|**_Fraud_**|Includes fraud detection steps in audit<br>programs. Investigates the allegations of fraud.<br>Reviews fraud prevention controls and<br>detection processes put in place by<br>management and makes recommendations for<br>improvement.|Includes fraud detection steps in audit<br>plan. Gathers information necessary to<br>identify risks of material misstatement due<br>to fraud, by inquiring of management and<br>others within the entity about the risks of<br>fraud. Considers the results of the<br>analytical procedures performed in<br>planning the audit and fraud risk factors.|
|---|---|---|
|**_Recomm-_**<br>**_endations_**|Communicates to management in the audit<br>reports recommendations for corrective action.|Communicates recommendations for<br>corrective action.|

*Adapted from table in Richards (2002).

A framework of co-existing internal and external _Shariah_ audits as described above does not help to resolve the difficulties caused by inconsistencies in the body of _fatwas._ In an effort to alleviate this problem, some jurisdictions have moved towards a system of centralized SSBs. The latter carry the expectation of harmonization of permissible financial instruments through adjudicating disputes between _Shariah_ advisors and by standardizing existing practices. However, the ongoing globalization of Islamic finance as well as constraints on its applicability in secular countries limits the feasibility of this approach. To circumvent these limitations, Khan and Feddad (2004) recommend the gradual international codification and standardization of _fatwas_ . This duty may be delegated to an existing international organization, whose mission already involves the promotion of harmonization and convergence of _Shariah_ interpretations.<sup>43</sup> Alternatively, a new self-regulating non-profit association of _Fiqh al-Muamalat_ experts may be created. However, despite its apparent advantages, the creation of a global _Shariah_ regulator is likely to meet with resistance, specifically from jurists who regard Islamic _Fiqh_ as a pluralist body of knowledge. Also, the centralization of competences in a global regulator may undermine product innovation and financial engineering.<sup>44</sup>

> 43 AAOIFI’s mission statements declare that  “the powers of (AAOIFI’s) Shari'a Board include, among others, the following: achieving harmonization and convergence in the concepts and application among the Shari'a supervisory boards of Islamic financial institutions to avoid contradiction or inconsistency between the fatwas and applications by these institutions, thereby providing a pro-active role for the Shari'a supervisory boards of Islamic financial institutions and central banks (...)” Likewise IIFM’s “role includes the promotion of harmonization and convergence of Shariah interpretations in developing Islamic banking products and practices that are universally acceptable”.  Sources: <u>www.aaoifi.com</u> and <u>www.iifm.net/</u> 44 This would obviously depend on the degree of powers transferred to such an organization. For instance, the State Bank of Pakistan has issued “Essentials of Islamic modes of financing” to ensure compliance with minimum _Shariah_ standards, which do not present an obstacle to innovation and yet contribute to harmonizing permissible contracts. For more <u>www.sbp.org.pk.</u>