An Exploratiory Study o f Accounting on Ijarah ...

66 An Exploratiory Study o f Accounting on Ijarah ...

Conclusions

The findings on the comparison between

Ijarah and conventional leasing from the legal

and accounting aspects showed that there are significant differences between these two contracts. Hence,

Ijarah should not be seen as an imitation of conventional leasing since

the definitions, types,

measurement methods, disclosure and substance of

Ijarah are dissimilar to those of conventional leasing.

It c a n b e c o n c l u d e d h e r e t h a t t h e m a i n r e a s o n w h y s o m e o f t h e s t a t e m e n t s s e t b y t h e

A A O I F I h a v e a s c o r e l o w e r t h a n 3 is t h a t A A O I F I t r e a t s t h e m d i f f e r e n t l y c o m p a r e d w i t h the IAS 17 and MASB 10 and some of the treatments only exist in the AAOIFFs s t a n d a r d a n d n o t in t h e I A S 1 7 o r t h e M A S B 1 0 . F u r t h e r m o r e , m o s t o f t h e

Ijarah

p r a c t i t i o n e r s i n M a l a y s i a s t i l l u s e t h e I A S 17 a n d M A S B 1 0 a s t h e i r m a i n g u i d e l i n e s f o r Ijarah.

A n o t h e r r e a s o n w h y t h e s e s t a t e m e n t s h a v e a l o w m e a n s c o r e is p e r h a p s t h a t , t h e

Ijarah practitioners themselves are uncertain how to tackle Ijarah issues as most of them are following the IAS 17 and MASB standards for leasing, whereas what they are actually doing is

Ijarah financing.

Furthermore, they may not be aware of the existence of the AAOIFFs standard for Ijarah. Therefore, they are still using the MASB 10 and IAS 17 as guidelines. This situation may be because of the lack of promotion of concern given by the higher authorities responsible for Islamic banking products in Malaysia to the adoption of the

AAOIFFs standard. In other words, the AAOIFFs standard is not mandatory to be implemented in Malaysia. Hence, not many of the financial institutions are adopting the

standard.

This study highlights the divergence of accounting practices on

Ijarah. From the

questionnaire survey, it is discovered that most financial institutions used Malaysian accounting standards on leasing (MASB 10) as a guide for accounting practices on

Ijarah. The results from the interview survey confirm this finding and highlights further constraints that Malaysian financial institutions have to abide. In the case of recognition of income, with the exception of BIMB and IDB, BNM rule to use the sum of year digits has been used by all financial institutions.

The interview survey also shows that BIMB and IDB are the two financial institutions t h a t a d o p t e d m o s t o f t h e A A O I F I ’s F A S 8 r e q u i r e m e n t s . I t i s u n d e r s t a n d a b l e a s B I M B is the first established Islamic banks in Malaysia and IDB is a foreign Saudi Arabia based development bank. This indicated that other Malaysian financial institutions are not well exposed and introduced to the AAOIFFs accounting standards. This results in a low level of acceptability of AAOFI’s FAS 8.

This low level of acceptability of AAOIFI FAS 8 is not unexpected due to the fact that AAOIFFs standard was initially designed for Islamic financial institutions and not financial institutions that undertake Islamic financing transactions. However with the

Vol. 13, N o.l/2,D esem ber 2005 © Centre f o r Indonesian A ccounting a n d M anagem ent Research Postgraduate Program , Brawijaya University

The international Journal o f Accounting and Business Society 67

introduction of FAS No. 18, Islamic

Financial

Services

offered by Conventional

f i n a n c i a l i n s t i t u t i o n s . A s m a l l s a m p l e s i z e o f 13 r e s p o n s e s w o u l d b e i n d i c a t i v e r a t h e r than conclusive as

to indicate the level of acceptability. Future research may try to

i n c l u d e a p r o f i l e a n a l y s i s d e v e l o p e d t h r o u g h f o c u s g r o u p s u r v e y . H e n c e , it m a y b e a b l e to capture more useful information for the study.

This study also indicates, subject to further study on other Islamic financial instruments and other Islamic countries, the effort to harmonise the accounting practices on Islamic financing by financial

be difficult task. Until and unlesc it is a d o p t e d b y t h e r e s p e c t i v e c o u n t r i e s r e g u l a t o r y a g e n c i e s , A A O I F I s t a n d a r d s w i l l remain only as a reference but do not have the legal authority. Significant efforts are required from the AAOIFI through publicity negotiation, and lobbying process to “market” its accounting standards to further enhance the credibility and comparability of accounting information of Islamic financing such as

institutions internationally

may

Ijarah.