MASB Releases Paper on Islamic Accounting and Finance

The MASB has released a paper prepared by its staff members that essentially discusses Islamic accounting, finance treatments/procedures for different Islamic financial instruments as well as the reason behind the Malaysian Accounting Standards Board’s decision to ask Islam’s finance based institutions to practice Malaysian Financial Reporting Standards that are similar to International Financial Reporting Standards. Through the paper the Malaysian Accounting Standards Board has also requested the International Accounting Standard’s Board to take Islamic finance and accounting related matters into consideration. The paper released by the MASB comes in two different parts and consists of views (which are not essentially the opinions and viewpoint of the Malaysian Accounting Standards Board).

The staff paper offers a basic summary of Islamic accounting and finance as well as its presence in the global modern economy.

The 1st part describes the very background and basis for many Islamic accounting and finance related transactions. These transactions are characterized by the utilization of trade related contracts in place of using loan. It states that the trade subject should ideally be an item that is tangible or an intangible permitted item. Even the law of Sharia has been discussed in the paper.

The staff paper also contrasts and compares the Islamic accounting and finance treatment as per standards created by the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and International Finance Reporting Standards. The paper has also made observations regarding the fact that AAOIFI has not been very supportive of two main IFRS concepts i.e. money’s time value and substance over form, historically.

In the 2^nd part, the staff paper analyses few of the existing topics related to the application of International Financial Reporting Standards to Islamic finance transactions. These topics are Islamic leasing as per International Accounting Standards 17 Leases as well as the International Accounting Standard Board’s project pertaining to leases. The second part also notes that the existing approach of classifying these arrangements in the form of 'operating leases' will fail in achieving off balance sheet related treatment.

In the second part of the paper the MASB has concluded that it is concerned about the fact that these matters are currently being met in context of Malaysia and IASB is nowhere involved in them.