Situation 1 Q. (a)
The client hands over his bank statements to the accountant. From the
bank statements the accountant records any interest charged by the bank
or credited by the bank to the client.
(b) What is the position of the auditor who does not himself make
the entries but merely checks to see if they are correctly recorded and
reports thereon. The report of the auditor is to the shareholders and
not to the bank who may also use the financial statements to assess the
financial position of the business.
It should be noted that the transactions of interest have already been
concluded by the bank and the customer. The histo- rical information is
then handed over by the customer to the accountant for the purpose of
compiling books of accounts. These books of accounts are necessary in
order inter alia to submit proper tax returns to the revenue authorities
in terms of the taxation laws of the country. The question arises whether
the accountant commits a breach of Islamic Law when he compiles the books
of account. Is he regarded as scribe/writer of interest in a situation
where he is not a party to the tran- saction of interest itself?
Situation 2 An accountant is working for a company. The company
charges its debtors interest on their overdue accounts. The acco- untant
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 Shari'ah for such an
accountant to:-
(2.1) Become involved in this manner in the charging, preceding
and execution of interest on overdue accounts.
(2.2) Remain employed with such an employer who charges interest
on overdue accounts.
(2.3) Receive a salary which is considered as Halaal in Shari'ah
from such a Company, a small portion whose income is represented by interest
collected from debtors.
Situation 3 The accountant working for the company writes out the
cheques of the company. At times the amount recorded on the cheque includes
an amount for interest.
(3.1) What is the position of the person who issues out such cheques?
(3.2) 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 inte- rest obligation.
In certain circumstances, even the signatory was not an original party
to the transaction.
Situation 4 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 details
on behalf of the customer. Some application forms also have a place for
the signature of the per- son who assisted the customer in completing
his application. Will this assistance to the customer be impermissible?
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.
Situation 5 Advising on financial options A client comes to the
accountant seeking advice of the best option with regards to undertaking
a certain business venture or the acquisition / purchase of an asset.
Among the various options which the accountant advises him on the option
of fin- ancing via a bank whereupon he will be charged interest.
(5.1) What is the position of advising with regards to such an
option?
(5.2) If the client is a non-Muslim, will it make any differences?
(5.3) What is the position if the bank leases the asset and profit
/ rental is based on a fluctuating rate of interest?
Situation 6 For the purpose of reducing the client taxes, various
schemes are adopted. A simple practical example is where several persons
(most often immediate family members) are made partners in the business.
Part of their profits are accumulated in the business as further investments.
For tax purposes these investments are reflected as "loans"
from the respective people Similarly, the net profit that is due to term
on these investments is also reflected "interest" to such people.
In reality there is no loan or any interest. It is in fact the capital
introduced and profit paid. These are just merely terms adopted in order
to save taxes and to comply with the taxation laws of the country. What
is the position of the accountant with regards to the recording of such
"interest in the light of the aforementioned Hadith?
It must be noted that these are fictituous records whose source is profit
or rentals.
Situation 7 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?
Situation 8 In South Africa most investments have some element
of interest particularly those controlled by non-Muslims. As an example
a syndicate of 50 people may purchase a property. The property is controlled
and administered by non-Muslims and a small portion of the income may
be in the form of interest - probably less than 5%. If one disposes of
the proportion of interest attributable to him, will he be absolved? Similarly,
how would one handle investment in a listed company on the stock Exchange
which is engaged in Halaal activities but may be involved in payment or
receipt of interest as well.
Further Questions 1. With regards to those situations which clearly
fall under the prohibition of recording interest, is there any way out
of this by avoiding the prohibition and still getting the work done?
2. If the client's business activities are mostly of a nature which
the Shari'ah has declared forbidden, such as he sells liq- uor, or trades
in meat not slaughtered according to Islamic rites, can the Muslim accountant
undertake to do his books?
3. 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 Shari' violation in recording the
transactions pertaining to the Haraam items?
4. Is it permissible to work as an accountant or auditor for the
revenue authorities of a country which is responsible for levying and
collecting taxes?
5. Is it permissible for a Muslim accountant to enter into a partnership
/ association with a non-Muslim accountant?
6. What advise can you give to accountants in general pertaining
to their profession? (Muhammad
Shoaib Omar, South Africa)
A. 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)
includes a person "who has written the interest". However, this
Hadith refers to the scribe of the trans- action i.e. a person who has
written an agreement or prepared the document to evidence the transaction.
It does not incl- ude a person who was not involved in the transaction
itself in any away, but while preparing the accounts of a person, has
come across reference of the Riba transaction and has recorded it as an
event already happened without his involvement. This is how the scholars
have interpreted the Hadith. To quote Hafiz Ibn Hajar:
"This (the curse of Allah) is applicable only to a person who
has supported the relevant person in the transaction of Riba being agreeable
to it. However, if a person who has witnessed the occasion to testify
the event as it occurred to facilitate a just action about it, then this
is a good intention and is not covered by the warning entioned in this
Hadith. The reference in this Hadith is only to a person who has helped
the relevant party in the transaction of Riba by writing its agreement
or being a witness to it."
Al-Ubbi, the famous commentator of the Sahih of Muslim has explained the
Hadith in the following manner:

"By the word "writer of Riba" the Hadith intends the scribe
of the documents 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 transaction...The Holy Prophet ( Sallaho Alaihai Wasallam
) has held them all as equal in sin because the transaction took place
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 already happened. Therefore, the case of an
accountant of a firm or a company is different from the person who is
directly responsibile for the operation of interest. So far as the Accountant
is not involved in initiating, proposing or helping in the transaction
itself, he will, hopefully, not invoke the curse of Allah by merely recording
the transaction in the books of account or in a financial statement. As
a matter of precaution a Muslim should as far as possible avoid this type
of recording also, however, it does not fall in the category of the clear
prohibition. In the light of the above discussion all your questions are
perhaps answered. However, for the purpose of more clarity I give you
a brief reply to each question seriatim:
1. In both situations (a) and (b) the Accountant does not provide
any help to the transaction itself, rather he records the facts as they
occurred or checks the correctness of their recording. Therefore, it does
not directly fall within the ambit of the warning of the Hadith.
2. 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 the prohibition stipulated in the Hadith. Unless the major
part (atleast 51%) of the company is haram it is not prohibited to draw
salary for permi- ssible services rendered to that company.
3. 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 sig-
natories of the cheque.
4. 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 Shariah and it does fall
within the scope of the warning of the Hadith.
5. A Muslim cannot advise any one to opt for a financing based
on interest. According to the most authentic view, entering into a transaction
of Riba is prohibited, no matter whether the opposit party is Muslim or
non-Muslim. Therefore, the above ruling is applicable to that situation
also where the client is non-Muslim.
The ruling about the leasing transaction will differ from case to case.
The mere fact that the rental in a lease contract has been on the market
rate of interest does not render the transaction unlawful. However, there
are certain other consitions which must be fulfilled for a valid lease
transaction that cannot be summarized in this letter.
6. It is the essence of the transaction only which is more important
in Shariah and not the nomenclature. Therefore, if investment is named
as "loan" or the profit is termed as "interest" it
will in reality be neither loan nor interest and therefore will not render
the transaction unlawful. Specially, when this terminology has been adopted
to avoid or reduce taxes. However, if the word "loan" is replaced
by the word "finance" it will be more appropriate according
to Shariah, while no change is required in the word "interest"
because in a wider economic sense profit is included in interest and the
word "profit" can be used in that sense without being a false
statement. In view of the above their is no problem if an Account- ant
records such amounts as interest or loans.
7. 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.
8. If the interest is not among the main commercial activities
of the syndicate, rather it has accrued through interest- bearing deposits
of the surplus funds, it has the same status as that of shares of joint
stock companies. Therefore, it is per- missible for a Muslim to become
a part of this syndicate provided that he tries his best to persuade the
syndicate not to be involved in any transaction of interest, and that
the proportion of the interest in the aggregate income of the syndicate
is given by him to charity without an intention of gaining Thawab through
it.
1) I have already highlighted the areas of prohibition and the
areas where the Shariah has given a leeway but where there is a clear
prohibition there is a no option for a Muslim except to abide by it. However,
if a person is forced by his personal circumstances to commite a prohibited
act he should turn to Allah in repentance and seek His forgiveness.
2) If most of the activities of a business are Haraam, a Muslim
should not take up the work of that business.
3) The answer to this question is analogous to the answer to question
No. 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 it also as far as possible.
4) It is not impermissible to work as an Accountant or Auditor
for the revenues authorities of a country which is respon- sible for levying
and collecting taxes.
5) So far as the terms of partnership are in conformity with rules
of Shariah and the work of accounting undertaken by the partnership is
not violative of the injunctions os Islam, there is no bar against entering
into a partnership with a non- Muslim accountant.
6) My advise is to abide by Shariah in every walk of life.
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