QUESTION $5$: $10$ MARKS

Islamic accounting differs significantly from conventional accounting practices due to its adherence to Shariah principles, which govern economic and financial activities in Islam. While conventional accounting primarily focuses on profit maximization and shareholder wealth, Islamic accounting prioritizes ethical conduct, social responsibility, and adherence to Islamic law $($Shariah$).$ The underlying principles guiding Islamic accounting include, Prohibition of Riba $($Interest$),$ Prohibition of Gharar $($Uncertainty$),$ Promotion of Zakat $($Charity$),$ Compliance with Halal $($Permissible$)$ and Haram $($Prohibited$)$ Activities and Ethical Considerations.

To illustrate the application of Islamic accounting principles in a business context, consider a Musharakah $($Partnership$)$ arrangement. In Musharakah, two or more parties contribute capital to a joint venture, sharing both profits and losses according to their agreed$-$upon ratios. This partnership model promotes risk$-$sharing, cooperation, and ethical conduct, aligning with Islamic principles of fairness and social responsibility. Islamic accounting represents a unique approach to financial management that integrates Shariah principles into accounting practices, emphasizing ethical conduct, social justice, and adherence to Islamic values.

REQUIRED:

Based on the above FIVE underlying principles in Islamic Accounting, discuss how Islamic accounting differs from conventional accounting practices, and what are the underlying principles guiding Islamic accounting. For each principle, provide a practical example illustrating the application of Islamic accounting principles in a business context.