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Article
Publication date: 10 April 2017

Mondher Fakhfakh

The purpose of this paper is to examine the level of harmonization of auditors’ reports issued by independent auditors of Islamic banks.

Abstract

Purpose

The purpose of this paper is to examine the level of harmonization of auditors’ reports issued by independent auditors of Islamic banks.

Design/methodology/approach

The homogenization of the auditors’ reports of Islamic banks has been statistically measured. Supranational auditing standards on auditors’ reports (ISA 700 and AAOIFI standard) are used as the control.

Findings

The results show lack of harmonization in several elements related to the form of the auditor’s report and in all elements related to the content of the auditor’s report among the Islamic banks.

Originality/value

This paper provides new empirical evidence about the measurement of harmonization in the form and content of the auditors’ reports of Islamic banks. It discusses the level of compliance with the elements enumerated by the standards issued by the International Federation of Accountants and the Accounting and Auditing Organization for Islamic Financial Institutions.

Details

Journal of Islamic Accounting and Business Research, vol. 8 no. 2
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 29 January 2020

Mondher Fakhfakh

The purpose of this paper is to examine the level of harmonization of consolidated auditors’ reports issued by the independent auditors of Islamic banks.

Abstract

Purpose

The purpose of this paper is to examine the level of harmonization of consolidated auditors’ reports issued by the independent auditors of Islamic banks.

Design/methodology/approach

A statistical measurement of the homogenization of the consolidated auditors’ reports of Islamic banks. International and Islamic auditing standards on consolidated auditors’ reports are used as the control (ISA 700 and AAOIFI standard-IAS2).

Findings

The results show a lack of harmonization among the Islamic bank’s groups in several elements related to the form of the consolidated auditor’s report and in all elements related to the independent auditor’s report.

Originality/value

This paper provides new empirical evidence about the measurement of harmonization in the form and content of the consolidated auditors’ reports of Islamic banks groups. It discusses the level of compliance with the consolidated elements enumerated by the standards issued by the International Federation of Accountants and the Accounting and Auditing Organization for Islamic Financial Institutions.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 13 June 2016

Mezbah Uddin Ahmed, Ruslan Sabirzyanov and Romzie Rosman

The purpose of this paper is to examine the accounting treatment and reporting of a murabaha contract and its implication to the financial statements of Islamic banks. In…

2782

Abstract

Purpose

The purpose of this paper is to examine the accounting treatment and reporting of a murabaha contract and its implication to the financial statements of Islamic banks. In addition, the paper also explains the implication of time value of money on the measurement of a murabaha contract and the concept of substance over form in recognising financial transactions.

Design/methodology/approach

This study reviews the accounting treatment and reporting for a murabaha contract as stated in the Financial Accounting Standards (FAS) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the application of a murabaha contract as a financial instrument based on International Financial Reporting Standards (IFRS).

Findings

The paper finds that, while IFRS-based financial reporting primarily focuses on economic consequences of financial instruments, AAOIFI further takes into consideration the legal structure of the instruments, which are based on Shari’ah precepts. The paper also finds that IFRS-based financial reporting cannot always capture the distinctive structure of the murabaha and, hence, may lack representational financial reporting. However, the IFRS recognizes the substance of a murabaha contract as financing, and the majority of Islamic banks in Malaysia report it as one of financing and not as a trading contract. For measurement, IFRS adopted the concept of time value of money where the profit allocation is based on amortized cost, which is similar to the measurement of conventional loan transactions that apply the concept of effective interest rate. Meanwhile, AAOIFI uses a straight-line basis to allocate the profit of a murabaha contract.

Practical implications

The forthright discussion and the observations of the paper are expected to assist regulators and standard setters in developing accounting standards that are in convergence but also cater to the unique characteristics of Islamic financial transactions.

Originality/value

The paper criticizes both accounting treatment of a murabaha contract based on the AAOIFI and IFRS and then suggests an extension of these treatments to be adopted to improve the reporting.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 15 February 2021

Nik Abdul Rahim Nik Abdul Ghani, Ahmad Dahlan Salleh, Amir Fazlim Jusoh @ Yusoff, Mat Noor Mat Zain, Salmy Edawati Yaacob, Azlin Alisa Ahmad and Muhammad Yusuf Saleem

This paper critically aims to examine the concept of beneficial ownership and its application in musharakah-based home financing.

Abstract

Purpose

This paper critically aims to examine the concept of beneficial ownership and its application in musharakah-based home financing.

Design/methodology/approach

The study applies the method of juristic interpretation in analyzing the meaning of beneficial ownership in legal documentation of musharakah-based home financing. This qualitative study uses content analysis approach that investigates the works of Islamic scholars on the concept of ownership and evaluates the concept of beneficial ownership in musharakah-based home financing from the Islamic perspective.

Findings

The result finds that beneficial ownership is considered a true ownership, as Shari’ah allows the transfer of ownership based on the offer and acceptance in a contract. Furthermore, the absence of legal registration does not mean the absence of true ownership, whereas all documentations and agreements have clearly stated rights and liabilities of each contracting parties.

Originality/value

This paper provides a fiqhi discussion of analyzing beneficial ownership in musharakah-based home financing. It shows that Shari’ah parameters are essential for the use of beneficial ownership to ensure its compliance with the Shari’ah requirements of milkiyyah (ownership).

Details

Qualitative Research in Financial Markets, vol. 13 no. 2
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 16 October 2017

Nik Abdul Rahim Nik Abdul Ghani

The purpose of this paper is to critically study the application of beneficial ownership in sukuk ijarah by analysing the fiqh interpretation on the concept of beneficial…

1710

Abstract

Purpose

The purpose of this paper is to critically study the application of beneficial ownership in sukuk ijarah by analysing the fiqh interpretation on the concept of beneficial ownership.

Design/methodology/approach

This is a theoretical paper using content analysis approach that delves into the works of Islamic scholars on the concept of ownership and evaluates the concept of beneficial ownership in sukuk ijarah from the Islamic perspective.

Findings

The paper concludes that the beneficial ownership should be considered as true ownership because Shari’ah has allowed the transfer of ownership by a sole basis of contract (offer and acceptance). Although the sukuk holders are not registered as the legal owners in the Land Office, the documentations and agreements have clearly specified the owners and their liabilities.

Research limitations/implications

Empirical investigations into how sukuk holders are responsible for the underlying assets in sukuk ijarah.

Practical implications

It is therefore important to develop parameters for beneficial ownership to govern the use of the concept in Islamic finance.

Originality/value

The paper shows the fiqh interpretation on the beneficial ownership in sukuk ijarah while considering all the constraints and challenges in the implementation of sukuk.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 13 June 2016

Zurina Shafii and Abdul Rahim Abdul Rahman

This paper aims to examine some issues in IFRS9 with regards to classification and measurement of Islamic financial assets. In addition, the paper discusses the Shariah concerns…

2206

Abstract

Purpose

This paper aims to examine some issues in IFRS9 with regards to classification and measurement of Islamic financial assets. In addition, the paper discusses the Shariah concerns on the use of fair value to measure financial assets.

Design/methodology/approach

This paper adopts qualitative method via the study of documents and textual analysis of Shariah opinions of scholars and relevant accounting standards.

Findings

The paper found that the classification and measurement of equity-based Islamic financial assets do not fit into the “default” classification category of amortised cost, as the future cash flow receivable does not constitute solely the payment of principal and interest (fixed rate payment). With regards to fair value measurement, Shariah concern arises during the adoption of fair value at Level 2 (reference of asset values from input other than quoted prices in active markets) and Level 3 (use of discounted cash flow method to arrive to asset valuation) because of the existence of in uncertainty or gharar as compared to Level 1 (fair value referred to quoted prices of similar assets).

Practical implications

Findings of the paper provide a starting point for a debate and extensive research on issues related to classification and measurement of Islamic financial assets and the use of fair value as a method of subsequent revaluation of Islamic financial assets. The Shariah analysis in the paper is useful for International Accounting Standard Board to engage with Islamic financial institutions and local accounting standard setters to reflect the unique nature of Shariah-compliant financial instruments. The paper serves as a basis to devise technical solutions to address accounting and reporting issues of Islamic financial instruments.

Originality/value

The paper offers Shariah analysis on the issue of classification, measurement and impairment model for Islamic financial assets. The paper is considered as the first paper that examines areas of possible tensions when applying IFRS9 to the accounting of Islamic financial assets. In addition, the paper has contributed to the literature in Islamic accounting and auditing.

Details

Journal of Islamic Accounting and Business Research, vol. 7 no. 3
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 16 November 2015

Murniati Mukhlisin, Mohammad Hudaib and Toseef Azid

This study aims to analyze IFIs’ stakeholders’ perception on Shariah harmonization for financial reporting standards inIndonesia as a part of the development effort of linking the…

2503

Abstract

Purpose

This study aims to analyze IFIs’ stakeholders’ perception on Shariah harmonization for financial reporting standards inIndonesia as a part of the development effort of linking the emerging global Islamic banking to Indonesian financial and industrial markets.

Design/methodology/approach

A sample of 160 respondents, who were stakeholders of Islamic banks, was taken from Jakarta, the capital city of Indonesia and its surrounding major districts to examine the stakeholders’ perception on Shariah harmonization effort toward the implementation of a uniformed financial reporting standard for Islamic financial institutions. Data for this study were collected using a structured questionnaire.

Findings

Through this study, the authors found several measures to be taken to ensure Shariah harmonization efforts in Indonesia such as deep understanding on the fatawā brought into practices and strict monitoring on the Islamic banks in applying the financial reporting standards that imply practicing the fatawā, both de jure and de facto. However, the respondents differ in their opinion on the possibility of Shariah harmonization, both de jure and de facto. The role of various actors involved in the financial reporting standardization may impede Shariah harmonization to take place.

Research limitations/implications

The study is only looking at one case study, which is Indonesia. Therefore, future studies should consider more countries and significant number of respondents. Different research instruments to measure the perception can also be an interesting research exploration. In addition, adopting deep Islamic political economy of accounting theory may support better analysis on the issue of financial reporting standardization for Islamic financial institutions.

Originality/value

This paper has practical significance for financial reporting standard setters for Islamic banks and policy-makers to understand the key behavioral and demographical dimensions of their stakeholders and using these dimensions to effectively position important aspects in financial reporting standards setting.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 4
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 15 June 2015

Catherine S F Ho

This paper aims to review the Shari’ah investment screening methodologies of 34 prominent global Islamic finance users, including index providers, Shari’ah service providers…

2375

Abstract

Purpose

This paper aims to review the Shari’ah investment screening methodologies of 34 prominent global Islamic finance users, including index providers, Shari’ah service providers, Islamic banks, a regulator, an association body and fund managers.

Design/methodology/approach

A comparative analysis is performed to highlight the variances of the Shari’ah-compliant methods and principles practiced by these renowned institutions with the latest compiled data.

Findings

The two sets of business screens and financial screens are profiled separately to clearly examine the similarities and differences between the different methodologies. Some of these practitioners are more specific in their listing of Shari’ah-impermissible activities, while some are more general in allowing more businesses to be included as permissible. The majority of these users practice a two-tier method of screening: qualitative and quantitative. Under quantitative screen, the range of allowable threshold ratios on non-permissible criteria differs slightly between them.

Research limitations/implications

With the wide divergence in screening methodologies applied by practitioners, there is a general consensus in the acceptance of compliant assets from various countries and practice. Standardization is, therefore, seen as a need not only to make understanding of Shari’ah investments clear to investors but also to discourage misunderstandings between scholars and investors.

Practical implications

The suggestion, therefore, is to set globally acceptable universal Shari’ah standard methodologies which are applicable by the world Islamic financial market. These standards which are relevant and logical to global ethical investing would further stimulate investments in Islamic finance.

Social implications

With Shari’ah-compliant asset growing exponentially relative to the world’s financial assets, it is alleged that greater harmonization of the global screening methods would prevent misunderstanding and provide a clearer insight on Shari’ah investing, which could further accelerate growth of the Islamic finance sector worldwide.

Originality/value

To provide a more transparent regulatory environment and build local and regional regulatory framework through establishment of standards, there should be more consistency with minimum barriers that prevent the industry from achieving its full potential. The paper also contributes to existing literature by documenting and analyzing the qualitative and quantitative screening procedures as practiced by a comprehensive set of global Islamic finance users. It is, therefore, important to share this knowledge as an effort toward greater understanding and harmonization of the practices at the global level to accelerate growth in the industry.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 8 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 14 February 2024

Amer Morshed

This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple…

Abstract

Purpose

This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple accounting standards in Islamic banking, examine the need for private accounting standards and assess international financial reporting standards (IFRS) compatibility with Islamic banking and analyse financial leasing accounting in Islamic banking compared to IFRS 16.

Design/methodology/approach

A combination of comparative theoretical analysis, physical examination, and semi-structured interviews has been used as a research methodology. These methods are interconnected and complement each other to provide a comprehensive approach to address the research questions.

Findings

Islamic banks in various countries show varying compliance with AAOIFI accounting standards. Some fully comply, while others adopt a hybrid approach combining AAOIFI and IFRS. Differences in accounting treatments can result in conflicts, asset inflation and financial statement discrepancies. Challenges and criticisms faced by AAOIFI standards include violating the matching principle and lacking faithful representation. Collaboration among academics, standards-setting bodies and organisers is crucial for guiding the reporting of Islamic financial statements.

Practical implications

The research identifies gaps in implementing Islamic accounting standards and proposes strategies to enhance compliance, improve performance and increase transparency in Islamic financial institutions. It highlights the importance of a harmonised and universally accepted accounting framework for Islamic banking, considering the compatibility between IFRS and Islamic principles.

Social implications

Social implications have arisen regarding the global acceptance of Islamic finance, which leads to an increase in socially Islamic finance exchange.

Originality/value

This research examines the consequences of using multiple accounting standards in the Islamic banking industry and discusses the need for private accounting standards and compatibility with IFRS.

Details

Journal of Islamic Accounting and Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 19 June 2017

Siong Choy Chong and Usman Olakunle Balogun

This paper aims to describe the development and prospects of an Islamic finance professional programme structure (IFPPS).

1404

Abstract

Purpose

This paper aims to describe the development and prospects of an Islamic finance professional programme structure (IFPPS).

Design/methodology/approach

This paper is conceptual in nature. It begins with a review of issues leading to the development of IFPPS by the Finance Accreditation Agency (FAA). The process of developing the IFPPS is then delineated, followed by discussions on its intended benefits, the challenges encountered, as well as ways the issues and challenges can be addressed.

Findings

The benefits of IFPPS to different stakeholders are highlighted, with consideration given to its strategic roles in addressing the issues and challenges put forth.

Research limitations/implications

Because this paper focuses on the conceptual development of IFPPS, its actual application will further reinforce its value. The outcomes will be presented in the form of case studies in a subsequent publication to contribute to theory and practice.

Practical implications

Having a knowledgeable and skilled workforce through continuous learning and development is key to sustaining the growth of the Islamic financial services industry (IFSI). One possible way is through the adoption of a unified structure, such as the IFPPS which links quality learning to competencies of IFSI practitioners. In addition, the IFPPS possess characteristics which could potentially serve to facilitate the development of sectorial-based national qualifications framework for Islamic finance, making harmonisation in terms of the design, development, delivery and assessment of different learning programmes and qualifications possible.

Originality/value

A uniformed structure that guides learning and development of practitioner-based Islamic finance programmes is long overdue. With the rapid growth of the IFSI, coupled with the concomitant need for a competent workforce to meet business requirements, the time has come for the development of the IFPPS for the IFSI. The development of IFPPS represents the first of its kind for the IFSI. Once the professional qualifications standards are fully developed and implemented, it is expected to bring enormous benefits to different stakeholders involved in Islamic finance learning and practice.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 10 no. 2
Type: Research Article
ISSN: 1753-8394

Keywords

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