Basically, loophole is techniques that
were allowing a person to avoiding the scope of law or restriction without
directly violating the law in business. Mostly, these technique were used in
discussion of taxes and also their avoidance. By removing income or assets from
taxable situations into one with lower taxes, the loophole technique was implemented
by individuals or companies.
Based on the recent global financial crisis, there have created many
debate about the loopholes in the conventional banking system. The view from
scholars and finance experts stated that the Islamic banking industry is an alternative
for the conventional banking system in order to avoid any other financial
crisis in the future. The objective for created a new IFRS is for cover as much
loopholes in the financial system and also provide a systematic report on balancing
the bank financial report.
Besides that, the financial crisis has highlighted several loopholes
in the accounting standards from the off- balance sheet accounting that
affected the transparency of reporting entities and inconsistent application. The
requirement for consolidation and disclosure of structured entities has updated
accordingly of response from the broad range of stakeholders that include
International Accounting Standards Board (IASB).
In Islamic Finance industry, there are still missing one of the
important element which is the Sharia audit for the accounting standards. With
the one of the fast expanding system in the financial institutions industry,
these absenteeism is a serious loopholes in Islamic Finance System especially
in Malaysia. This country shows a gap of the practice Sharia supervisory.
Sharia legal contracts, documentations and operations were barely running
accurately in the process of auditor review. Based on the Sharia perception,
these loopholes need to be cover and manage properly. These showed that
standard 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 give
a big impact to the money laundering. The seams between accrual accounting and
cash accounting are ripe with loopholes because the two methods of accounting
for cash flows necessarily conflict (Cohen & Kane, 2012). In one of the
country, these are the several loopholes under the AMLA has been found.