Shariah Advisory Board and Shariah Audit: Ensuring Compliance and Accountability in Islamic Financial Institutions

Abstract

This study examined the roles of the Shariah Advisory Board and Shariah auditing as critical internal control mechanisms for ensuring Shariah compliance and institutional accountability in Islamic financial institutions in Nigeria. In particular, the study examined the effect of these governance mechanisms in promoting compliance and accountability, the effectiveness of these mechanisms in strengthening governance and mitigating the risk of non-compliance with the Shariah, and the role of internal control quality as a mediator between the governance mechanisms and strengthening governance and mitigating the risk of non-compliance with the Shariah. The study used a quantitative cross-sectional survey design, and data were collected from 286 management personnel and governance professionals at the targeted Islamic financial institutions using a structured questionnaire with a five-point Likert scale. Descriptive analysis was conducted using IBM SPSS Statistics, and Partial Least Squares Structural Equation Modeling (PLS) was used in Smart PLS. The results showed that Shariah Advisory Board effectiveness positively influenced Shariah compliance and institutional accountability; internal control quality significantly mediated both relationships. The author concludes that the integrated mechanism of Shariah governance is crucial for improving governance effectiveness, confidence of the parties, and sustainable accountability of institutions. The results offer important implications for regulators, policymakers, and Islamic financial institutions to improve governance and internal control systems in the light of the Shariah.