An Exploratiory S tu dy o f A ccounting on Ijarah ...

62 An Exploratiory S tu dy o f A ccounting on Ijarah ...

Furthermore, they may not be aware of the existence of the AAOIFI’s standard on Ijarah. Therefore, they still use the MASB 10 and IAS 17 as guidelines. This situation may be due to the lack of promotion or concern given by the higher authorities

responsible for Islamic banking products in Malaysia to the adoption of the AAOIFI’s s t a n d a r d . I n o t h e r w o r d s , t h e A A O I F I ’ s s t a n d a r d is n o t m a n d a t o r y t o b e i m p l e m e n t e d in Malaysia. Hence, not many of the financial institutions are adopting the standard.

Results o f Interview S u r v ey

In order clarify some of the issues discussed from the survey questionnaire. A semi­ s t r u c t u r e d i n t e r v i e w m e t h o d is u s e d t o a c h i e v e t h i s o b j e c t i v e . T h e r e a s o n t o r t h e u s e o f

semi-structured interview is to explore issues raised by the questionnaire and confirm the findings. The financial institutions that are involved in this interview are Bank Islam Malaysia Berhad (BIMB) (adopts the IAS, the MASB and the AAOIFI), OCBC Bank (adopts the IAS and the MASB), Bumiputra Commerce Leasing Berhad (adopts the IAS only), Public Finance (adopts the MASB only), and finally Islamic Development Bank (IDB) (adopts the AAOIFI only). The selection is based on the type adoption of

s t a n d a r d s in o r d e r t o g e t t h e w i d e s t r e p r e s e n t a t i o n o f t h e b a n k s i n v o l v e d in t h e questionnaire survey.

There are six main issues raised in the interview. These six issues were determined based on the

salient accounting treatments as

normally available

in the conventional

a c c o u n t i n g s t a n d a r d s . T h e f i r s t i s s u e i s t h e v a l u a t i o n o f a s s e t s . T h e A A O I F I ’s s t a n d a r d states that assets acquired for

Ijarah shall be recognized at historical cost. However,

from the questionnaire survey, it can be seen that not all institutions are using historical cost Thus, in order to establish how the financial institutions recognized assets acquired for

Ijarah, this issue needed to be clarified through the interview.

T h e s e c o n d i s s u e is r e l a t e d t o t h e r e c o g n i t i o n o f i n c o m e . A s s t a t e d i n t h e A A O I F I ’s standard,

Ijarah revenue shall be allocated proportionately to the financial period in the lease term. This statement has the highest mean score in the questionnaire survey that reflects a high level of acceptability among the financial institutions in Malaysia. However, there is still a need to confirm the finding to make sure the financial institution has actually practiced the issue related to the recognition of income as recommended by the AAOIFI.

T h e i s s u e o f r e p a i r is t h e t h i r d i s s u e t h a t n e e d s t o b e c l a r i f i e d . O u t o f f o u r s t a t e m e n t s t h a t r e l a t e d t o r e p a i r o f t h e l e a s e d a s s e t , t h r e e o f t h e m h a d t h e l o w e s t m e a n s c o r e in t h e questionnaire survey. Thus, it is crucial to discover the contributing factors behind this low level of acceptability. The fourth issue that needs to be clarified is the issue of

depreciation. There are 2 statements in the AAOIFI’s standard that are related to depreciation. Nevertheless, one of them falls into the category that has a mean score 3.00 and above, while the other falls into the category that has a mean score of between 2.50

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 63

and 2.99. This indicates the mixed level of acceptability of practices on depreciation m e t h o d s b y M a l a y s i a n f i n a n c i a l i n s t i t u t i o n s . T h e r e f o r e , f u r t h e r c l a r i f i c a t i o n is n e e d e d t o know how the financial institution treats the depreciation of the leased assets.

T h e i n i t i a l d i r e c t c o s t is t h e f i f t h i s s u e t h a t n e e d s t o b e c l a r i f i e d . T h e A A O I F I ’s s t a n d a r d s t a t e s t h a t i f t h e i n i t i a l d i r e c t c o s t is m a t e r i a l , it s h o u l d b e a l l o c a t e d t o p e r i o d s i n t h e l e a s e t e r m a n d i f it is i m m a t e r i a l , it s h o u l d b e c h a r g e d d i r e c t l y in t h e i n c o m e s t a t e m e n t a s a n expense. Even though the statements have a mean score of more than 3 in the q u e s t i o n n a i r e s u r v e y , t h e r e is a n e e d t o l o o k i n t o w h e t h e r t h e r e s u l t o f t h e q u e s t i o n n a i r e is a c t u a l l y b e i n g p r a c t i c e d b y t h e f i n a n c i a l i n s t i t u t i o n s .

F i n a l l y , t h e s i x t h i s s u e t h a t n e e d s t o b e c l a r i f i e d is t h e i s s u e o f

Ijarah account receivable.

A s s t a t e d in t i ie A A O I F I s s t a n d a r d , t h e

Ijarah installments receivable shall be measured

a t t h e i r c a s h e q u i v a l e n t v a l u e . T h i s s t a t e m e n t h a s a m e a n s c o r e o f 2 . 8 3 a n d it is

c o n s i d e r e d a s m i x e d s u p p o r t f o r t h e A A O l F l ’s s t a n d a r d . H o w e v e r , t h e r e is a n e e d t o know what are other measurements used by the financial institutions to measure

Ijarah

accounts receivable if they are not using the cash equivalent value as recommended by the AAOIFI.

Valuation of Assets.

As for Bank Islam Malaysia Berhad (BIMB), the issue of recognition of assets acquired for

Ijarah is c o n s i d e r e d n o t a p p l i c a b l e t o t h e b a n k . T h e r e a s o n b e h i n d t h i s is t h a t B I M B is u s i n g a m o d i f i e d l e a s e . I t i s a c o m b i n a t i o n o f b o t h t h e o p e r a t i n g l e a s e a n d f i n a n c i a l lease. It is an operating lease because the bank owns the asset under the

Shari'ah concept

a n d a t t h e s a m e t i m e it is a f i n a n c e l e a s e b e c a u s e it is a f i n a n c i a l a r r a n g e m e n t . A s f o r t h e accounting practices, the recognition of assets acquired for

Ijarah is u p t o t h e c u s t o m e r

b e c a u s e t h e c u s t o m e r is c o n s i d e r e d t h e o w n e r o f t h e a s s e t .

As for OCBC, Public Finance and IDB, the banks do not recognize assets acquired for Ijarah at historical cost. As for OCBC, the bank adopts the MASB standard and the IAS. Meanwhile, Public Bank adopts the MASB only. Both standards are silent on the valuation of assets under the operating lease. However, the standards state that under the

f i n a n c e l e a s e , it s h o u l d b e u n d e r f a i r v a l u e . I n t h i s c a s e , b o t h b a n k s u s e t h e i r o w n discretion in the valuation of assets under operating leases. As for IDB, the bank claimed t h a t i t a d o p t s t h e A A O I F I o n l y . N e v e r t h e l e s s , in t h i s m a t t e r , I D B d o e s n o t c o m p l y w i t h t h e A A O I F I ’s s t a n d a r d . H o w e v e r , t h e s e t h r e e b a n k s a r e u s i n g t h e m a r k e t v a l u e .