Islamic perspective of management accounting decision making techniques

Abstract

Purpose– This paper aims to argue that the methodologies adopted by the conventional management accounting in selecting between or among two or more alternative courses of action, both in the long-term and the short-term decision making endeavours conflict with the overall objective ( falah) of Islamic enterprises. Design/methodology/approach– The paper explores relevant literatures (including the Qur’an and the Hadeeth) to ascertain the objective of an Islamic enterprise and suggest an alternative approach, in making a choice among alternative courses of action, that aligns with the Islamic socio-economic objective (falah). Findings– The paper suggests that both in long-term and short-term decision making endeavours, cost-benefit comparison (where cost includes negative externalities) rather than discounted cashflow techniques or contribution margin should be adopted in making a final choice among alternatives to achieve falah. Research limitations/implications– The paper has not considered other objectives that may be pursued by an organisation beside profit maximization whether short-term or long-term. Practical implications– The paper expands the frontiers of knowledge in Islamic accounting by exposing the inadequacy of the conventional management accounting decision making methods. Originality/value– This paper explores the Islamic perspective of the conventional management accounting which is rare among scholars of accounting.