Diverse accounting standards on disclosures of Islamic financial transactions

Abstract

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.

A systematic literature review on AAOIFI standards

“…The research methods adopted by the 46 papers can be divided into four attributes. The first three are empirical in nature as follows: based on secondary data (Elgattani and Hussainey, 2020; Harun et al , 2020); based on primary data (Nor Farizal et al , 2019); empirical studies that used surveys/questionnaire (Ahmad and Daw, 2015; Ben Abd El Afou, 2017); and theoretical studies that used descriptive analysis for standards and showed the variances by comparing with other standards (Umar and Kurawa, 2019; Ahmed et al , 2019). …”

“…theoretical studies that used descriptive analysis for standards and showed the variances by comparing with other standards (Umar and Kurawa, 2019; Ahmed et al , 2019).…”

“…According to the categories of AAOIFI standards, literature shows that several empirical studies have been conducted to investigate AAOIFI accounting standards (Sarea, 2012; Atmeh and Hadi Ramadan, 2012; Vinnicombe, 2012; Mohamed Naim et al , 2013; Sarea and Mohd Hanefah, 2013a, 2013b; Gupta, 2015; Ahmad and Daw, 2015; Sarea, 2016; Ahmed et al , 2016; Hanif, 2016; Ben Abd El Afou, 2017; Mnif Sellami and Tahari, 2017; Suandi, 2017; Atmeh and Maali, 2017; Ullah et al , 2018; Al-Sulaiti et al , 2018; Nor Farizal et al , 2019; Umar and Kurawa, 2019; Ahmed et al , 2019; Ehsan et al , 2019; Saidani et al , 2020); AAOIFI Sharia standards (Che Azmi and Hanifa, 2015); AAOIFI governance standards (El-Halaby and Hussainey, 2016; Marie et al , 2018; Albarrak and El-Halaby, 2019; Nugraheni and Khasanah, 2019; Brahim and Arab, 2020; Elgattani and Hussainey, 2020; Harun et al , 2020); AAOIFI auditing standards (Fakhfakh, 2017); and finally AAOIFI ethics standards (El-Halaby and Hussainey, 2015) as presented in Table 1. To provide a wide view regarding the investigation and measuring AAOIFI standards, this section discusses these studies in the following section.…”

“…There are, however, 19 papers that provide a theoretical explanation for AAOIFI and why we need Islamic standards for IFIs and to what extent this standard differs from the conventional ones such as IFRS and examine the accounting treatment for AAOIFI for several Islamic products such as Sukuk and its implications without providing any empirical evidence (Alexakis and Tsikouras, 2009; Maurer, 2010; Salah, 2010; Atmeh and Hadi Ramadan, 2012; Mohamed Naim et al , 2013; Sarea and Mohd Hanefah, 2013b; Velayutham, 2014; Gupta, 2015; Che Azmi and Hanifa, 2015; Ahmed et al , 2016; Di Bella and Al-Fayoumi, 2016; Hanif, 2016; Fakhfakh, 2017; Mukhlisin, 2017; Atmeh and Maali, 2017; Umar and Kurawa, 2019; Ahmed et al , 2019; Kamla and Haque, 2019). Table 10 presents a summary of these papers.…”

Impacts of the Islamic Financial Services Act 2013 on Investment Account products offered by Islamic Banks in Malaysia

“…or(3) commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding eight years or to a fine not exceeding twenty-five million ringgit or to both". Subsection 1 revolves around the significance of Shariah compliance while subsection 3 suggests remedial measures to manage Shariah-non compliance risk.…”