This study aims to analyze the effect of Compliance with Islamic Accounting Standards (CIAS) on the profitability of Islamic banks in Indonesia, proxied by Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). Compliance with Islamic accounting standards is considered an important indicator in reflecting the transparency, accountability, and quality of financial reporting in Islamic financial institutions. This study employed a quantitative approach using an explanatory research method involving 40 Islamic banks registered with the Financial Services Authority during the 2020–2024 period, selected through purposive sampling techniques. Secondary data were obtained from annual financial reports and analyzed using descriptive analysis, classical assumption tests, multiple linear regression, hypothesis testing, and coefficient of determination analysis. The results indicate that Compliance with Islamic Accounting Standards has a positive and significant effect on all profitability indicators, namely ROA (0.001), ROE (0.026), and NPM (0.001). These findings suggest that higher compliance with Islamic accounting standards leads to higher profitability among Islamic banks. This study contributes to the development of Islamic accounting knowledge and serves as a reference for Islamic bank management and regulators in improving compliance quality to support sustainable financial performance.
Over the last two decades, Indonesia's Islamic banking sector has developed markedly. The issuance of Law Number 21 of 2008 concerning Islamic Banking became an important milestone that accelerated growth in the number of institutions, the expansion of total assets, and the wider range of financing products available in the industry. The merger of state-owned Islamic banks into Bank Syariah Indonesia also represents an institutional transformation that has reinforced the strategic standing of Islamic banking within the national financial system. Even so, numerical expansion alone is insufficient unless it is accompanied by better governance and stronger adherence to sharia principles, especially in relation to financial reporting practices and the application of Islamic accounting standards.
From the standpoint of accounting regulation, Islamic banks in Indonesia are mandated to apply Sharia Financial Accounting Standards (PSAK Syariah) formulated by the Financial Accounting Standards Board of the Indonesian Institute of Accountants (DSAK-IAI). These standards provide rules for the recognition, measurement, presentation, and disclosure of transactions derived from sharia contracts, including murabahah, mudharabah, musyarakah, ijarah, and other Islamic contracts. Accordingly, the implementation of Islamic accounting standards should not be viewed merely as a formal regulatory requirement, but also as a reflection of sharia compliance that demonstrates the integrity and credibility of Islamic banks in the eyes of stakeholders.
Existing literature suggests that adherence to Islamic accounting standards is associated with improvements in the quality of financial reporting and the transparency of information provided. Mardian (2019) emphasized that the level of sharia compliance is one of the main indicators in assessing the accountability of Islamic financial institutions. Such compliance reflects consistency between operational practices and the underlying sharia principles. From a governance perspective, Romadhonia and Kurniawati (2021) found that sharia compliance and Islamic corporate governance influence the profitability of Islamic banks. Furthermore, Azizah, Djuwita, and Haerisma (2022) demonstrated that the implementation of PSAK 102 concerning murabahah affects the quality of revenue recognition and the credibility of financial statements. This finding is reinforced by Umar (2025), who argued that transparency in implementing sharia PSAK enhances stakeholder trust and improves risk perception. Therefore, compliance with Islamic accounting standards potentially provides both direct and indirect impacts on the financial performance and profitability of Islamic banks.
Profitability is commonly regarded as one of the main benchmarks for evaluating how successfully Islamic banks conduct their operations. Indicators such as Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM) are regularly used to assess the efficiency with which assets and capital are managed. Iman and Umiyati (2022) found that internal factors, including compliance with sharia principles, play an important role in determining the profitability level of Islamic banks in Indonesia. In addition, a comparative study conducted by Lestary et al. (2025) revealed that Islamic banks with higher levels of sharia compliance tend to demonstrate better financial stability and performance.
In theoretical terms, the connection between compliance with Islamic accounting standards and profitability can be understood through legitimacy theory and signaling theory. When a bank complies with Islamic accounting standards, it sends a favorable message to investors and customers that its operations are aligned with Islamic principles, thereby strengthening trust and loyalty. Such trust can encourage increases in third-party funds and financing activities, which may ultimately influence profitability. Nevertheless, empirical findings remain inconsistent. Several studies reported a positive and significant relationship between sharia compliance and profitability (Romadhonia & Kurniawati, 2021), while other studies found insignificant effects or relationships mediated by factors such as governance quality and audit quality (Abukosim et al., 2026; Nurrohim et al., 2026). These inconsistencies indicate the need for further empirical investigation, particularly in the Indonesian context, which possesses unique regulatory characteristics and industrial structures.
Furthermore, much of the earlier research has discussed Islamic governance in broad terms, whereas studies that specifically treat compliance with Islamic accounting standards as a quantitative variable and test its effect on profitability are still limited. In fact, the proper implementation of Islamic accounting standards is a basic requirement for generating financial reports that are reliable and relevant. Based on these considerations, this study becomes important and relevant to empirically examine the effect of compliance with Islamic accounting standards on the profitability of Islamic banks in Indonesia. This study is expected to contribute theoretically and practically to the development of Islamic accounting literature and the strengthening of governance practices within the national Islamic banking industry.
Legitimacy theory argues that organizations attempt to align their actions with the social norms, values, and expectations accepted within the communities in which they operate. In Islamic banking, legitimacy is not established only through adherence to statutory regulations, but also through observance of sharia principles that underpin the entire banking system. Accordingly, Islamic banks are expected to show that all operational activities, including the preparation of financial reports, are conducted in accordance with sharia requirements in order to sustain public confidence.
One of the formal forms of legitimacy is reflected in compliance with Islamic accounting standards (PSAK Syariah). Through the consistent application of these standards, Islamic banks can reinforce public perceptions that their operations are based on justice, transparency, and accountability. When legitimacy is preserved, trust from society is likely to increase, and this condition may subsequently support the growth of third-party funds and improve financial performance.
In Indonesia, Islamic accounting standards are governed through the Sharia Financial Accounting Standards (PSAK Syariah) issued by the Indonesian Institute of Accountants (IAI). PSAK Syariah provides accounting guidance for various sharia contracts, including murabahah, mudharabah, musyarakah, ijarah, salam, and istishna. Within the Islamic accounting literature, compliance with these standards indicates the consistency of financial reporting practices with sharia principles. This compliance can be assessed through disclosure indexes or by examining the degree to which financial statements conform to PSAK Syariah provisions.
The level of compliance shows the extent to which Islamic banks apply Islamic accounting standards in the preparation of their financial reports. In practice, this measurement is generally carried out through content analysis of annual reports. A high level of compliance reflects transparency and accountability, whereas weak compliance may give rise to reputational risk and reduce public confidence in Islamic banking institutions.
Profitability is an indicator used to assess a bank's ability to generate earnings from the assets and equity it possesses. In banking studies, profitability is commonly proxied by Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM).
Return on Assets (ROA) is a profitability ratio used to evaluate a company's ability to earn profit through the utilization of its total assets. ROA reflects the efficiency of management in using economic resources to generate income.
Return on Equity (ROE) is a profitability ratio used to measure a company's capability to generate net income from shareholders' equity. ROE describes the level of return received by shareholders from the capital they invest in the company.
Net Profit Margin (NPM) is a profitability ratio used to determine a company's ability to generate net income from the total revenue it earns. This ratio reflects the percentage of net profit produced from each unit of revenue.
H1: Compliance with Islamic accounting standards has a positive effect on the Return on Assets (ROA) of Islamic banks in Indonesia.
H2: Compliance with Islamic accounting standards has a positive effect on the Return on Equity (ROE) of Islamic banks in Indonesia.
H3: Compliance with Islamic accounting standards has a positive effect on the Net Profit Margin (NPM) of Islamic banks in Indonesia.
This research adopted a quantitative explanatory approach to investigate the causal relationship between the degree of compliance with Islamic accounting standards and the profitability of Islamic banks in Indonesia. The population of this study comprised all Islamic Commercial Banks (Bank Umum Syariah/BUS) registered with and supervised by the Financial Services Authority (Otoritas Jasa Keuangan/OJK). The sample was determined using purposive sampling based on several criteria, namely Islamic Commercial Banks that published complete annual reports, banks that presented financial statements in accordance with PSAK Syariah, and banks that had complete data for the research variables throughout the observation period. The period of analysis covered the most recent five years, namely 2020-2024.
This study used secondary data obtained from annual reports and financial statements of Islamic banks, Islamic Banking Statistics published by the Financial Services Authority (Otoritas Jasa Keuangan/OJK), as well as reports on the Islamic banking industry profile.
Based on the hypothesis testing, the Compliance with Islamic Accounting Standards (CIAS) variable obtained a significance value of 0.001 (<0.05), indicating a significant effect on profitability measured by Return on Assets (ROA). This finding suggests that greater compliance with Islamic accounting standards tends to be followed by higher profitability among Islamic banks. This result is also consistent with prior studies conducted by Yulianti et al. (2025), Romadhonia and Kurniawati (2021), and Lestary et al. (2025).
The hypothesis test shows that the Compliance with Islamic Accounting Standards variable is statistically significant for Return on Equity (ROE), with a significance value of 0.026 (< 0.05). This means that H2 is accepted. Support for this finding is also found in the studies of Romadhonia and Kurniawati (2021), Yulianti et al. (2025), and Lestary et al. (2025).
A significance value of 0.001 (<0.05) was obtained for Net Profit Margin (NPM), which indicates that the third hypothesis (H3) is accepted. This result is consistent with the findings of Yulianti et al. (2025), Romadhonia and Kurniawati (2021), and Fadilah (2024).
The findings of this study lead to the conclusion that Compliance with Islamic Accounting Standards positively and significantly affects the profitability of Islamic banks in Indonesia. Referring to these conclusions, Islamic banks should further strengthen the consistent application and supervision of Islamic accounting standards in order to enhance transparency, accountability, and financial performance. Bank management is also expected to improve the quality of financial reporting systems and reinforce internal governance. At the regulatory level, the Financial Services Authority (Otoritas Jasa Keuangan/OJK) and other relevant institutions are expected to intensify the monitoring and evaluation of how Islamic accounting standards are implemented.