Details

Technical Note

ISLAMIC ACCOUNTING: AN ATTEMPT TO CONFORM TO RELIGIOUS GUIDELINES OR CONVENTIONAL ACCOUNTING PRACTICE?

Omair Haroon, Sameen Fatima Meenai

INDUSTRY : Islamic Finance

AREA : Accounting & Control

ORGANIZATION :

LENGTH : 7

LUMS No : 01-005-2018-2

PUBLICATION YEAR : 2018

KEYWORDS:

Financial reporting framework, Islamic finance, Shariah-complaint, Islamic accounting standards, conventional finance.

DESCRIPTION:

This note attempts to critically analyse the suitability of the approach adopted towards the development of a financial reporting framework by the AAOIFI. The accounting treatment for transactions involving Islamic financial products postulated by the AAOIFI appears to have originated from the need for Islamic Financial Institutions (IFIs) to operate in largely westernised financial markets. The Islamic financial reporting principles, as practiced in the modern world, seem to be an innovation on traditional accounting, rather than following the ideas of accounting consistent with the Shariah, despite being extensively prescribed in recent literature on the subject.

LEARNING OBJECTIVES:

The note is designed to stimulate debate around the emergence of ‘Islamic Accounting Standards’ on the grounds similar to International Financial Reporting Standards (IFRS). The standards issued by AAOIFI borrow the framework of IFRS and prescribes accounting treatments for “Islamic Financial Instruments” based on this framework. The note discusses if such an approach is appropriate for developing accounting and reporting standards for existing, expanding and emerging Shariah-compliant products and transactions. This note can also be used to generate debates around ‘adopting’ existing ideas from conventional accounting and finance and making them ‘Islamic’ versus starting from scratch for a fresh view on foundations of Islamic economic systems.

SUBJECTS COVERED:

Islamic Accounting, Islamic Finance