THE CRITICAL ASPECT ON FAIR VALUE ACCOUNTING AND ITS IMPLICATION TO ISLAMIC FINANCIAL INSTITUTIONS

The Critical Aspect on Fair Value Accounting And Its Implication To Islamic Financial Institutions. Fair value accounting (FVA) paradigm replaced the historical cost accounting (HCA) in the development of accounting standards that FVA is more relevant that HCA probably did not provide the real financial and income information. This paper tries to explore critical aspects of the fair value accounting and its implications to Islamic Financial Institutions implications. This study concludes that that fair value accounting measurement provides many critical aspects to be implemented to Islamic Financial Institutions (IFIs). AAOIFI proposed cash equivalent value as respond to fair value measurement that cash equivalent value when the attribute condition are present such as the relevance, reliability and understandability of the resulting information DOI:10.15408/aiq.v6i2.1236

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The Critical Aspect on Fair Value Accounting and its Implication to Islamic Financial Institutions

Global Review of Islamic Economics and Business ◽

10.14421/grieb.2014.013-05 ◽

2015 ◽

Vol 1 (3) ◽

pp. 210

Author(s):

Safri Haliding

Keyword(s):

Financial Institutions ◽

Financial Reporting ◽

Financial Institution ◽

Accounting Standards ◽

Fair Value ◽

Fair Value Accounting ◽

Fair Value Measurement ◽

Islamic Financial Institutions ◽

Value Measurement ◽

Critical Aspects

Recently, fair value measurement and its implication in accounting standards have been increasing (Ramanna, 2006). One of the important aspects of financial reporting is measurement (Barth, 2007). Barlev and Haddad (2003) state that the fair value accounting(FVA) paradigm replaced the historical cost accounting (HCA) in the development of accounting standards that FVA is more value relevant that HCA probably did not provide the real financial information and income. However, previously studies mention that fair value accounting suffers from some serious limitations and disadvantages such as issues in market approach, income approach, and cost approach. Al-Yassen and Al-Khadash (2011) argue that accounting standard setters such as the International Accounting Standards Board (IASB) UK and the Financial Accounting Standards Board (FASB) U.S as well as other national accountingstandard setters provide high attention and long-term ambition to use fair value accounting as full measurement in all financial instruments. Islamic Financial Institutions (IFIs) that have different objectives and principles as well as have different financial products with conventional financial institution. This paper tries to explore critical aspects of the fair value accounting andits implications to Islamic Financial Institutions implications. This study concludes that that fair value accounting measurement provides many critical aspects to be implemented to Islamic Financial Institutions (IFIs). Additionally, AAOIFI proposed cash equivalent value as respond to fair value measurement that cash equivalent value when the attribute condition are present such as the relevance, reliability and understandability of the resulting information. Furthermore, fully adopting International Financial Reporting Standards (IFRS) issued by IFRSIASB, there will no specific standards for unique functions of Islamic Financial Institutions. Inaddition, the paper may be recommended to work together among Muslim countries to unity the potential harmonizing one set accounting standards for Islamic Financial Institutions such as AAOIFI?s standards.

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

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-04-2020-0100 ◽

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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User Views On The Complex Accounting For Financial Instruments

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v4i12.3644 ◽

2011 ◽

Vol 4 (12) ◽

Cited By ~ 1

Author(s):

Chyi Woan Tan ◽

Greg Tower ◽

Phil Hancock ◽

Ross Taplin

Keyword(s):

User Experience ◽

Financial Institutions ◽

Fair Value ◽

User Preferences ◽

Financial Instruments ◽

Fair Value Accounting ◽

General Support ◽

Accounting Model ◽

Topical Area

This paper examines Australian and Singaporean users views on fair value accounting for all financial instruments in financial institutions via a survey on various aspects of contention in this debate. Overall, users showed general support for fair value accounting for all financial instruments. In addition, the findings revealed that users will support fair value accounting so long as there is no perceived difference between the banking and trading books, fair values of non-traded financial instruments are reliable and volatility in earnings will not be misunderstood. It was also found that user experience increases the level of support for the proposed fair value accounting model. These results highlight actual user preferences with noticeable support for arguments from both sides of the debate (JWG and JWGBA) in this highly contentious and topical area of accounting for financial instruments.

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Musharakah Mutanaqisah home financing: issues in practice

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-08-2015-0036 ◽

2018 ◽

Vol 9 (1) ◽

pp. 91-103 ◽

Cited By ~ 7

Author(s):

Alam Asadov ◽

Zulkarnain Bin Muhamad Sori ◽

Shamsher Mohamad Ramadilli ◽

Zaheer Anwer ◽

Shinaj Valangattil Shamsudheen

Keyword(s):

Financial Institutions ◽

Current Mode ◽

Fair Value ◽

The Body ◽

Islamic Finance ◽

Islamic Banks ◽

Periodic Review ◽

Content Type ◽

Finance Industry ◽

Islamic Financial Institutions

Purpose This paper aims to examine the practical issues in the Musharakah Mutanaqisah (MM) financing and subsequently, recommends possible solutions to mitigate these issues and improve the current practice. Design/methodology/approach This paper analyses the theory and current practices of MM offered by Islamic banks. Findings It is suggested that Islamic financial institutions consider revaluation of property’s value to its fair value, especially during termination of MM contract and annual or agreed periodic review of the market value of the assets to determine the “rental” payments by the customer. It is also recommended that Islamic financial institutions should share all associated costs in performing the contract. Research limitations/implications Research findings reported in this paper contribute to the body of knowledge on MM in general and to the Islamic finance practices in Malaysia and abroad. Indeed, the Malaysia Central Bank (i.e. Bank Negara Malaysia) should form a special committee to look into the issues highlighted in this paper and recommend strict guidelines for Islamic financial institutions to improve their practices. Practical implications Islamic banks should extend the use of MM contract in automobile and trade financing where rent or profit could be easily identified and value of the asset is more certain. The regulators and Islamic financial standard setting authorities need to oversee the Shari’ah board decisions on MM contracts and keep the gates in the interest of ensuring a more viable and authentic Islamic finance industry. Originality/value This paper briefly views the current mode of MM contracts, specifically for home financing, and highlights the incompliance to Shari’ah requirements in exercising these contracts in practice.

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

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-10-2013-0037 ◽

2016 ◽

Vol 7 (2) ◽

pp. 170-183 ◽

Cited By ~ 4

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.

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