According to the explanation of Bank Indonesia regulation (Bank Indonesia, 2009) states that the growth and development of Islamic banking are so rapid lately characterized by progressively increasing the number of Islamic banking service network and the various the product causes the implementation of Good Corporate Governance (GCG) in Islamic banking is becoming increasingly important. Good Corporate Governance (GCG) that serves to anticipate various risks, both financial risk and reputation, is also an important pillar that must be applied to create a Islamic bank that is superior and resilient. The implementation of Good Corporate Governance in Islamic banks to be important given the Islamic bank is a bank that uses the principle of profit sharing (profits divided between the bank and the customer) (Chapra & Ahmad, 2002).
Implementation of Good Corporate Governance in Islamic banking in order to make Islamic bank become more shar’i because its application in Islamic banking industry must fulfill sharia principles. Islamic banking operations must be strictly enforced based on sharia principles. On the other hand, the direction of development and regulation of Islamic banking is to ensure compliance with sharia principles in its operations by implementing fatwas issued by Dewan Syariah Nasional (DSN) & Majelis Ulama Indonesia (MUI) (Faozan, 2014). Emerging international standards specifically established to realize Islamic Financial Institutions (IFI) which is totally fair, professional, and in accordance with sharia standard / principle and the majority of international Islamic banking adopts standard and make it as reference of compliance of Islamic bank to sharia standard / principle issued by AAOIFI institution.
AAOIFI is one of the prominent International standard-setting organizations for Islamic institutions. The AAOIFI sets compliance standards for institution that wish to gain access to the Islamic financial market and ensures that its participants also comply with the regulations set out within the domain of Islamic finance. The objectives of the AAOIFI are as follows :
1. To develop accounting and auditing thoughts relevant to Islamic financial institutions.
2. To disseminate accounting and auditing ideas relevant to Islamic financial institutions and its application through training, seminars, publication of periodical, the carrying out and commissioning of research and other means.
3. To prepare, promulgate and interpret accounting and auditing standards for Islamic financial institutions.
4. To review and amend accounting and auditing standards for Islamic financial institutions (AAOIFI, 2010).
Hussainey (2016) states that the compliance rate of Islamic Banks based on AAOIFI standards assessed in terms of Sharia Supervisory Board (SSB) is about 68%, while the compliance rate for CSR is 27%, and compliance rate for financial accountability is 73%. The aggregate disclosure based on the three indices is 56%. The analysis also shows that bank size, the existence of Sharia Auditing Department, (SAD) the age of banks and Corporate Governance are the main determinants of compliance level.
The author would like to try to examine whether the existing Islamic banking in Indonesia in implementation already apply and dutifully against the standards of Corporate Governance issued by AAOIFI.
The author examines the implementations of Corporate Governance at the existing Sharia Commercial Bank in Indonesia using annual report data published by each Sharia Commercial Bank in Indonesia. This research is important because of the lack of research in Indonesia that examines the implementation of Corporate Governance based on AAOIFI standards.