An alternative model in financial reporting to reduce flaws and injustice with stakeholders

Abstract EN

Seemingly, a formidable ethical challenge to financial reporting is the phenomenon of fallacious and discretional financial reporting as currently in practice.

Such untruthful reporting intensified during the first decade of the 21st century when many of the personnel got involved to increase their personal benefits and the result was a wide-spread financial fiasco in the form of MCI WorldCom, Enron, Well Fargo, and Tesco accounting scandal, to mention a few.

Most of the scandals were cause by false reporting, withholding information about financial troubles, revenue and earnings inflation, discretional revenue and expense recognition, use of off-balance-sheet items, artificial increase of cash flow and profits, backdating of sales contracts and accounting for vendors allowances and financing.

The research in hand is an attempt to discuss such issues in the light of ethical and moral values that are not only recommended teachings of Islam, but also accepted business ethics in the civilized world.

Islamic ethical guidelines for business encompass discipline and rules as enjoined in the divine sources of Shar¯ı‘ah - Qur’¯an and Sunnah (sayings of or the approved actions by the holy Prophet Muhammad PBUH).

Implementation of these guidelines to make financial reporting ethical should be acceptable to the entire world, at personal, organizational, and society levels for broad based benefits of the mankind.