An Analysis on Disclosures in the Annual Reports of Islamic Banks in Bahrain

Abstract

The purpose of this study is to evaluate the compliance of Islamic Banks in Bahrain to the mandatory disclosure requirements of the latest AAOIFI accounting standards and to measure the level of voluntary disclosure made by those banks. In order to achieve these objectives, this study conducted a checklist survey in which year 2010 annual reports of 5 Islamic banks are obtained and examined. The level of mandatory and voluntary disclosures by the banks is measured based on the individual scores obtained by each bank through the use of a “disclosure index”. The results show that there is a high level of compliance by the Islamic banks in Bahrain to the mandatory disclosure requirements of the AAOIFI accounting standards. Interestingly, the study also finds that the level of voluntary disclosure by the Islamic banks in Bahrain is high. Last but not the least, the findings of this study provide a useful insight into the practices of Islamic banks with regards to mandatory and voluntary disclosure, a subject matter that has been rarely covered in the previous studies on disclosure as evidenced in the limited numbers of literatures available. Hence, this study adds a new dimension to the previous studies in this area, and also provides a starting point for future research possibilities in the area of financial reporting of Islamic banks.