Scope: An external Shariah audit involves an independent review of a financial institution’s operations and products for Shariah compliance. It includes evaluating contracts, verifying financial transactions, and assessing operational procedures.

Process: Auditors review documentation, contracts, and transaction data, checking them against Shariah standards. They provide a detailed audit report and recommend corrective actions for any non-compliant areas.

Challenges: Maintaining uniformity across different interpretations of Shariah, especially with evolving product structures, is challenging. Compliance is further complicated when institutions operate across multiple jurisdictions.

Examples: Many Islamic banks undergo annual Shariah audits conducted by AAOIFI-compliant auditors to validate their adherence to Islamic finance principles.