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This paper aims to compare the Islamic financial accounting standards (IFAS) prevailing in Pakistan declared by the Securities and Exchange Commission of Pakistan (SECP) with accounting standards of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Both standards related to Islamic financial accounting have been thoroughly reviewed, compared and discussed to find out the differences and similarities, along with the depth needed to meet the needs of Islamic finance. 

AAOIFI accounting standards provide a comprehensive view of complex transactions, whereas SECP standards have limitations. The proposed recommendations aim to bridge the gap by conducting periodic reviews and revisions of IFAS prevailing in Pakistan to keep up with the dynamic nature of the Islamic finance industry.

The regulators should establish institutional arrangements for adapting AAOIFI accounting standards, enabling efficient and effective upgrading of existing accounting standards for Islamic financial institutions and alignment with international best practices.

There is a dearth of studies related to Islamic financial accounting in the context of Pakistan; this is one that contributes to this area.