A Narrative-Systematic Review of Financial Reporting Fraud in Islamic Banks: A Comparison of Shariah Compliance in Indonesia and Malaysia (2014-2024)

This paper presents a narrative-systematic review of financial reporting fraud in Islamic banks, with a comparative analysis of Shariah compliance in Indonesia and Malaysia from 2014 to 2024. Despite the ethical and moral foundations of Islamic banking—rooted in principles such as the prohibition of riba (interest), gharar (uncertainty), and maysir (gambling)—cases of financial misreporting continue to emerge. The study synthesizes findings from reputable international journals, regulatory reports, and national case studies to identify patterns, contributing factors, and implications of fraudulent financial reporting within the Islamic banking sectors of both countries. The research highlights key differences and similarities in regulatory frameworks , Shariah governance structures , accounting standards , and internal control mechanisms that influence the likelihood of financial misconduct. Findings reveal that while Malaysia demonstrates more advanced institutional frameworks and greater alignment with international standards such as AAOIFI and IFRS, Indonesia faces structural challenges including limited independence of Shariah supervisory boards and inconsistent enforcement of disclosure requirements. The paper emphasizes the urgency of strengthening transparency, improving auditor capacity, and harmonizing accounting practices across Islamic financial institutions. It also underscores the importance of leveraging technology for real-time auditing and fraud detection.