Operational shariah audit in Islamic banks: Conceptual clarity and practice gap

Abstract

Operational Shariah Audit (OSA) is conceptualised as a distinctive audit domain within Islamic banks that integrates operational performance assurance with Shariah compliance. This paper undertakes a critical literature review of institutional standards and academic studies to examine the evolution of operational auditing and its adaptation within Islamic finance. Drawing on guidance from international audit institutions and Shariah governance frameworks, the review identifies persistent gaps that constrain the effective institutionalisation of OSA. Three key challenges emerge. First, the absence of a consolidated methodology results in inconsistent OSA practices across Islamic banks. Second, auditor competency remains limited, as effective OSA requires dual literacy in both professional auditing standards and fiqh al-muʿāmalāt. Third, regulatory and standard-setting frameworks remain fragmented across jurisdictions, undermining comparability and coherence. Anchored in Islamic Agency Theory and the maqāṣid al-Sharīʿah, OSA is positioned as a governance mechanism that ensures dual accountability—operational performance and Shariah integrity. This paper contributes by clarifying OSA as a distinct audit concept, synthesising key methodological and institutional gaps, and providing a conceptual foundation for future empirical research and regulatory development. The findings underscore the strategic role of OSA in strengthening Shariah governance and enhancing the credibility of Islamic banks.