Effectiveness of Internal Shariah Audit Function in Malaysian Islamic Financial Institutions
Keywords:Shariah audit, Shariah compliance, Shariah governance, Islamic financial institutions
An effective internal Shariah audit function in Islamic financial institutions (IFIs) is imperative to ensure better management of Shariah non-compliance risks through more robust Shariah audit practices. This study evaluates the extent of internal Shariah audit function effectiveness in Malaysian IFIs. It adopts a quantitative research method using a survey questionnaire. The total population of 47 IFIs during the data collection period (year 2016) was observed as the unit of analysis and targeted sample. Survey questionnaires were distributed to the Heads of Shariah audit who are the key representatives of the internal Shariah audit function in IFIs in Malaysia. The findings indicate that the majority of IFIs have established an effective level of internal Shariah audit function which constitutes a positive development in strengthening Shariah governance in IFIs in Malaysia. The study also contributes to rigorous monitoring and attention by Bank Negara Malaysia as the regulator on the effectiveness of the internal Shariah audit function performed by Takaful operators and Islamic windows in commercial and investment banks. This further emphasizes the crucial need for a holistic Shariah compliance culture in IFIs to enhance the internal Shariah audit function and ultimately ensure the integrity and accountability of IFIs.
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