Basically, loophole is techniques thatwere allowing a person to avoiding the scope of law or restriction withoutdirectly violating the law in business.
Mostly, these technique were used indiscussion of taxes and also their avoidance. By removing income or assets fromtaxable situations into one with lower taxes, the loophole technique was implementedby individuals or companies.Based on the recent global financial crisis, there have created manydebate about the loopholes in the conventional banking system. The view fromscholars and finance experts stated that the Islamic banking industry is an alternativefor the conventional banking system in order to avoid any other financialcrisis in the future. The objective for created a new IFRS is for cover as muchloopholes in the financial system and also provide a systematic report on balancingthe bank financial report.Besides that, the financial crisis has highlighted several loopholesin the accounting standards from the off- balance sheet accounting thataffected the transparency of reporting entities and inconsistent application. Therequirement for consolidation and disclosure of structured entities has updatedaccordingly of response from the broad range of stakeholders that includeInternational Accounting Standards Board (IASB).
In Islamic Finance industry, there are still missing one of theimportant element which is the Sharia audit for the accounting standards. Withthe one of the fast expanding system in the financial institutions industry,these absenteeism is a serious loopholes in Islamic Finance System especiallyin Malaysia. This country shows a gap of the practice Sharia supervisory.Sharia legal contracts, documentations and operations were barely runningaccurately in the process of auditor review. Based on the Sharia perception,these loopholes need to be cover and manage properly. These showed thatstandard in financial report Islamic Finance system need to improve.Revising on conventional banking system,credibility of the implementation of AMLA (Anti-Money Laundering Act) will givea big impact to the money laundering.
The seams between accrual accounting andcash accounting are ripe with loopholes because the two methods of accountingfor cash flows necessarily conflict (Cohen & Kane, 2012). In one of thecountry, these are the several loopholes under the AMLA has been found.
