Article (11) Internal Shari’ah Audit Division

Effective from 8/9/2023

11.1.	The Internal Shari’ah Audit Division undertakes Shari’ah audit and monitors Company’s compliance with Islamic Shari’ah Provisions. This is conducted through an annual plan to collect and assess evidence of Company’s activities and transactions to ensure their compliance with Islamic Shari’ah Provisions and ensure the adequacy of internal procedures and Shari’ah governance framework.
11.2.	Within the Shari’ah governance framework, the Company must have specified work procedures related to Internal Shari’ah Audit Division.
Fit and Proper
11.3.	The Company must appoint a head for Internal Shari’ah Audit Division², after obtaining the Central Bank’s approval, who shall report to the Board. The head of this division must:
a.	be a Muslim;
b.	have a university degree in Islamic Shari’ah, or relevant specializations;
c.	have a professional certificate in Shari’ah supervision and/or Takaful Insurance from one of the organizations that supports Islamic finance like the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the General Council for Islamic Banks And Financial Institutions (CIBAFI), or other recognized institutions that issue similar certifications. It is also preferable to have a professional certificate in insurance issued by a local or an international organization;
d.	have an experience of ten (10) years, as a minimum, in the field of Shari’ah supervision in Islamic financial institutions, including at least five (5) years Shari’ah Control in Takaful Insurance;
e.	practice his/her duties on full-time basis, and it is not permissible to combine between the job of a head of Internal Shari’ah Audit Division and any other job in the Company;
f.	have good conduct and behavior and not have been sentenced by a court in crimes related to honor or honesty, or was convicted of offences and sentenced to imprisonment;
g.	have excellent command of English and reasonable command of Arabic.
11.4.	The internal Shari’ah auditor must meet the requirements mentioned in Article (11.3), except for the condition of experience; where the internal Shari’ah auditor must have a minimum practical experience of five (5) years in Internal Shari’ah Audit.
The Internal Shari’ah Audit Functions
11.5.	Internal Shari’ah Audit Division shall carry out the following functions:
a.	Development of Internal Shari’ah Audit manual, and to undertake review and update the manual on a regular basis,
b.	Prepare the annual Shari’ah audit plan, which must be approved by the ISSC in coordination with the Audit Committee. This should adopt the best practices in this regard (for example, the risk based Shari’ah Audit),
c.	Undertake assessment of businesses and activities of the Company to ensure the Company’s Shari’ah compliance with the requirements issued by the Central Bank, resolutions of the HSA, and resolutions of the ISSC,
d.	Undertake assessment of effectiveness of the internal Shari’ah supervision to ensure that the Company’s compliance with Islamic Shari’ah Provisions,
e.	Ensure that the products and services, forms, contracts, agreements, the execution procedures of activities and transactions, and other related matters are approved by ISSC,
f.	Conduct regular field audit to the Company’s internal and external divisions, and branches (if any),
g.	Coordinate and exchange their findings and reports with the internal audit division,
h.	Prepare internal audit forms and programs required for conducting inspection, and to verify and document the sound execution of transactions in light of the HSA’s Resolutions and ISSC’s Resolutions,
i.	Conduct meetings with the Company’s divisions to discuss the Shari’ah observations and require setting appropriate measures to avoid such issues, in cooperation with relevant entities inside the Company, and
j.	Prepare a report of the outcomes of the Internal Shari’ah Audit.
11.6.	Internal Shari’ah Audit Division staff shall not undertake any executive powers or responsibilities related to the businesses, activities, and contracts that may be audited by them.
11.7.	The Internal Shari’ah Audit must not be outsourced to external entities. The Internal Shari’ah Audit division may be assisted by additional external bodies after the approval of the Central Bank.
Reporting Lines
11.8.	The head of Internal Shari’ah Audit Division shall report to the Board. The head of Internal Shari’ah Audit Division shall submit the reports to the ISSC for resolutions on Shari’ah matters stated in his/her reports. He/she shall then report with the ISSC resolutions to the Audit Committee for the implementation of their content and follow-up of their requirements.
11.9.	The Internal Shari’ah Audit Division submits its reports to the ISSC and to the Audit Committee biannually (at minimum³).
11.10.	In matters related to promotions, bonus, performance assessment, and termination, Internal Shari’ah Audit Division’s head and staff shall not report to the Senior Management they are auditing, but to the Board, through the Audit Committee, and in consultation with the ISSC.

²In the event of not appointing a head for Internal Shari’ah Audit Division, the Company shall appoint a trainee auditor or more (depending on the Company’s size) and he/she meets the minimum requirements for internal Shari’ah auditor (not requirements for a head) to be trained in Shari’ah auditing. After five years of the issuance of this Standard, the name of trainee auditor shall be submitted to the Central Bank for approval as a head of this division. At the same time, the Company shall appoint an external Shari’ah auditing company to perform the responsibilities of the head of Internal Shari’ah Audit Division with the participation of the trainee Shari’ah auditor.
³ The frequency of reports submitted by the Internal Shari’ah Audit division depends on the size and nature of the Company’s works, which might require submitting more reports.