The need for Shariah harmonization in financial reporting standardization

2015 ◽  
Vol 8 (4) ◽  
pp. 455-471 ◽  
Author(s):  
Murniati Mukhlisin ◽  
Mohammad Hudaib ◽  
Toseef Azid
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Deep Understanding ◽  
Development Effort ◽  
Reporting Standards ◽  
Islamic Banks ◽  
Reporting Standard ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Islamic Financial Institutions

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.

Comparative study between IFRS and AAOIFI disclosure compliance

2017 ◽  
Vol 15 (3) ◽  
pp. 269-292 ◽  
Author(s):  
Hana Ajili ◽  
Abdelfettah Bouri
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Design Methodology ◽  
Islamic Banks ◽  
Accounting Disclosure ◽  
Content Type ◽  
Factors Associated ◽  
Financial Reporting Standards ◽  
Disclosure Requirements ◽  
Islamic Financial Institutions

Purpose This study measures and compares the level of compliance with the disclosure requirements provided by the International Financial Reporting Standards (IFRS) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). This study also aims to investigate the factors associated with this compliance in a sample of Islamic banks (IBs) in Gulf Cooperation Council member states. Design/methodology/approach The sample consists of 39 IBs between 2010 and 2014. Among the selected IBs, 23 banks were complying with the AAOIFI standards and 16 banks were complying with the IFRS standards. An unweighted disclosure index was used to measure the level of compliance with IFRS/AAOIFI disclosure requirements. Findings It was found that the level of compliance with IFRS is higher than that of compliance with AAOIFI. In addition, the results reveal that compliance with IFRS/AAOIFI disclosure requirements is higher for larger and older IBs. Finally, it was observed that compliance was more noticeable for IBs having a higher leverage and multinational subsidiaries. Originality value These findings would be of great help to regulators and policymakers to better understand the accounting disclosure practices of IBs.

Level of Maqāsid ul-Shari’āh’s in financial reporting standards for Islamic financial institutions

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Murniati Mukhlisin
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Design Methodology ◽  
Reporting Standards ◽  
Complete Understanding ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Compliance Level ◽  
Compliance Measure ◽  
Islamic Financial Institutions

Purpose This study aims to measure levels of Sharīʿah-compliance in Islamic financial institutions (IFIs) financial reporting standards with the objective to investigate the application of Maqāsid ul-Sharīʿah as a compliance measure reflected in the reporting standards. Design/methodology/approach This paper adopts Maqāsid ul-Sharīʿah’s model to measure levels of Sharīʿah-compliance amongst three available financial reporting frameworks and presentation standards; international financial reporting standards (IFRS), accounting and auditing organization for Islamic financial institutions (AAOIFI), Pernyataan Standar Akuntansi Keuangan (PSAK) Syariah. NVivo 10 software is used in this paper to help measure quantitatively the compliance level of each standard. Findings The findings suggest that the use of Maqāsid ul-Sharīʿah leads to a more complete understanding of how the meaning of Sharīʿah and its values can be integrated into the demands of financial reporting, and hence, offering greater convergence between ethics and accounting regulations amongst IFIs. Originality/value It documents different context of content analysis that takes examples of Islamic financial reporting studies and uses both classical and contemporary theoretical bases. The main outputs are designed for standard setters and policymakers with expectation for Sharīʿah objectives (i.e. Maqāsid ul-Sharīʿah), to be embedded in the preparation of financial reporting standards for the IFIs. Hence, they will be able to show their full accountability then gain better trust from the stakeholders.

Factors that influenced the adoption of IFRS by Islamic banks in the UAE

2020 ◽  
Vol 33 (1) ◽  
pp. 75-91 ◽  
Author(s):  
Mohammad Haroun Sharairi
Keyword(s):  
Financial Reporting ◽  
Design Methodology ◽  
Accounting Standards ◽  
Adoption Process ◽  
Islamic Banking ◽  
Reporting Standards ◽  
Islamic Banks ◽  
Content Type ◽  
Financial Reporting Standards ◽  
The Relationship

Purpose This paper aims to investigate the factors that influenced the current adoption of the international financial reporting standards (IFRS) by Islamic banks in the UAE. This paper examined the relationship between the theoretical aspects and practical components of the research investigation regarding the factors that influence the adoption of IFRS. This paper will contribute to the existing knowledge and practices in not only Islamic countries but also Western countries in terms of a deeper understanding of the adoption of IFRS by the Islamic banks and how the factors could influence the Islamic banking adoption, process, activities and financial reporting. Design/methodology/approach Several theories of regulation were considered in this paper to explain the existence of Islamic accounting regulations and understand why some of the Islamic accounting prescriptions became formal regulations, while others did not. Data was collected for this purpose by conducting a survey with professionals and managers of four Islamic banks in the UAE. Findings This paper revealed that factors, such as religion, culture and local investors, may have limited influence on the current adoption of accounting standards in the Islamic banks. Furthermore, this paper uncovered a concern among respondents of issues that developed when Islamic banks commenced the adoption of IFRS. This paper also indicated that respondents’ opinion does not reflect a perception that all IFRS are suitable for the application of Shariah transactions. Originality/value This study is unique as no study has yet explored the factors that influenced the adoption of the IFRS by Islamic banks in the UAE.

Financial Reporting of Islamic Financial Institutions

2020 ◽  
pp. 854-873
Author(s):  
Mezbah Uddin Ahmed
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Financial Accounting ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Financial Reporting Standards ◽  
Differential Approach ◽  
Islamic Financial Institutions ◽  
Similarities And Differences

This chapter elucidates the arguments for and against differential approach pertaining to financial reporting amongst Islamic Financial Institutions (IFIs). The chapter has identified additional objectives which the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) aims to achieve in comparison to International Financial Reporting Standards (IFRS). The chapter has also identified the global adoption status for both AAOIFI Financial Accounting Standards (FAS) and IFRS Standards, as well as the difficulties faced in adopting AAOIFI's FAS. This chapter offers illustrative examples of AAOIFI's FAS and IFRS applications to help in providing a much better understanding in terms of similarities and differences in the application of these two sets of standards.

A critical analysis of the use of fair value by Islamic Financial Institutions

2016 ◽  
Vol 7 (2) ◽  
pp. 170-183 ◽  
Author(s):  
Leila Gharbi
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Financial Institutions ◽  
Financial Reporting ◽  
Fair Value ◽  
Islamic Finance ◽  
Content Type ◽  
Narrative Methods ◽  
Financial Reporting Standards ◽  
Islamic Financial Institutions

Purpose This paper aims to address a specific question over the compatibility of International Financial Reporting Standards with Islamic finance regarding the use of interest rate as discounting rate in impairment testing and valuation techniques. Design/methodology/approach Inductive methodology and qualitative-narrative methods are used to explore the available texts and literature. Findings There are two main findings: first, the use of reference rate obtained in non-Islamic financial system is inappropriate from the Islamic perspective. Interest-based valuation techniques have not been adopted by the Accounting and Auditing Organization for Islamic Financial Institutions in its adaptation of conventional accounting practices, and the majority of Islamic scholars argue against Interest rate benchmarking. Second, the authors suggest nominal gross domestic product (NGDP) growth rate as an alternative benchmark because Islamic finance, in its ideal sense, is based on and closely linked to the real sector. Moreover, recent studies show that there are no statistical differences between NGDP growth rate and nominal interest rate for most of the countries studied. Originality/value This paper highlights the accounting implications of the prohibition of interest for valuation techniques and raises the need of acceptable alternative pricing benchmark.

Multiple logics within the international Islamic financial architecture: implications for Islamic financial reporting standards

2020 ◽  
Vol 33 (6) ◽  
pp. 709-727 ◽  
Author(s):  
Murniati Mukhlisin ◽  
Mohamed Fadzly
Keyword(s):  
Financial Reporting ◽  
Theoretical Perspective ◽  
Future Research ◽  
Reporting Standards ◽  
Structured Interviews ◽  
Content Type ◽  
Financial Architecture ◽  
Financial Reporting Standards ◽  
Political Interests ◽  
Islamic Financial Institutions

Purpose This paper aims to examine the existence of multiple institutional logics among a number of organisations within the international Islamic financial architecture (IIFA) whose main purpose is to promote and support the development of Islamic financial institutions (IFIs) across the globe and how IIFA relates to the role of Islamic financial reporting standards. Design/methodology/approach The authors review websites of 11 IIFA’s constituent organisations and undertake 7 in-depth, semi-structured interviews with senior members of a selection of these organisations to identify the dominant logics by which their role and (inter)action within the IIFA are shaped. Findings The study findings reveal evidence of competing (and shifting) logics and political interests that seem to have led to contradictions and inconsistencies among the constituent organisations. The authors explain this by proposing a framework consisting of religion logic, market logic and corporate logic that intertwines with the underlying economic system and acts as sources of identity–legitimacy–authority for the respective organisations. Originality/value The authors bring to light some key issues that may pose a threat to the sustained existence of IFIs. The authors adapt the institutional logic framework and incorporate it into religion logic within the context of Islam (i.e. hifdzul-din as the first Maqasid ul-Shari’ah), resulting in some fresh theoretical perspective that may inform future research.

scholarly journals Diverse accounting standards on disclosures of Islamic financial transactions

2019 ◽  
Vol 32 (3) ◽  
pp. 866-896 ◽  
Author(s):  
Habib Ahmed ◽  
Faruq Arif Tajul Ariffin ◽  
Yusuf Karbhari ◽  
Zurina Shafii
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Financial Accounting ◽  
Islamic Banks ◽  
Accounting Standard ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Islamic Financial Institutions ◽  
Financial Transactions

Purpose Since International Financial Reporting Standards (IFRS) are not primarily meant for the accounting needs of Islamic banks, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established to develop specific accounting standards for Shari’ah compliance. The purpose of this paper is to assess the de jure harmonisation between the disclosure requirements of the IFRS-based Malaysian Accounting Standards (MAS) and those of the AAOIFI. Design/methodology/approach Using Malaysia as a case study, the paper examines the extent of the de jure congruence between the IFRS-based MAS and AAOIFI’s Financial Accounting Standard No 1 (FAS1), which is considered to be one of the key disclosure standards for Islamic banks. We employ leximetrics and content analysis to analyse these accounting standards and the additional guidelines introduced by the Malaysian Accounting Standards Board (MASB) and the Central Bank of Malaysia (Bank Negara Malaysia, BNM) to identify the gaps between different tiers of MAS and FAS1. Findings The study finds that de jure congruence between the IFRS-based MAS and AAOIFI standards has improved through the introduction of additional accounting guidelines by both the MASB and the banking regulator, BNM. However, some gaps remain between the two standards. These gaps may be difficult to completely eliminate due to differences in the fundamental principles underlying the development of both standards. Originality/value While some studies have explored the de facto congruence between AAOIFI accounting standards and others, this paper is the first, to the best of the authors’ knowledge, to examine the de jure congruence between those standards with the IFRS-based MAS.

Comparative compliance status of AAOIFI and IFSB standards

2018 ◽  
Vol 9 (4) ◽  
pp. 607-628 ◽  
Author(s):  
Md. Hafij Ullah ◽  
Ruma Khanam ◽  
Tabassum Tasnim
Keyword(s):  
Financial Reporting ◽  
Financial Services ◽  
Ordinary Least Squares ◽  
Annual Reports ◽  
Reporting Standards ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Operational Risks ◽  
Islamic Financial Institutions

Purpose This paper aims to examine the compliance status of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Financial Accounting Standards-1 and Islamic Financial Services Board (IFSB) Standard-4 by Islami Bank Bangladesh Limited (IBBL), recognizing the regulatory influence for complying with AAOIFI and IFSB standards and identifying the factors influencing the compliance with these standards. Design/methodology/approach The present study used content analysis approach for investigating the compliance status. The study considered IBBL as the only sample because it is the only Islamic bank in Bangladesh which is the member of both AAOIFI and IFSB. Hence, this paper investigated the compliance status of IBBL as a member of AAOIFI and IFSB. The study examined the annual reports of 2008-2012 as these were the latest and contemporary reports in 2013 when the study was conducted. SPSS software version 22.0 was used to analyze the data. A total of 203 items under 13 categories of AAOIFI standard and 133 items under 17 categories of IFSB standard were considered. Ordinary least squares was run to test the hypotheses of the study. Findings The study found that IBBL on an average complied 46.31 per cent of AAOIFI and 52.50 per cent of IFSB standards during the period, and importantly, IBBL did not comply some of the categories of required disclosures. The study also observed that size, as measured by total asset and number of branches, has a significant influence on compliance with IFSB standard, but not AAOIFI. The findings of the study depicted that IBBL did not reasonably recognize the importance of complying with AAOIFI and IFSB standards. Poor compliance or non-compliance with AAOIFI and IFSB accounting and reporting standards by IBBL exposed that the bank is not efficient in managing Shari`ah compliance risks, operational risks and transparent financial reporting. Therefore, recognition of the Shari`ah standards by the respective IFIs and a “regulatory push” is vital for improving the level of compliance with these standards. Research limitations/implications The study considered IBBL as the only sample of the study because it is the only Islamic bank in Bangladesh which holds the membership of both AAOIFI and IFSB. The fiscal years 2008-2012 only were selected to evaluate the compliance status of the AAOIFI and IFSB standards in preparation and presentation of the financial statements of IBBL for comparative analysis because IFSB standard for accounting and disclosure was formulated in 2007; hence, the study could not evaluate the compliance status before 2008. Practical implications The study will help IBBL in identifying their limitations in complying AAOIFI and IFSB standards and also the regulators in designing the accounting and reporting frameworks in regulating Islamic banks in Bangladesh. The study would help IBBL in identifying the reasons for non-compliance, how improvement in compliance level may help the bank in mitigating Shari`ah compliance and operational risk and how new legal and institutional framework may improve the level of compliance with those standards. Social implications The study observed that the AAOIFI and IFSB standards were set for increasing the level of Shari`ah compliance, but the compliance status showed that different classes of accounting and reporting were ignored from compliance by IBBL. This study will benefit the stakeholders in choosing a Shari`ah-compliant bank. Originality/value This is a unique study which considered both AAOIFI and IFSB accounting and reporting standards in evaluating the reporting compliance status of an Islamic bank and identified the influence of reporting compliance on managing Shari`ah compliance risks, operational risks and transparency. This study expects to instigate the Islamic banks in complying accounting and reporting standards for being Shari`ah-compliant.

Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective

2021 ◽  
Vol 12 (2) ◽  
pp. 239-257
Author(s):  
Marziana Madah Marzuki ◽  
Abdul Rahim Abdul Rahman ◽  
Ainulashikin Marzuki ◽  
Nathasa Mazna Ramli ◽  
Wan Amalina Wan Abdullah
Keyword(s):  
Financial Institutions ◽  
Financial Reporting ◽  
Business Models ◽  
Fair Value ◽  
Financial Instruments ◽  
Structured Interviews ◽  
Content Type ◽  
Reporting Framework ◽  
Islamic Financial Institutions ◽  
Ifrs 9

Purpose The purpose of this paper is to investigate the effects and challenges of the new amendment of International Financial Reporting Standards (IFRS) 9 in Malaysia from the perspectives of regulators, auditors, accountants and academicians in Malaysian Islamic financial institutions. For the purpose of this study, this paper focuses on the recognition criteria perspective of the standard, which provides a basic understanding of the financial reporting framework. Design/methodology/approach Using 10 series of semi-structured interviews undertaken with key individuals in regulatory bodies, audit companies, full-fledged Malaysian Islamic Banks and Malaysian higher learning institutions. Findings The findings revealed that IFRS 9 strengthens International Accounting Standards 39 in terms of relevance and reliability, recognition of financial instruments and identification of business models. Nevertheless, Islamic financial institutions face challenges in terms of a faithful representation of fair value, substance over form, identification of financial instruments before recognition criteria and the extent of the role of risk management in reducing manipulation in identifying business models. Research limitations/implications This study provides implications to regulators and standard setters in Malaysia to enhance the quality of financial reporting framework and practices in Islamic financial institutions in this country using IFRS 9. Practical implications Practically, the findings of this study can be used by the regulators to resolve the issues that arise in adopting IFRS 9 among Islamic financial institutions to further enhance financial reporting quality. Originality/value The findings of this study are very important to ensure that the adoption of IFRS among Islamic financial institutions are in line with Sharīʿah principles. To date, no studies have been done on the challenges of adopting IFRS 9 among Islamic financial institutions in Malaysia.

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