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CA and Accounting for Interest - Bowman - 11-25-2003
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....
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The Qurãn and Hadith are explicit with regard to the prohibition of interest. Rasulullah Sallallahu Alayhi Wasallam is reported to have said, âMay 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.â(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.
âRespected Mufti Saheb,
Ãssalaamu Ãlaykum 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 Ãlayhi 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 yearâs 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 clientâs 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
âRespected Brothers
Ãssalaamu Ãlaykum 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 âwho has written the interestâ. 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 Hadithâ¦
Al-Ubbi, the famous commentator of Sahih Muslim has explained the Hadith in the following manner
âBy the word âwriter of Ribaâ the Hadith intends the scribe of the document evidencing the transaction of Riba, and by the word âwitnessâ it means a person who attended the occasion to become a formal witness in support of the transation ⦠the Holy Prophet (Sallallaahu Ãlayhi Wasallam) has held them all as equal in sin because the transaction took place only with their joint efforts.â
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
- Bowman - 11-25-2003
You can visit the actual question/answer site at the following link
http//www.islam.tc/ask-imam/view.php?q=7872
The site contains many Q&A on routine matters and may prove helpful to those interested.
Eid Mubarak to all and Best wishes to those of you who are appearing in the December attempt.<img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle><img src=icon_smile.gif border=0 align=middle>