EFFECTIVENESS OF INTERNAL SHARI?AH AUDIT FUNCTION IN MALAYSIAN ISLAMIC FINANCIAL INSTITUTIONS

An effective internal Shari?ah audit function in Islamic financial institutions (IFIs) is imperative to ensure better management of Shari?ah non-compliance risks through more robust Shari?ah audit practices. This study evaluates the extent of internal Shari?ah audit function effectiveness in Malaysian IFIs. It adopts a quantitative research method using a survey questionnaire. The total population of 47 IFIs during the data collection period (year 2016) was observed as the unit of analysis and targeted sample. Survey questionnaires were distributed to the Heads of Shari?ah audit who are the key representatives of the internal Shari?ah audit function in IFIs in Malaysia. The findings indicate that the majority of IFIs have established an effective level of internal Shari?ah audit function which constitutes a positive development in strengthening Shari?ah governance in IFIs in Malaysia. The study also contributes to rigorous monitoring and attention by Bank Negara Malaysia as the regulator on the effectiveness of the internal Shari?ah audit function performed by Takaful operators and Islamic windows in commercial and investment banks. This further emphasizes the crucial need for a holistic Shari?ah compliance culture in IFIs to enhance the internal Shari?ah audit function and ultimately ensure the integrity and accountability of IFIs.