Page 33 - CMA Journal (Mar-Apr 2025)

Focus Section

2) Shortage of Certified Shariah Auditors: There technology (Reg-tech) integration can improve the
is a lack of certified auditors skilled in both Islamic accuracy of Shariah audits, decrease human error, and
law and financial auditing. Many institutions struggle expedite compliance procedures.
to find professionals with expertise in both areas. The
growing Islamic finance sector has further increased Future Trends
demand, leading to a talent gap. Certification
The key trends expected to shape the future of Shariah
programs and training initiatives are underway to
audit and compliance include technology adoption.
address this issue.
Technology is likely to be critical in improving the
efficiency and effectiveness of Shariah audits. There is an
3) High Compliance Costs: Compliance costs
ongoing exploration of how artificial intelligence, big
represent another major challenge for Islamic
data analytics, and blockchain can be deployed to
financial institutions. Implementing a robust Shariah
enhance compliance monitoring and audit processes. As
governance system requires significant financial and
these technologies enable the detection of
human resources. Institutions must allocate funds for
non-compliant transactions accurately, reduce the
hiring qualified Shariah scholars, conducting regular
likelihood of errors, and improve governance, they will
audits, and maintaining up-to-date monitoring
play an enhancing role in discussing Shariah compliance.
systems. These expenses can be particularly
The global standardization of Shariah governance
burdensome for small and medium-sized Islamic
frameworks is gaining traction as well. The
financial institutions that may lack the resources to
standardization of Shariah compliance standards is also
establish comprehensive compliance programs.
gaining traction, particularly at the global level. This
Additionally, the need for frequent Shariah audits and
could help homogenize audit and compliance processes
reviews increases operating costs, making
across regulatory boundaries by the dual efforts of
compliance a costly endeavor.
organizations such as AAOIFI and IFSB.
4) Risk of Shariah Non-Compliance: Shariah
Transparency and disclosure are predicted to increase
non-compliance poses a serious risk to Islamic
more accountability in Islamic finance. Shariah
financial institutions. Any deviation from Shariah law
compliance reporting requirements are expanding, with
can result in financial losses, legal consequences, and
financial institutions compelled to provide detailed
reputational damage. For example, if a financial
information on their Shariah governance and audit
institution is found to have engaged in
outcomes on a regular basis.
non-compliant activities, it may be required to purify
its earnings by donating non-compliant income to Conclusion
charity. Such incidents can erode customer and
investor trust, reducing economic opportunities and Shariah audit and compliance are essential for the
potentially leading to legal action. Addressing these credibility and sustainability of Islamic financial
risks requires proactive risk management strategies, institutions. These mechanisms ensure adherence to
frequent compliance assessments, and strong Islamic principles, which fosters transparency,
internal controls. accountability, and ethical governance. However, the lack
of standardization, shortage of skilled auditors, high
Role of Technology in Enhancing Shariah Audit compliance costs, and technological complexities limit
the effectiveness of Shariah compliance frameworks.
Shariah compliance has become more complicated as a
Technological advances, greater standardization efforts,
result of the rise of digital banking and financial
and reporting transparency will shape the future of
technology, or fintech. Ensuring compliance in digital
Shariah audit and compliance. As the Islamic finance
financial services has emerged as a crucial challenge as
industry expands worldwide, Shariah audit and
Islamic financial institutions embrace digital
compliance will retain its critical role in ensuring financial
transformation. New regulatory frameworks are needed to
institutions follow Islamic legal and ethical principles.
control digital transactions as a result of the growth of
Islamic fintech platforms, mobile banking, and
About the Author: The author is a Fellow Member of ICMA and
blockchain-based Islamic financial products. In order to serves as a Senior Instructor at Government College of Commerce,
keep up with technological improvements and guarantee Multan. With over 20 years of experience in management
that digital financial services adhere to Islamic principles, accounting, corporate finance, and business taxation, he has taught
financial institutions must modify their Shariah audit at various public and private sector universities and professional
institutes in Pakistan. He previously worked as Assistant Manager
frameworks. However, through automation, real-time
Accounts at Orient Group of Companies. Currently, he is a faculty
monitoring, and increased transparency, fintech advances
member at ICMA Pakistan's Multan campus and is pursuing a PhD.
offer chances to improve Shariah compliance. Regulatory
ICMA’s Chartered Management Accountant, Mar-Apr 2025 31