131-140: General Discussion - Accountancy Forum Topics

Ca And Accounting For Interest

While going through some past posts of FCA group, I came across a good topic regarding Interest and Accountancy. And wants to share the work with you.... ================================================================ The Qurãn and Hadith are explicit with regard to the prohibition of interest. Rasulullah Sallallahu Alayhi Wasallam is reported to have said, ‘May the curse of Allah Taãla be upon the one who consumes interest, the one who pays interest, those who witness the interest transactions and those who record it.’(Mishkãt) Thus the warning in this Hadith is severe. Yet transactions in interest have become extremely widespread. However, it is tremendously pleasing to note that many people are concerned about their Imaan and wish to save themselves from any involvement in interest. Thus a group of accountants formulated some questions on interest related matters and submitted them to Mufti Taqi Usmani Saheb of Pakistan in order to determine the definite Islamic position on these matters. Selected questions have been published for the benefit of other people involved in similar situations. ‘Respected Mufti Saheb, Ássalaamu Álaykum Wa Rahmatullaahi Wa Barakaatuhu As accountants we are faced with a moral dilemma with regard to certain aspects of our work. Thus we write to you seeking guidance in this matter. Please advise us with regard to the following: According to the well known Hadith, Rasulullah (Sallallaahu Álayhi Wasallam) has invoked the curse of Allah Taãla upon four categories of people due to their association with interest. Among them is the one who has written the interest transaction. Concerning the above, what is the position of an accountant who prepares the financial statements of clients? In the course of this preparation, he has to record amongst other transactions, the interest transactions of his clients in their books. It should be noted that he is generally never present at the time of the transaction (except rarely which also can be avoided). Does the accountant in the course of recording such interest in the financial statements of clients also fall within the ambit of this Hadith? The accountant in reality merely prepares an analysis of the year’s transactions and reports on the profit/loss and the assets and liabilities of the business i.e. the financial position of the business for/at a particular period. Hereunder are some of the different types of transactions which accountants routinely record. Please advise us with regard to each one of them as to whether they fall within the ambit of the said Hadith. Question 1 An accountant is working for a company. The company charges its debtors interest on their overdue accounts. The accountant is instructed by the directors, as part of his functions, to make appropriate entries in the records of the company in terms of which interest is charged on certain overdue accounts. The question arises whether it is permissible in Shariáh for such an accountant to:- * Become involved in this manner in the charging, recording and execution of interest on overdue accounts. * Remain employed with such an employer who charges interest on overdue accounts. * Receive a salary which is considered as Halaal in Shariáh from such a company, a small portion of whose income is represented by interest collected from debtors. Question 2 The accountant working for a company writes the cheques of the company. At times the amount recorded on the cheque includes an amount of interest. What is the position of the person who issues out such cheques? Also what is the position of the signatories to such cheques? It must be noted that the accountant himself was not an original party to the transaction of loan which gave rise to the interest obligation. In certain circumstances, even the signatory was not an original party to the transaction. Question 3 A motor vehicle salesman sells a vehicle to a customer. The customer finances the vehicle through the bank upon which he pays interest. The salesman in most instances has to assist the customer in completing the application for finance to the bank by filling in the details on behalf of the customer. Some application forms also have a place for the signature of the person who assisted the customer in completing his application. Will this assistance to the customer be prohibited? Does the salesman also become a witness to this interest transaction merely by assisting to complete the application? It should be noted that the financing transaction is distinct from the sale transaction and it is solely between the customer and the bank. Question 4 A client comes to the accountant seeking advice of the best option with regard to undertaking a certain business venture or the acquisition/purchase of an asset. Among the various options which the accountant advises him on is the position of financing via a bank whereupon he will be charged interest. What is the position of advising with regard to such an option? If the client is a non-Muslim, will it make any difference? Question 5 A person working for a non-Muslim company invests surplus funds, on instruction, in interest bearing securities. What is his position in relation to the said Hadith? Question 6 If the client’s business activities are mostly of a nature which the Shariáh has declared forbidden, such as he sells liquor, or trades in meat not slaughtered according to Islamic rites, can the Muslim accountant undertake to do his books? Question 7 A Muslim accountant works for a non-Muslim company which deals generally in Halaal merchandise, but also sells some Haraam items, such as liquor, etc. Is he committing any Sharée violation in recording the transactions pertaining to the Haraam items? Question 8 What advice can you give to accountants in general pertaining to their profession? Submitted by: A group of Sixteen Accountants Reply ‘Respected Brothers Ássalaamu Álaykum Wa Rahmatullaahi Wa Barakaatuhu It is true that according to a well known Hadith those who invoke the curse of Allah with regard to a transaction of Riba (interest or usury) include a person ‘who has written the interest’. However, this Hadith refers to the scribe of the transaction i.e. a person who has written an agreement or prepared the document to evidence the transaction. It does not include a person who was not involved in the transaction itself in any way, but while preparing the accounts of a person, has come across reference to the Riba transaction and has recorded it as an event that has already happened without his involvement. This is how the scholars have interpreted the Hadith:… Al-Ubbi, the famous commentator of Sahih Muslim has explained the Hadith in the following manner: ‘By the word ‘writer of Riba’ the Hadith intends the scribe of the document evidencing the transaction of Riba, and by the word ‘witness’ it means a person who attended the occasion to become a formal witness in support of the transation … the Holy Prophet (Sallallaahu Álayhi Wasallam) has held them all as equal in sin because the transaction took place only with their joint efforts.’ It is evident from these references that it is the writing of the document of Riba which invokes the curse of Allah and not its subsequent recording in a statement of the facts that already happened. Therefore, the case of an Accountant of a firm or a company is different from the person who is directly responsible for the operation of interests. Answer 1 So far as the Accountant is not involved in charging interest, claiming it from the debtor or pursuing him for that matter, merely making entries in the books of account will not make him liable to fall within the ambit of prohibition stipulated in the Hadith. Unless the major part (at least 51%) of the company is Haraam it is not prohibited to draw salary for permissible services rendered to that company. Answer 2 If the cheque is intended to be written or issued exclusively for the payment of interest with a clear statement that this should settle the amount of interest due on the issuer of the cheque, it is not permissible for any person to write or issue such a cheque. However, if the cheque is issued for the settlement of different liabilities of which interest is also a part then the issuance or writing of such a cheque cannot be termed as absolutely prohibited. This applies to both issuer and the signatories of the cheque. Answer 3 Of course, any assistance provided to the customer for obtaining an interest bearing loan, including the filling of the application form for the loan, is not permissible according to Shariáh and it does fall within the scope of the warning of the Hadith. Answer 4 A Muslim cannot advise any one to opt for a financing option based on interest. The mere fact that the rental in a lease contract has been based on the market rate of interest does not render the transaction unlawful. However, there are certain other conditions which must be fulfilled for a valid lease transaction that cannot be summarised in this letter. Answer 5 As mentioned earlier, direct involvement of a Muslim in a transaction of interest is prohibited and comes under the purview of the above Hadith. Therefore, it is not permissible for an employee of a non-Muslim to invest his surplus funds, on his instruction, in interest-bearing securities, because in this case the employee works as an agent for the employer which is a direct involvement in the transaction of Riba. Answer 6 If most of the activities of a business are Haraam, a Muslim should not take up the work for that business. Answer 7 The answer to this question is analogous to question 1 i.e. so far as a Muslim is not involved in a prohibited transaction directly, merely recording that transaction in the books of account is not Haraam. However, a Muslim should avoid this also as far as possible. Answer 8 My advice is to abide by Shariáh in every walk of life. Mufti Taqi Usmani Saheb

Interest, Riba, Usury

FOLLOWING HAS BEEN SUMMARIZED FORM http://www.lariba.com/financing/HistoricalCritiqueUsury.shtm Usury (Riba, Interest) has been known to exist in various parts of the world at least four thousand years back (Jain 1929). The Usury has been subjected to criticism on grounds of social injustice, economic instability, etc. Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity, ancient Western philosophers and politicians, as well as various modern socio-economic reformers. HISTORY OF THE CRITIQUE OF USURY Usury in Hinduism and Buddhism The Sutra text of Ancient India (700-100 BC) and Buddhist Jatakas (600-400 BC) expresses contempt for usury. Special law was made which forbade the higher class of Brahmanas (Priest) and Kshatriyas (warriors) from being lenders at interest. However up-till recent times concept of usury has been limited to charging interest at rate higher than what is legal. Usury in Ancient Western Political Philosophy Ancient Western philosophers who condemned usury can be named Plato, Aristotle, the two Catos, Cicero etc. In Republican Rome (340 BC) interest was outlawed altogether. Under the banner of Julius Caesar, a ceiling on interest rates of 12% was set, and later under Justinian, lowered even further to between 4% and 8% (Birnie, 1958). With Christianity Church also assaulted Usury. Usury in Islam The criticism of usury in Islam was well established during the Prophet Mohammed's life and reinforced by various of his teachings in the Holy Quran [Most notable of these is Surah 2 verses 188, 274-280; Surah 3 verse 130; Surah 4 verses 29, 161; Surah 9 verses 34-35, 43; Surah 30 verse 39]DATING back to 600 AD.A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for a interpretative differentiation between usury, which it is claimed refers to consumptional lending, and interest which they say refers to lending for commercial investment (Ahmed, 1958). Usury in Judaism and Christianity Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned, In the associated Exodus and Leviticus texts, the word almost certainly applies only to lending to the poor and destitute, while in Deuteronomy, the prohibition is extended to include all moneylending, excluding only business dealings with foreigners. Despite the prohibition on taking interest, there is considerable evidence to suggest that this rule was not widely observed in biblical times. The critique of usury was most ferverently taken up as a cause by the institutions of the Christian Church where the debate prevailed with great intensity for well over a thousand years. In the eighth century Catholic Church declared usury to be a general criminal offence. This anti-usury movement continued to gain momentum during the early Middle Ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on usury absolute and declared all secular legislation in its favour, null and void (Birnie, 1952). Usury in Modern Reformist Thinking Adam Smith, despite of his image as the “Father of the Free-market Capitalism” and his general advocacy of laissez-fair economics, came out strongly in support of controlling usury. He was in favour of the imposition of an interest rate ceiling. Gesell, as a successful nineteenth century merchant in Germany and Argentina, condemned interest on the basis that his sales were more often related to the ‘price’ of money (i.e. interest) than people's needs or the quality of his products. Margrit Kennedy (1995), a German professor at the University of Hannover, criticized interest, believing that “interest ... acts like cancer in our social structure”. She takes up the cause for “interest and inflation-free money” by suggesting a modification of banking practice to incorporate a circulation fee on money, acting somewhat like a negative interest rate mechanism. It was premised by a number of socio-economic reformists of the twentieth century that for banks to then charge interest on money which they had created out of nothing, having suffered no opportunity cost or sacrifice, amounted to nothing less than immoral and fraudulent practice. RATIONALE FOR THE CRITIQUE OF USURY Usury as Unearned Income The Lateran council of 1515 clearly expressed: “This is the proper interpretation of usury when gain is sought to be acquired from the use of a thing, not in itself fruitful (such as a flock or a field) without labour, expense or risk on the part of the lender.” Birnie reinforces this point “to live without labour was denounced as unnatural, and so Dante put usurers in the same circle of hell as the inhabitants of Sodom and other practisers of unnatural vice” (1952: 4). This is also the rationale Ahmad uses to explain why in Islam God [vii] “permits trade yet forbids usury”: “The difference is that profits are the result of initiative, enterprise and efficiency. They result after a definite value-creating process. Not so with interest”; also “interest is fixed, profit fluctuates. In the case of interest you know your return and can be sure of it. In the case of profit you have to work to ensure it” (1958: 25). Perhaps Aristotle had similar sentiments in mind when he argued that “a piece of money cannot beget another”. Keynes’ biographer, Skidelsky, intriguingly comments that “Keynes’s sense that, at some level too deep to be captured by mathematics, ‘love of money’ as an end, not a means, is at the root of the world’s economic problem” (1992: 454). Usury is what marks the distinction between money being simply a socially contracted abstract mechanism to lubricate between supply and demand, and money as an end in itself. The true dignity and full reward of ordinary labour is compromised. Money thus becomes self-perpetuating power in itself rather than just a mediating agent of power. Usury as Exploitation of the Needy This reason is self-explanatory, how ever this concept needs to differentiate helping Interest from oppressive according to Sir Sayyed’s school in Islam. This idea can be elaborated to say that rich do nothing to earn their living and still earn this extra income in society results from the fact that the poor have to sweat doubly so that the rich might live on interest. A parallel modern argument relates to the devastating social impact of the so-called “Third World debt crisis”, a situation which even Pope John Paul II (1989) acknowledges in his Sollicitude Rei Socialis when he states: “Capital needed by the debtor nations to improve their standard of living now has to be used for interest payments on their debts”. If the debt to debtor nations was advanced on equity basis in 70’s, the debtor nations would not have wrong footed by compound interest rate established by non-domestic macroeconomics factors. Usury as a Mechanism of Inequitable Redistribution of Wealth “Interest in any amount acts in transferring wealth from the asset less section of the population” (Choudhury and Malik, 1992: 51). Kennedy (Germany) in 1992 show through empirical evidence that while the poorest 2.5 million households paid out net DM 1.8 billion in interested, the richest 2.5 million households received (net) DM 34/2 billion. From marginal utility theory point of view, the utility gain provided by usury is marginal to the already substantial utility of the principle sum. For poor the loss in utility incurred by having to pay interest is qualitatively much greater than the gain to the rich. Thus permitting usury to operate in economy reduces overall utility in the economy. Any justification of interest as an efficient economic instrument would have to first demonstrate that it functions to increase total utility. In the absence of such demonstration, it can justifiably be condemned as a tool of tyranny. Usury as an Agent of Economic Instability Kennedy (1995)shows, for instance, how in Germany, while government income, Gross National Product and the salaries and wages of the average income earner rose by about 400% between 1968 and 1989, the interest payments of the government rose by 1,360% which she claims implies an inflationary effect. Edited by - amam_786 on Nov 27 2003 11:10:04 AM Edited by - amam_786 on Nov 27 2003 11:13:50 AM

«««eid Mubarik»»»

Happy Eid Mubarik waQas

Moon Sighting

AOA Everybody! I found this Sunday's article by Cowasjee very hillarious so thought about sharing with you a very interesting extract: "Ayub Khan, President and General, and later President and Field Marshal, was a handsome man with a twinkle in his eye. There is an old and famous story, possibly apocryphal, about him that is applicable to the present season. From the very beginning of its life, the learned men of the book who guide the morals of this nation have been unable to reach an agreement on the planet moon and its appearance and placing in the night sky. Each first of Ramzan and each Id have been hotly disputed, with the divines of one area of the country sighting the moon on one evening and others not spotting it at all. One year, early in his regime, Ayub decided enough was enough. He was tired of double or triple Ids being celebrated, tired of the inability of the holy men to decide in unison. He gave orders that the moon-experts in all areas of the country would be instructed by his military commanders that they would, in complete unison, 'sight' the moon on one evening, so that for once in its life the entire nation would celebrate Id on the same day. Sure enough, from Karachi to Peshawar the divines spotted the moon on the announced evening. However, up in Quetta, Maulvi Tabassum declared that he had not sighted the moon, and that the Faithful would continue to fast the following day. As the story goes, a furious Ayub, ordered the GOC commanding the Division in Quetta to ensure that the maulvi did see the moon. The General sent for the stubborn maulvi, turned his head heavenwards, and asked 'Maulvi Sahib, chand dekha?.' 'Nahi dekha' said the resolute man. The General then turned him around 180 degrees, told him to peer downwards, and asked 'West Camp dekha?' 'Dekha,' murmured the learned man. 'Good,' said the General, and asked him to look upwards. 'Abb chand dekha ?' 'Dekha, dekha,' said a nervous maulvi, and thus was Id celebrated the next day in Quetta and the entire country. " Go to http://www.dawn.com/weekly/cowas/cowas.htm to read the entire article. Eid Mubarak to all&Best of Luck to the ones going for the December attempt....May Allah Help u All! Ed. Security is merely a superstition, Life is either a daring adventure or nothing!

Request For Prayers

Assalamalaikum All Well I just wanted to ask you all to pray for us all sitting exams in the very near future. OSA

Request For Prayers

Assalamalaikum All Well I just wanted to ask you all to pray for us all sitting exams in the very near future.Thankx OSA

Eid Mubarak!

Assalamalaikum All I wish you all and your families a very HAPPY EID! Mayb ALLAH bless you all OSA

Accountants, Lawyers And Mafia

The Godfather, accompanied by his attorney, walks into a room to meet with his accountant. The Godfather asks the accountant, "Where's the three million bucks you embezzled from me?" The accountant doesn't answer. The Godfather asks again, "Where's the three million bucks you embezzled from me?" The attorney interrupts, "Sir, the man is a deaf-mute and cannot understand you, but I can interpret for you." The Godfather says, "Well, ask him where the @#!* money is." The attorney, using sign language, asks the accountant where the three million dollars is. The accountant signs back, "I don't know what you're talking about." The attorney interprets to the Godfather, "He doesn't know what you're talking about." The Godfather pulls out a pistol, puts it to the temple of the accountant, cocks the trigger and says, "Ask him again where the @#!* money is!" The attorney signs to the accountant, "He wants to know where it is!" The accountant signs back, "Okay! Okay! The money's hidden in a suitcase behind the shed in my backyard!" The Godfather says, "Well, what did he say?" The attorney interprets to the Godfather, "He says that you don't have the guts to pull the trigger." OSA

Ranking Of Firms?

AOA The site is great. But if some one provide a list with ranking of firms w.r.t Affiliations,clients,passing rate and etc etc etc, it will be of great use for new ones like me. I am trying to land somewhere best because i feel that my best potential can be utilized there. Further, some tips and "totkas" for us, so we can get ready for the great time. Waiting for great people to reply. Best regards.

Privatization

The Government is privatising the public sector, fast and quick. Could someone tell me why?