Business succession from an Islamic accounting perspective

Purpose – The purpose of this paper is to discuss the inheritance of a business from the Islamic accounting

perspective.

Design/methodology/approach – The paper adapts the relevant provisions of conventional accounting

standards and practices that conform to Sharīʿah (Islamic law). In addition, the provisions of the Islamic

accounting standard for musharakah (AAOIFI’s FAS No. 4) found to be relevant are also adapted.

Findings – The study shows that the assets of an inherited business should be measured at their fair values

and that liabilities and legacies must be deducted therefrom with the view to arriving at the equity (or

residue). The equity is then distributed among the heirs based on the sharing ratio established according to

the Noble Qurʾan, the Sunnah (the Prophet’s way) and Muslim jurists’ views. Therefore, the inherited business

becomes a family business as each heir is admitted into it. By extension, Islam emphasizes that the business

should remain a going concern to generate income to sustain the welfare of the heirs.

Research limitations/implications – The discussion of the paper is limited to the inheritance of a

business and its going concern in line with the Sharīʿah.

Practical implications – Special attention should be paid to the inherited business to ensure not only its

continuity to generate income for the heirs but also that each heir gets a correct share of the equity of the

business as regulated by the Sharīʿah.

Originality/value – This study links Islamic inheritance to the going concern of the business, which from

all indications has not been given full consideration by previous studies.

Keywords Musharakah, AAOIFI, Islamic accounting, Going concern, Family inherited business,

Islamic succession