Islamic corporate governance and financial statements fraud: A study of Islamic banks

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Abstract

Financial statement fraud (FSF) in Islamic banks is unethical because it generates incorrect information for the stakeholders (Anisykurlillah, Jayanto, Mukhibad, & Widyastuti, 2020; Obid & Demikha, 2011). We identify some institutional factors, specifically corporate governance, as factors that can control FSF. Using the sample of Islamic banks in Indonesia, we found that the attributes of the bank’s Sharia Supervisory Board (SSB), such as its expertise, the number of members, and the number of meetings it holds, can reduce FSF. Besides, the number of audit committee members, and the reputation of the external auditors, can also help control FSF. This research does not find any influence of the board of commissioners’ structure toward FSF. Another finding is that of the three SSB attributes used in this research, the most decisive influence for controlling FSF is each SSB’s expertise in accounting, finance, or economics. We suggest that every SSB should have experts in those fields to complement the expertise in Islamic legal fields.

Keywords: Fraudulent Financial Reporting, Sharia Supervisory Board, Expertise, Audit Committee, Auditor’s Reputation

Authors’ individual contribution: Conceptualization — H.M. and I.A.; Methodology — H.M.; Validation —P.Y.J.; Formal Analysis — H.M.; Investigation — I.A.; Resources — P.Y.J.; Data Curation — H.M.; Writing — H.M.; Visualization — H.M. and I.A.; Supervision — I.A.; Project Administration — P.Y.J.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: We are grateful to Universitas Negeri Semarang for funding this research.

JEL Classification: M41, M42, M48, G32

Received: 22.04.2021
Accepted: 18.06.2021
Published online: 23.06.2021

How to cite this paper: Mukhibad, H., Jayanto, P. Y., & Anisykurlillah, I. (2021). Islamic corporate governance and financial statements fraud: A study of Islamic banks [Special issue]. Journal of Governance & Regulation, 10(2), 361–368. https://doi.org/10.22495/jgrv10i2siart16