Reflexivity and resistance are two words with opposite meanings that indicate approval and rejection towards an offer, invitation, and pressure that can occur in any circumstances, including financial reporting standardization. Any researcher who is interested in this area should examine what factors lead to reflexivity or resistance towards financial reporting standardization.

In a wider scale, a research conducted could include the issue of International Financial Reporting Standards (IFRS) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) adoptions by Islamic financial institutions. It begins with the development of IASB and its promoting journey of IFRS that contains political lobbying in a country’s institutional arena. Likewise, the aspect of resistance towards AAOIFI that aims to be a global reference for financial reporting standardization should be revealed through exploration of the institutional arena. Thus, the study should cover conventional political discourse and Islamic political interaction that influences the future of Islamic-based financial reporting standardization.

Reflexivity theory and the process of setting financial reporting standards

The ability to assess the reflexivity of specific discourse is the main interest of Habermasian critical theory, known as the theory of communicative action (TCA), which is built upon the creative power of language and discourse. It argues that human justifies their approaches and choices based on the nature of discourse and argument presented to them; which is a foundational human characteristic such as sophisticated ability to communicate with one another through the spoken and written word.

However, TCA received criticism that it lacks empirical indicators and reference points. Habermas responded that there is a need to “test empirically the assumption that systemic imperatives force their way into domains of cultural reproduction, social integration, and socialization.”  This testing process needs to address what he calls the “real abstractions” in “the core zones of the lifeworld.” In other words, Habermas tries to reduce complexity into more abstraction so that it can be easily measured. TCA is further strengthened by Edward Arrington and Puxty with their framework where critical analysis of social and environmental accounting improved through the quality of dialogue among the community. Form TCA lens, the mass adoption by numerous countries towards International Accounting Standards Board (IASB) financial reporting standards without quality dialogue among the relevant parties may not be considered as a successful attempt. In fact, Wagenhofer argues that the growth strategies adopted by IASB are risky because their conceptual framework does not sufficiently take into account the diverse objectives of financial reporting; stewardship, prudence, and aggregation can be desirable characteristics of accounting information; and standards that are developed for listed companies need not be well suited for private entities.

Therefore, a TCA utility such as communication is deemed to assess the discourses employed by all parties involved in standard-setting such as AAOIFI and IASB. Also, it can help in exploring the adopted strategies by AAOIFI and IASB in educating their communities about accounting regulation.

Resistance theory and the process of setting financial reporting standards

From a cognitive perspective, change in an organization is not only a sociological or psychological issue but also the combination of individuals and their interactions within the social network and actors involved. From this perspective, resistance arises due to a clash between the management and the actors who will carry the tasks.

Thomas et al. develop a model that shows how particular communicative practices can lead to generative dialogue, in which resistance to change actually plays a facilitative role, and at the end, would result in organizational change based on the transformation of knowledge. The power of managers can facilitate the communication process, leading to dialogue as Foucault argues that power and resistance are seen as diffuse, co-constitutive, and multidimensional. There “are no relations of power without resistances: the latter are all the more real and effective because they are formed right at the point where relations of power are exercised.” 

Reflexivity Vs. Resistance in Maqāsid Al-Shari’ah Framework

Maqāsid al-shari’ah (objectives of Shariah) is one mechanism to issue a ruling in Islamic jurisprudence with its main references, i.e., Al-Qur’an and Sunnah.  The issue of financial reporting standardization arises due to the requirement lies upon the establishment of Islamic business entities such as Islamic financial institutions in which the word “Islam” becomes their banner. Thus, they should disclose information according to Shariah standards and Shariah values in their financial reporting standards that eventually achieve the Shariah objectives. Thus, reflexivity and resistance should weigh to what extent do the objectives of Shariah have been taken into account.

Mukhlisin cites that the objectives of Shariah are principally known as Maqāsid ul-Shari’āh was pronounced by Al-Ghazali (1058-1111) such as protection of religion (dīn), protection of life (nafs), protection of intellect (‘aql), protection of wealth (māl), and protection of lineage (ansab). These basic principles are important in every human life or institution to ensure long-term sustainability and prosperity of the economic development and welfare of the people. As belief in the hereafter under Islamic teaching is essential, fulfilling basic human needs that cover the protection of these five principles is also for preparing the day of judgment that would be held in the hereafter.

Al-Ghazali states that “preventing the loss of these five fundamentals (usul) and protecting them can never be neglected in any religious community (millah) or legal system (Shariah) that is meant for the good and well-being (ṣalāh) of human beings and this would be a consideration of a maṣlahah that we know by necessity was intended by the Shariah, not on the basis of one single proof or one particular rule, but on multiple proofs that are beyond enumeration. Another view on Maqāsid ul-Shari’āh has three classifications such as tahzib al-fard (educating the individuals), iqāmah al-‘adl (establishing justice), and jalb al-mashalah (ensuring the welfare of the society). 

Future Research

Future research in this area is commendable as more researchers should continue to critically examine what is going on with the process of financial reporting standardization for Islamic financial institutions. Critical theories combined with Maqāsid ul-Shari’āh framework, for instance, should be able to capture whose interest is dominant in the financial reporting adoption process.

It is clear that Islamic financial institutions have commercial as well social objectives that should be in favour of all stakeholders. Islam condemns the rich to control everything for their interest; on the contrary, it encourages everyone to consider the welfare of others and make a contribution to society. QS Al-Hasyr (59): 7 states that: “And what Allah restored to His Messenger from the people of the towns – it is for Allah and for the Messenger and for [his] near relatives and orphans and the needy and the [stranded] traveller – so that it will not be a perpetual distribution among the rich from among you. And whatever the Messenger has given you – take; and what he has forbidden you – refrain from. And fear Allah; indeed, Allah is severe in penalty.”