Ijarah Accounting: A Comparison of Conventional IAS-17 & Islamic FAS-8
Journal of Islamic Economics, Banking and Finance 12(1), 2016
14 Pages Posted: 23 Dec 2013 Last revised: 23 Jan 2018
Date Written: January 22, 2016
Abstract
Financial reporting is very important aspect of any business as it determines financial rights and liabilities of the parties involved. With the advent of Islamic finance the issue of financial reporting as per Islamic law was raised, which was then addressed by the Accounting and Auditing Organization of Islamic Financial Institutions [AAOIFI]. There exist differences as well as similarities under both regimes of accounting [conventional and Islamic]. As in many countries, relevant changes in laws for application of Islamic accounting are yet to be made, hence Islamic Financial Institutions [IFIs] in those countries are bound to follow conventional accounting standards. This study is intended to highlight the financial issues emerging due to application of conventional accounting standard in Ijarah accounting by IFIs. Comparison of two accounting standards IAS-17 and FAS-8 as well as their implications is discussed.We found in the process that although an informed effort is being made by experts in Islamic finance to match, revenue as well as cost to customers, with conventional financial industry, however contract of leasing and Ijarah carries more financial, legal and accounting differences than similarities, hence application of conventional lease accounting is not appropriate for an IFI.
Keywords: IAS 17, FAS 8, IFRS, IFAC, AAOIFI, Lease accounting, Ijarah accounting
JEL Classification: M-41
Suggested Citation: Suggested Citation