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This paper examines the basic principles and other salient features of Islamic economy, such as the principles of multi-faceted ownership, economic freedom within a defined limit and social justice. Then their effects on users of financial statements and objectives of financial statements have been considered.

The basic principles of Islamic Economy and their effects on accounting standards-setting

INTRODUCTION

There is a little attention about the basic principles of economic in the accounting literature. Generally, accounting standards setters start their discussion from needs of users or objectives of financial statements though the assumptions of each economic community have strict considerations for characterize in various dimensions of accounting.

Cultural, social, economical, and political factors have considerable effects on the kind of financial statements to be provided. However, these factors are not similar in all countries and each country uses an accounting system, which fits its own specifications.

In western countries with regard to basic principles of economy the most important users of financial statements are investors and creditors. Thus, other groups such as government, social authorities, and people are in the second steps.

The theoretical concepts of accounting in the British-American model are self-evident statements or axioms that represent the nature of accounting entities operating in free economy characterized by private ownership of property. Whereas behind them there are hidden basic principles of economies which have not been written in accounting literature because they are assumed as axioms.

The concept of ” Basic Principles of economy ” in accounting standard setting has been mostly ignored in spite of its potential to provide a more systematic appreciation of the standard setting process.

In the west, however, ever since the eighteenth century the economists such as Smith, Ricardo, Marshal, and Mill began to write about the significance of amassing wealth and the importance of economic activity. Economics became gradually both a scientific discipline and a distinct activity of its own and in many areas, it became divorced from ethics.

It must not be forgotten, however, that classical economics, which arose in the eighteenth century and which was brought to the new world by the Puritans was related to a certain aspect of Protestant ethics which emphasized the virtue of hard work and the amassing of wealth in contrast to Catholic ethics. But very soon the religious roots of capitalist economics become more or less eclipsed and there arose, as a result of the excesses of this type of economics based only on the importance of the incentive to amass wealth, the reaction to capitalism by socialism which was espoused by Marx and other socialists. Nasr (1993, 205).

THE BASIC PRINCIPLES OF ISLAMIC ECONOMY

Before to explain the basic principles of Islamic economy, the basic principles of economic of liberalism from an Islamic view is expressed, because it is useful for comparison. Then some of the salient features of basic principles of Islamic economy and their effect on accounting standards setting will be consider.

According to Holton (1992, 54-69) the basic principles of economics of liberalism as outlined here, represents an amalgam of ideas derived and adopted from a range of sources. These include the 18th century economist Adam Smith, the neo- classical school of economics and more recent post-war economists such as Milton Friedman. The basic principles of this tradition include the following:

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