Performance Auditing for Islamic Banks

Although the Islamic finance is making continuous progress, yet the Islamic banks still face criticism from keen observers that they have adopted such techniques of financing which closely resemble interest-based finance. The difficulty with Islamic banks is that they feel hesitant to adopt profit-loss sharing in the contemporary environment. They are afraid that their clients may misreport or mismanage their funds leading to large-scale losses. Being trustees of public funds they think the risk in profit-loss sharing is very high. In this situation, development of appropriate accounting and auditing standards is the need of the day. Performance auditing, being a recent expansion in the scope of auditing holds a promise. The paper introduces the concept of performance auditing and shows how the Islamic banks can use it to their advantage. The paper also proposes a set of strategic measures for the Islamic banks to put performance auditing in practice