3 16.7 7 15.6Head of finance/GM finance/vicepresident finance

10 37 6 33.3 16 35.6

Senior manager finance/assistant VP finance

3 11.1 5 27.8 8 17.8

Finance manager 7 25.9 4 22.2 11 24.4Others 3 11.1 0 0 3 6.7

Length of time holdingcurrent position

Between 1 and 3 years 13 48.1 12 66.7 25 55.6Between 3 and 10 years 10 37.0 4 22.2 14 31.1Between 10 and 20 years 1 3.7 1 5.6 2 4.4More than 20 years 2 7.4 0 0 2 4.4No information provided 1 3.7 1 1 2 4.4

Table II.Profile of respondents

JIABR2,2

162

4. Results and discussionThis study has investigated whether there is any difference in the MAS of conventionaland IFIs. Since IFIs have to meet both business and religious objectives, they areexpected to have a broader scope, more timely, highly integrated and highly aggregatedMAS information than conventional FIs. Table V presents the descriptive statistics foreach MAS item for IFIs and conventional FIs. As can be seen, the mean scores of eachitem for IFIs are higher than those for conventional FIs.

The hypothesis was then tested by comparing the mean scores for use of MAS byIFIs and conventional financial institutions using an independent-samples t-test.Table VI presents the results of the t-test. The data in Table VI indicate that the meanscores for scope, timeliness, integration and aggregation for IFIs were higher than themean scores for conventional financial institutions.

The observed significance level for all the MAS dimensions is evidently lower thanthe 0.05 confidence level, thus supporting the hypothesis that there is a significantdifference between the use of MAS between IFIs and conventional financialinstitutions. The results suggest that in order to meet religious as well as business

Conventional(n 27)

Islamic(n 18)

Total(n 45)

Background variable Category Freq. % Freq. % Freq. %

Number of employees Less than 100 3 11.1 8 44.4 11 24.4100-499 13 48.1 5 27.8 18 40.0500-999 8 29.6 1 5.6 9 20.01,000-1,499 2 7.4 1 5.6 3 6.71,500-1,999 0 0 1 5.6 1 2.2Above 2,000 0 0 2 11.1 2 4.4No information 1 3.7 0 0 1 2.2

Annual revenue Less than RM100 million 5 18.5 6 33.3 11 24.4RM100 million to RM499 million 11 40.7 3 16.7 14 31.1RM500 million to RM999 million 5 18.5 4 22.2 9 20.0More than RM1 billion 3 11.1 1 5.6 4 8.8No information 3 11.1 4 22.2 7 15.6

Annual total assets Less than RM500 million 3 11.1 3 16.7 6 13.3RM500 million to RM999 million 6 22.2 1 5.6 7 15.6RM1billion to RM4.99 billion 11 40.7 5 27.8 16 35.6RM5 billion to RM9.99 billion 1 3.7 3 16.7 4 8.9More than RM10 billion 2 7.4 3 16.7 5 11.1No information 4 14.8 3 16.7 7 15.6

Firms age Less than 5 years 1 3.7 12 66.7 13 28.95-10 years 4 14.8 2 11.1 6 13.311-20 years 1 3.7 2 11.1 3 6.721-30 years 6 22.2 1 5.6 7 15.631-40 years 5 18.5 0 0 5 11.141-50 years 3 11.1 0 0 3 6.7More than 50 years 7 25.9 1 5.6 8 17.8

Ownership structure Local 14 51.9 16 88.9 30 66.7Foreign 12 44.4 2 11.1 14 31.1Joint venture 1 3.7 0 0 1 2.2

Table III.Profile of sample firms

MAS inMalaysia

163

objectives, IFIs use MAS information that is broader in scope, more timely, moreintegrated and more aggregated than conventional financial institutions. The resultscan be summarized as follows (Table VII).

Interviews were conducted with eight interviewees from IFIs to further examine thepossible reasons for IFIs to use more sophisticated MAS than their conventional

Interviewee Position

Length of service inthe company

(years)

Length of time incurrent position

(years) Gender Age

1 Head of finance 23 10 Male 472 Senior manager finance 17 4 Male 533 Head of finance 2 2 Male 374 Senior manager finance 14 2 Male 385 Assistant general manager

finance17 2 Male 39

6 Manager financea 12 4 Male 387 Senior vice president/

company secretary financeand administration

3 3 Male 50

8 Chief financial controller 2 2 Male 46

Note: aRepresenting the head of finance

Table IV.Background of theinterviewees

IFIs Conventional FIsMean SD Mean SD

ScopeInformation relates to future events 3.89 1.183 2.85 1.099Quantification of the likelihood of future events 3.94 1.110 2.52 0.893Non-economic information 3.89 0.832 2.59 1.047Broad factors external to organization 3.94 0.802 2.93 1.107Non-financial relates to productivity 3.67 0.767 2.63 0.967Non-financial relates to market information 3.89 0.832 3.19 0.962TimelinessImmediately upon request 3.89 0.900 3.52 0.935Given automatically 3.89 0.758 3.26 0.944Provided frequently 4.28 0.575 4.04 0.808Reported without delay 4.00 0.907 3.44 0.751IntegrationPrecise targets activities of all departments 3.89 0.758 3.26 0.859Impact on different departments decision 3.72 0.895 3.11 0.892Cost and price information of the departments 3.67 0.840 3.11 0.934Impact of your decision and influence of others 3.78 0.647 2.93 0.917AggregationDifferent sections or functional areas 3.83 0.924 3.44 0.801Effect of events on particular time periods 4.11 0.758 3.74 0.764Influence of events on different functions 3.61 0.916 3.00 0.832Effect of different departments activities 3.83 0.985 3.56 0.801Input into decision models 3.61 0.850 2.74 0.903What-if analysis 3.67 0.840 2.85 0.864

Table V.Descriptive statisticsof MAS items

JIABR2,2

164

counterparts. Four interviews were conducted with Islamic banks, one interview with abank that offers Islamic financial services only and three with Islamic insurance companies.

Most of the interviewees stated that there was not much difference in the overallfinancial accounting systems for recording and reporting purposes between IFIs andconventional FIs, as both are subject to the Malaysian Accounting Standards Board(MASB) and International Accounting Standards (IAS). However, since IFIs andconventional business transactions are based on totally different concepts they have todo a great deal of customization to the support or the application systems (i.e. thesystem used to process the transaction inputs into outputs). In expressing his views,the Head of Finance for a local Islamic bank said:

We ride on the parents accounting system. They create a separate GL book [. . .]. so funds aremanaged separately. But the terms are all based on the conventional system and we have tomake some adjustments [. . .]. We try to modify the system to suit the Islamic products,but there will still be some problems because it was not designed for Islamic products. Islamicand conventional system is totally different. Recording and reporting is not an issue [. . .] themajor issue is actually the support system.

Similarly, the Senior Finance Manager of another Islamic bank said:

The present conventional accounting system is sufficient. However, adjustments have to bemade for Islamic products. A simple example is the fixed rate for BBA house. The currentconventional application system does not recognize selling price and purchase price. Whenthe application system does not recognize both prices, the same will occur in the GL systembecause of the interface between GL and application systems [. . .]. So at the end we have to dofurther enhancement to both systems.

MAS dimensions Services n Mean t-value Sig. (two-tailed)

Scope Conventional 27 2.7840 24.518 0.000Islamic 18 3.8704

Timeliness Conventional 27 3.5648 22.346 0.023Islamic 18 4.0139

Integration Conventional 27 3.1019 23.00 0.004Islamic 18 3.7639

Aggregation Conventional 27 3.2222 22.800 0.008Islamic 18 3.7778

Table VI.Results of t-teston use of MAS

Hypotheses Results

H1. There is a significant difference in the use of broad scope MAS between IFIs andconventional financial institutions

Supported

H2. There is a significant difference in the use of timely MAS between IFIs andconventional financial institutions

Supported

H3. There is a significant difference in the use of integrated MAS between IFIs andconventional financial institutions

Supported

H4. There is a significant difference in the use of aggregated MAS between IFIs andconventional financial institutions

SupportedTable VII.

MAS inMalaysia

165

The interviews above reveal that although there is little difference in terms of overallfinancial accounting system, additional fields or features of the systems are required tocope with the various Islamic products that require different contracts and differentrelationships. Thus, to address the issues of Shariah, IFIs require more informationthan conventional FIs.

4.1 ScopeThe empirical evidence from this study suggests that in order to be Shariah compliant,IFIs use a broader scope of MAS information than conventional FIs. In a relatedinterview, the Senior Finance Manager for an Islamic bank reflected on the need fornon-financial information in decision making:

Last time, when we were windows [1], the environment was different; we were just a sidebusiness. Now we are an entity by itself. We have to work on the bottom-line but at the sametime we have to ensure that all the Shariah compliance issues are addressed.

Besides looking at business operations, other aspects of the organization also have tobe Shariah compliant. For instance, the Senior Vice President Finance andAdministration of an Islamic Insurance Company said:

We have four Shariah committee members from outside and we have a Shariah compliancedepartment. They liaise with the Shariah committee. We need their approvals from theintroduction of the products to the delivery of the products and other things related toShariah have to be endorsed by the Shariah committee [. . .]. Our Shariah compliancedepartment looks at Shariah compliance for the company as a whole. Not just on theproducts, but also looks at the ethics of the staff.

The findings from the survey (Table VI) and the interviews are consistent with Islam et al.(2000) who find that managers of Islamic banks need a relatively broader scope ofinformation about their business operations and the prospects of their clients. IFIs requiremore non-financial information especially those related to the issue of Shariah compliance.As managers of customer funds, IFIs have to make sure that the funds are managed inaccordance with the principles of Shariah. Hence, more non-financial information relatedto Shariah compliance is required by them. For example, IFIs have to make sure thatrevenues come from activities permitted by Shariah. Cleansing activities will be carriedout if there is any doubt as to the source of the income. To do this, IFIs have to check thesources of the income. For instance, the Head of Finance for an Islamic bank stated:

We closely monitor our source of income. Normally we will quantify the non-halal income andwe will not record it as income in our income statement. It will be recorded in one account tobecome a special fund to be distributed to the public under maslahah ummah [. . .]. Examplewould be the interest received that was not contracted before, and this normally happenswhen we deal with non-muslim or conventional banks.

In addition, in conventional commercial banking systems, there is a lender and borrowerrelationship where each transaction is subjected to interest payments. However, in theIslamic banking system, a different relationship exists depending on the natureof the product. For example, murabahah financing is a trading contract, while mudarabahand musharakah involve participatory contracts that are founded on equity-basedfinancing contracts. Thus, to ensure that the contracts associated with the transactionsare not against Shariah, the process of product innovation in IFIs is more rigorous.

JIABR2,2

166

Various underlying Shariah principles are used. This again requires a huge amount ofnon-financial information related to Shariah issues. IFIs have to go through moreprocesses than conventional in order to get approval for product introduction. In expressinghis view related to product innovation, a senior finance manager for an Islamic bank said:

Whenever we want to introduce a new product we cannot just show one piece of paper to theShariah committee saying this and that with modus operandi that is very skeleton [. . .].Now it is going to be a thick document, to the extent that the operation manual also has to bevetted through by the Shariah committee.

In equity-based financing, Islamic banks need to be selective in choosing their clientsas the returns are not guaranteed. In dealing with mudarabah financing, the Head ofFinance for an Islamic bank stated:

We analyze documents closely at the application stage [. . .]. Once financing is approved, wereview their business performance yearly [. . .]. It is purely business and indirectly onShariah [. . .]. When non-compliance issue arise, then we will report.

Furthermore, in musharakah financing, once a partnership has been established withthe client, Islamic banks have to participate directly in the business. Aside from theconstant monitoring conducted to ensure that business activities are in accordancewith Shariah, IFIs must ensure that the business activities provide the expected returnto both parties. In making business decisions both parties have to consider market,economic and technological factors, which are all external information. Businessdecisions are also made based on the forecasting of information.

As for the Islamic insurance business, management has to monitor funds collectedfrom customers and certify that they are invested in Shariah compliant businesses.Thus, more external and future information is required to ensure that operation andday-to-day activities of the IFIs are in accordance with Shariah. When talking aboutinvesting their funds, the Senior Vice President for Finance and Administration foran Islamic Insurance company stated:

If we want to invest in the stock market, we only invest in the Shariah approved counters.Like in the money market, if we want to invest in banks, then we have to go to Islamic banks.We cannot invest in the conventional banks. And for bonds, we have to buy sukuk.Investments must be Shariah certified.

4.2 TimelinessThe empirical findings from the survey reveal that IFIs use more timely informationthan their conventional counterparts. A possible explanation for this is quite possiblythat IFIs take a partnership position (Greuning and Iqbal, 2007). Furthermore, inIslamic banks, deposits are not based on guaranteed return but based on profit sharing,with a fixed amount on the asset side and a varied amount on the liability side.If profits are overly distributed, then banks may have insufficient funds to meet theirobligations. Thus, calculation on profit distribution has to be prepared and submittedmonthly to the Central Bank. According to the Head of Finance for an Islamic bank:

We have to submit our profit distribution report to Bank Negara every month. This is thebiggest and the most comprehensive information that we have to gather but conventionalbanks are not required to do this.

MAS inMalaysia

167

The same view was echoed by the Assistant General Manager Finance of a bankoffering Islamic financial products only:

Deposits are taken under murabahah and the rates are not fixed unlike the loan. So theincome side is fixed. What happens if next year there is an economic crisis? The rate of returnon deposits increases, but income is fixed. Then margin will be reduced. Thus, we must havesophisticated information to simulate all these scenarios.

With timely information, decisions on profit distribution can be made effectively and thepossible mismatch of assets and liabilities can be monitored closely. Another possiblereason for this is the size of the IFIs themselves. The IFIs in this study are mostly smallerthan conventional FIs and in smaller organizations, bureaucracy can be expected to belower. With advances in information technology, information can be stored andretrieved quite efficiently.

4.3 IntegrationConsistent with Islam et al. (2000), the findings of this study suggest that IFIs use moreintegrated information than conventional IFIs. IFIs use information about the activitiesof the various departments within the firm alongside information on the impact ofdecisions on them (Chang et al., 2003; Bouwens and Abernethy, 2000; Chia, 1995). Theissue of Shariah compliance in product innovation gives a possible explanation forthese findings. Product innovation requires the integrated effort of various departments;including the SSB, product development, legal, marketing and finance. IFIs have tomake sure that the contracts associated with the new products conform to Shariah.

The need for more integrated MAS in IFIs is increased because all transactions aremonitored by SSB to ensure Shariah compliance (Islam et al., 2000). In fact, with Shariahaudit coming into practice, highly integrated MAS will be required so that compliancethroughout the value chain can be easily tracked. When describing their informationsystem, the Senior Vice President of a new Islamic insurance company remarked:

Ours is a full package system starting from the point of sale. We have the package which I thinkother insurance companies do not have [. . .]. The advantage of our system is that when theykey-in at the front line, it will be updated automatically in the General Ledger system.

4.4 AggregationThe findings of this study also suggest that IFIs use more aggregated information thanconventional FIs. The aggregation of information by product is required by IFIs incalculating their capital charge for risk management. Under the capital adequacy ratio(CAR) requirements, IFIs have to identify the Shariah concept of each product becausethe weight ratio for each product varies according to whether the products havecollateral or not. In explaining this new development, the Senior Finance Manager foran Islamic bank stated:

Our system must now have new features regarding our products. Previously we disregardedthe Shariah concept. We did not put any indication as whether it is BBA, murabahah, etc.[. . .]. Now, if you have a housing loan under BBA and musharakah, you cannot join themtogether because they are based on different concept.

For Islamic insurance operators, aggregated information is very important inevaluating potential investment and also in monitoring the performance of the

JIABR2,2

168

companies where the funds are invested. On this issue, the Chief Financial Controllerfor a foreign Islamic Insurance company noted:

When we invest, we have a system in place to monitor the performance of the investment.If we go to the equity market, we have to make sure that we can manage them [. . .]. Now it isvery difficult to follow each company individually. So we make use of those indices availablesuch as the Dow Jones [. . .]. We also rely on the Securities Commissions lists of Shariahapproved counters.

The empirical findings from the survey was supported in the interviews, which revealedthat in order to be Shariah compliant, IFIs rely on a broader scope of information inaddition to the traditional financial and quantitative nature of accounting information.The empirical findings from both the survey and the interviews also reveal that IFIs usemore integrated and aggregated information than conventional FIs. In addition, IFIs areexpected to be more transparent in reporting and consequently require more integratedand aggregated information that covers a wider scope of information.

Realising that riding on the parents company conventional system may not besufficient for Islamic banks, one Islamic subsidiary converted their accounting systeminto a new system called iMAL. According to the senior finance manager of thiscompany, iMAL will be more suitable for Shariah compliance objective and he claimedthat the company will be the first to use this system in Malaysia. Some of the bigIslamic banks in other countries like the Kuwait Finance House have also started usingthe system. In explaining about this solution, he said:

The conventional system is not suitable for Islamic banks because many calculations such asprofit are different. The terms used are also different. Conventional FIs use the word loanand interest, but Islamic banks call it financing and profit. The implementations arealso different.

In implementing this project, the bank gets advice from a group of experts. Accordingto the senior executive who handles the project:

There are two main characteristics of iMAL. First, it involves a real time posting, so when theusers key in the transactions they can see the result straight away [. . .]. The Islamic productsare already in the chart of accounts and the chart of accounts has been categorized into forexample murabahah, wakalah,, etc. It is suitable for Islamic banking system since theShariah concept is already in the chart of accounts.

The iMAL can be integrated into the customer information system and informationabout the customers can be extracted easily. In fact, the iMAL system can be linked tomany other application systems to extract the information required for decisionmaking. He stressed that:

The integration will be more universal and comprehensive, where you can use the system forbudgeting, for employees attendance, for stock taking of stationery, time taken to serve acustomer, etc.

Besides having real-time posting, where information can be provided in a timelymanner, the second characteristic highlighted by the senior executive is the capabilityof the system to navigate into detailed information. In explaining this, he stated:

The uniqueness of the system is that you can drill down. Lets say at 11.30 am you havedeposits amounting to RM1 million, and in the next 10 minutes the amount increases

MAS inMalaysia

169

to RM2 million. Then the headquarters will know from which branch or customer theincrement originated. Posting and results are real time.

Owing to the high linkages and the real-time processing, aggregated or summarizedinformation by products, by branch or by time period can be obtained easily and in atimely manner. Related to this, he added:

If the Central Bank wants a report, we just select a date, at a finger tip we have all theinformation required.

Thus, this iMAL system is an example of a system that is able to capture a broader scopeof information. At the same time, it is built on Shariah rules and regulations. It can beintegrated or easily linked to other application systems, thus banks can easily obtain theinformation required to support their operations. The integrated and real-time postingenables summarized or aggregated information to be retrieved in a timely manner.Hence, iMAL fits the criteria of a sophisticated MAS. Besides complying with theShariah and other regulatory requirements, the system can bring a competitiveadvantage to the IFIs. The availability and use of sophisticated information allowsmanagers of the IFIs to make more effective decisions, which in turn improvesorganizational performance.

The above findings are to be expected, as MAS is part of a wider MIS (Upchurch,2002; Bouwens and Abernethy, 2000). MAS can also be viewed more broadly (Mia, 2000;Hussain, 2000) and there is not much difference between the information providedby a specific MAS and that provided by other MISs. With the advancement in IT,many organizations are adopting strategic enterprise management systems in whichmanagement information across all functions and disciplines is integrated into acommon database (Brignall and Ballantine, 2004). Hence, MAS has become part of theenterprise management system. Thus, as found in this study, MAS may not be the onlymajor factor that contributes to the difference between the MAS of IFIs and those ofconventional financial institutions. The difference might be due to the difference in theoverall MIS of the organization. The MIS for IFIs might be broader in scope and moreintegrated to cover Shariah compliance issues (Islam et al., 2000).

5. ConclusionThe aim of this study has been to determine whether there is any difference betweenthe MAS of conventional and IFIs. A survey on financial institutions in Malaysia wasconducted and semi-structured interviews were carried out to gain further insights intothe survey findings. The study shows that IFIs use MAS information that is broader inscope, more timely, more integrated and more aggregated than conventional financialinstitutions. In order to meet both religious and business objectives, IFIs requiresophisticated MAS information, which is available through the use of strategicmanagement accounting (SMA) tools and techniques such as the BSC and ABC. Theuse of these techniques brings a competitive advantage to IFIs, as SMA placescustomer needs at its top of priority. The study has illustrated that IFIs normallydevelop and adopt an integrated accounting and overall enterprise system. With thiscomprehensive enterprise system, the management accounting function is integratedwith other functions in the organization.

This study is subjected to the usual limitations associated with questionnaire-basedsurvey research. It is important to interpret the results in the light of the studys limitations.

JIABR2,2

170

This study covers only financial institutions in Malaysia, thus the findings cannot begeneralized to other enterprises or to other countries. As for the respondents, this studyinvolved top management as the sole respondents and representatives of their respectiveorganizations. Nonetheless, the information sought is not beyond their knowledge as topmanagement are normally well-versed in the diverse aspects of the organization. Futureresearch can consider collecting data from individuals at various levels of the organization.

This study has provided an avenue for further investigation on issues of MAS forIFIs. A future focus might be on how MAS helps in strategic and operational decisionmaking by considering the need for Shariah compliance. Researchers might also focuson the role of MAS in promoting transparency and accountability in IFIs. A case studyapproach would be able to provide a deeper and richer understanding of this issue.In addition, future studies might examine the significance of supporting activities(departments) in the delivery of Islamic financial products. It is also worth includingfor further study the need to explore value chain components in IFIs, and how theyhelp contribute to the value of the products they offer.

Note

1. Conventional bank that offers Islamic financial services under the interest-free banking system.

References

AAOIFI (2001), Accounting, Auditing and Governance Standards for Islamic FinancialInstitutions, Accounting and Auditing Organisation for Islamic Financial Institutions,Bahrain.

Abdel Karem, R.A. (1990), Standard setting for the financial reporting of religious businessorganizations: the case of Islamic banks, Journal of Accounting & Business Research,Vol. 20 No. 10, pp. 299-305.

Abdul Rahim, A.R. (2003), Contemporary accounting regulatory issues on investments in Islamicbonds, International Journal of Islamic Financial Services, Vol. 4 No. 4, available at:www.iiibf.org/journal.htm (accessed 20 May 2008).

Abdul Rahim, A.R. (2006), Accounting, Auditing and Governance for Islamic Financial Services,paper presented at the Seminar on Islamic Banking and Capital Markets, Products &Instruments, Kuala Lumpur, May.

Agbejule, A. (2005), The relationship between management accounting systems and perceivedenvironmental uncertainty on managerial performance: a research note, Accounting &Business Research, Vol. 35 No. 4, pp. 295-305.

Alam, M.N. (2000), Islamic banking in Bangladesh: a case study of IBBL, International Journalof Islamic Financial Services, Vol. 1 No. 4, available at: www.iiibf.org/journal.htm (accessed15 March 2008).

Atkinson, A.A., Banker, R.D., Kaplan, R.S. and Young, S.M. (2001), Management Accounting,3rd ed., Prentice-Hall, Upper Saddle River, NJ.

Bouwens, J. and Abernethy, M.A. (2000), The consequences of customization on managementaccounting system design, Accounting, Organizations and Society, Vol. 25 No. 3,pp. 221-41.

Brignall, S. and Ballantine, J. (2004), Strategic enterprise management systems: new directionsfor research, Management Accounting Research, Vol. 15, pp. 225-40.

MAS inMalaysia

171

Chang, R.D., Chang, Y.W. and Paper, D. (2003), The effect of task uncertainty, decentralizationand AIS characteristics on the performance of AIS: an empirical case in Taiwan,Information & Management, Vol. 40, pp. 691-703.

Chenhall, R.H. (2003), Management control systems design within its organizational context:findings from contingency-based research and directions for the future, Accounting,Organizations and Society, Vol. 28, pp. 127-68.

Chenhall, R.H. and Morris, D. (1986), The impact of structure, environment, and interdependenceon the perceived usefulness of management accounting systems, The Accounting Review,Vol. 61 No. 1, pp. 16-35.

Chia, Y.M. (1995), Decentralization, management accounting system (MAS) informationcharacteristics and their interaction effects on managerial performance: a Singaporestudy, Journal of Business Finance & Accounting, Vol. 22 No. 6, pp. 811-30.

Choe, J. (1998), The effects of user participation on the design of accounting informationsystems, Information & Management, Vol. 34 No. 3, pp. 185-98.

Choe, J. (2004), Impact of management accounting information and AMT on organizationalperformance, Journal of Information Technology, Vol. 19, pp. 203-14.

Chong, V.K. and Chong, K.M. (1997), Strategic choices, environmental uncertainty and SBUperformance: a note on the intervening role of management accounting systems,Accounting & Business Research, Vol. 22 No. 4, pp. 268-76.

Cole, L.P. (1988), Management Accounting in Banks, Bank Administration Institute, RollingMeadows, IL.

Dar, H.A. and Presley, J.R. (2000), Lack of profit loss sharing in Islamic banking: managementand control imbalances, Journal of Islamic Financial Services, Vol. 2 No. 2, available at:www.iiibf.org/journal.htm (accessed 10 April 2008).

Errico, L. and Farahbaksh, M. (1998), Islamic banking: issues in prudential regulations andsupervision, working paper of the International Monetary Fund, Washington, DC.

Gordon, L.A. and Miller, D. (1976), A contingency framework for the design of accountinginformation systems, Accounting, Organizations and Society, Vol. 1 No. 1, pp. 59-69.

Gordon, L.A. and Narayanan, V.K. (1984), Management accounting systems, perceivedenvironmental uncertainty and organization structure: an empirical investigation,Accounting, Organizations and Society, Vol. 9 No. 1, pp. 33-47.

Govindarajan, V. (1984), Appropriateness of accounting data in performance evaluation:an empirical examination of environment uncertainty as an intervening variable,Accounting, Organisation and Society, Vol. 9 No. 2, pp. 125-36.

Greuning, H.V. and Iqbal, Z. (2007), Banking and the risk environment, in Archer, S. andAbde Karim, R.A. (Eds), Islamic Finance: The Regulatory Challenge, Wiley, Singapore,pp. 11-39.

Gul, F.A. and Chia, Y.M. (1994), The effects of management accounting systems, perceivedenvironmental uncertainty and decentralization on managerial performance: a test ofthree-way interaction, Accounting, Organizations and Society, Vol. 19 Nos 4/5, pp. 413-26.

Haron, S. and Shanmugam, B. (2001), Islamic Banking System: Concepts and Applications,Pelanduk Publications, Kelana Jaya.

Hassan, M.K. and Ahmed, M. (2002), Islamic banking versus conventional banking:a questionnaire survey of their apparent similarities and differences, paper presentedat The First International Conference on Islamic Banking, Finance and Insurance:Reshaping Global Financial Architecture through the Islamic System, January, Labuan,Sabah, available at: www.iiibf.org/journal.html (accessed 15 June 2008).

JIABR2,2

172

Hussain, M.M. (2000), Management Accounting Systems in Services: Empirical Evidence withNon-Financial Performance Measurement in Finnish, Swedish and Japanese Banks andother Financial Institutions, Universitas Wasaensis, Vaasa.

IFAC (1998), International management accounting practice statement (IMAP # 1): managementaccounting concepts, Financial and Management Accounting Committee, March, pp. 84-100.

Iqbal, Z. and Mirakhor, A. (2007), Theory and practice, An Introduction to Islamic Finance,Wiley, Singapore.

Islam, J., Taylor, D.W. and Islam, A. (2000), The information adequacy of managementaccounting systems amongst Islamic and non-Islamic banks in Bangladesh, Accounting,Commerce and Finance: The Islamic Perspective, Vol. 4 No. 1, pp. 1-29.

Ittner, C.D., Larcker, D.F. and Randall, T. (2003), Performance implications of strategicperformance measurement in financial services firms, Accounting, Organizations andSociety, Vol. 28, pp. 715-41.

Kafafian, R.E. (2001), Keys to community bank success: utilizing management information to makeinformed decision, The Journal of Bank Cost & Management Accounting, No. 1, pp. 3-4.

Lal, M. and Hassel, L. (1998), The joint impact of environmental uncertainty and tolerance ofambiguity on top managers perceptions of the usefulness of non-conventional managementaccounting information, Scandinavian Journal of Management, Vol. 14 No. 3, pp. 259-71.

McDonald, R.B. (2004), True activity-based management for banks, Journal of PerformanceManagement, Vol. 17 No. 3, pp. 41-52.

Mannan, M.A. and Fazlul Hoque, A.K.M. (2006), Functions of an Islamic bank, in Pramanik,A.H. (Ed.), Islamic Banking: How Far Have We Gone, International Islamic UniversityMalaysia, kula lumpur, pp. 121-6.

Max, M. (2004), ABC trends in the banking sector: a practitioners perspective, Journal ofPerformance Management, Vol. 17 No. 3, pp. 23-40.

Mia, L. (2000), Just-in-time manufacturing, management accounting systems and profitability,Accounting & Business Research, Vol. 30 No. 2, pp. 137-51.

Mia, L. and Chenhall, R. (1994), The usefulness of MAS functional differentiation andmanagement effectiveness, Accounting, Organizations and Society, Vol. 19 No. 1, pp. 1-13.

Mia, L. and Patiar, A. (2001), The use of management accounting systems in hotels: anexploratory study, International Journal of Hospitality Management, Vol. 20, pp. 111-28.

Moores, K. and Yuen, S. (2001), Management accounting systems and organizational configuration:a life-cycle perspective, Accounting, Organizations and Society, Vol. 26, pp. 351-89.

Noraini, M.A. (2005), Enhancing transparency and risk reporting in Islamic banks,unpublished doctoral thesis, University of Surrey, Surrey.

Ostinelli, C. and Toscano, G. (1994), Putting quality to work in banking through managementaccounting systems: three Italian banks alternative approaches, paper presented at the17th Annual Congress of European Accounting Association, Venice, April.

Otley, D.T. (2001), Extending the boundaries of management accounting research: developingsystems for performance management, British Accounting Review, Vol. 33, pp. 243-61.

Razali, N. (1999), Islamic Law on Commercial Transactions, CT Publications, Corona, NY.

Rezaee, Z. (2005), The relevance of managerial accounting concepts in banking industry,Journal of Performance Management, Vol. 18 No. 2, pp. 3-16.

Robinson, S. and Chappelear, B. (2002), Decision support by design: managing the informationin your legacy systems, The Journal of Bank Cost & Management Accounting, Vol. 15No. 1, pp. 17-26.

MAS inMalaysia

173

Rodeghier, M. (1996), Survey with Confidence: A Practical Guide to Survey Research Using SPSS,SPSS, Chicago, IL.

Saiful Azhar, Rosly (2005), Critical Issues on Islamic Banking and Financial Markets, DinamasPublishing, Kuala Lumpur.

Sarker, M.A.A. (1999), Islamic banking in Bangladesh: performance, problems and prospects,Journal of Islamic Financial Services, Vol. 1 No. 3, available at: www.iiibf.org/journal.htm(accessed 15 March 2008).

Sekaran, U. (2000), Research Methods for Business: A Skill Building Approach, 3rd ed., Wiley,New York, NY.

Siti Zaleha, A.R. and Abdul Rahim, A.R. (2009), Management accounting and risk managementpractices in financial institutions, Jurnal Teknologi, Vol. 51(E), December, pp. 89-110.

Talib, A.A. (2000), Islamic banking financing instruments and the concept of substance overform: the case of Bai Bithaman Ajil, Journal of Accounting, Commerce & Finance:The Islamic Perspective, Vol. 4 Nos 1/2, pp. 48-59.

Taylor, J.M. (2003), Islamic banking the feasibility of establishing an Islamic bank in theUnited States, American Business Law Journal, Vol. 40 No. 2, pp. 385-416.

Tillema, S. (2005), Towards an integrated contingency framework for MAS sophistication: casestudies on the scope of accounting instruments in Dutch power and gas companies,Management Accounting Research, Vol. 16, pp. 101-29.

Upchurch, A. (2002), Cost Accounting Principles and Practice, Prentice-Hall, Upper Saddle River, NJ.

JIABR2,2

174

Appendix

Please indicate the extent of use of the following information provided by your managementaccounting systems (MAS) for decision making, planning and control by circling the appropriatenumber.

MAS INFORMATION CHARACTERISTICS(The information system should include: files, reports, documents, minutes, accounts, and notes,

available for decision making and provided within the organization)

SCOPE(a) Information which relates to possible future events (e.g possible

changes in government regulations).1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

(b) Quantification of the likelihood of future events occurring (e.g.,probability estimates).

(c) Non-economic information, such as customer preferences,employee attitudes, labor relations, attitudes of government andconsumer bodies, competitive threats, etc.

(d) Information on broad factors external to your organization,such as economic conditions, population growth, technologicaldevelopments, etc.

(e) Non-financial information that relates to the productivityinformation such as hours of computer breakdowns, employeeabsenteeism, customer services, etc.

(f) Non-financial information that relates to market informationsuch as market size, growth share, etc.

TIMELINESS(a) Information that is provided immediately upon request.

(b) Information that is given automatically upon its receipt intoinformation systems or as soon as processing is completed.

(c) Reports that are provided frequently on a systematic, regularbasis such as daily reports, weekly reports, etc.

(d) Relevant information that is reported without delay afteroccurrence of certain event.

Not atAll

To a verygreat extent

Not atAll

To a verygreat extent

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

INTEGRATION(a) Information on precise targets for the activities of all

departments within your organization.(b) Information that relates to the impact of different departments

decisions on performance of overall organization.(c) Cost and price information of the departments in your

organization.(d) Information on the impact of your decisions throughout your

organization, and the influence of other departments decisionson your area of responsibility.

Not atAll

To a verygreat extent

MAS inMalaysia

175

Corresponding authorSiti Zaleha Abdul Rasid can be contacted at: szaleha@ic.utm.my

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

Not atAll

To a verygreat extent

AGGREGATION(a) Information provided on the different sections or functional areas

in your organization, such as marketing and production, or sales,cost, or profit centers.

(b) Information on the effect of events on particular time periods (e.g.monthly/ quarterly/annual summaries, trends, comparisons, etc.).

(c) Information which has been processed to show the influence ofevents on different functions, such as marketing or servicesassociated with particular activities or tasks.

(d) Information on the effect of different departments activities onsummary reports such as profit, cost, revenue reports for theoverall organization.

(e) Information in formats suitable for input into decision models(such as discounted cash flow analysis, incremental or marginalanalysis and credit policy analysis)

(f) Information in forms which enable you to conduct what-ifanalysis.

JIABR2,2

176

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.