Islamic Sustainability Accounting

Although the framework for Shari'ah Islamiah is general for all muslims, be that a person or an organization of persons (Gambling and Karim, 1991), the aim of this research is to study the implications of adopting Shari'ah Islamiah in an organization's (more specifically business organization's) accounting and reporting systems.

For that reason, it is necessary to understand the forms of business organizations as understood in the Shari'ah Islamiah sense.

When trying to understand how Shari'ah Islamiah sees business organizations, it is important to put emphasis on the fact that any form of interest (riba) loans is totally rejected (Haniffa and Hudaib, 2011), which precludes business organizations from accessing the capital market in ways other than the stock market, and banks and other financial institutions from the very lucrative, risk free, loan transactions (Baydoun et al., 2018). Furthermore, Shari'ah Islamiah insists on the close personal responsibility of all members of a business organization (Gambling and Karim, 1991), unlike, for example, public corporations which is seen as the highest expression of risk allocation in order to minimize shareholder-management conflict (Palmiter, 2009).

Such implications led Muslim scholars to find new new concepts- for partnerships that would enact the spirit and the teachings of Islam. There are a number of different business organizations, although all are a form of partnership rather than corporate entities (understood in their traditional sense) (Gambling and Karim, 1991).

Sharikas (partnerships) are organizations owned by two or more persons, where one can contribute not just with capital but, like in the case of non-Islamic organizations, assets, skills or labour (Baydoun et al. 2018). The most common forms are:

- Limited liability (sharikah al-inan), where partners agree to a predetermined profit and loss ratio (Baydoun et al. 2018).
- Partnership by guarantee (mufawada bi al-Daman), where partners don't necessarily contribute in equal shares, and profits can be distributed in a ratio that is not based on their contributions. Losses still must be distributed in ratio of the respective contribution of each partner (Gambling and Karim, 1991).
- Partnership based on labour (sharikah bi al-amal), similar to partnerships of individuals. In this type of partnership, two or more persons agree to participate in a business that does not involve joint investment, and profits are distributed by agreement (Gambling and Karim, 1991).
- Companies based upon mudaraba, where there are two kinds of partners: those who provide the capital, and those who provide labour, experience or contacts. Profits are shared in agreed upon terms but, in case of losses, these are borne only by the partners who provided the capital and only limited to the capital that they provided (Gambling and Karim, 1991).

It is important to emphasize the all types of partnerships in Islam involve a form agency which assumes that all partners will participate in management of the enterprise. Gambling and Karim (1991) also note that companies with separate legal entities have not been recognized by Muslim jurists, while Baydoun et al. (2018) states that some institutional organizations (such as mosques, State treasury, etc) were recognized independent accounting entities separate from its constituents, by implication, recognizes limited liability as accepted in Shari'ah Islamiah. Gambling and Karim (1991) underline the lack of consensus on limited liability among Muslim jurists, but they recognize the importance of this concept in encouraging business initiatives and state that, perhams, "the general prohibition on limited liability should be relaxed in order to assist in its formation" (Gambling and Karim, 1991: 37).