An Exp lo ratio ry Study o f Accounting on Ijarah ...

60 An Exp lo ratio ry Study o f Accounting on Ijarah ...

then the mean should be higher or at least 3.00. This assumption is based on Paragraphs

29 and 53 of the IAS 17 and Paragraph 54 of the MASB 10. These paragraphs clearly state that under operating leases, the depreciation of leased assets should be on a basis

c o n s i s t e n t w i t h t h e l e s s o r ’s n o r m a l d e p r e c i a t i o n p o l i c y f o r s i m i l a r a s s e t s . T h e r e f o r e , t h e researcher feels surprised that the above statement made by the AAOIFI has a mean below 3.00 although the IAS 17 and MASB 10 have proposed the same treatment.

The AAOlFI’s standard also states that at the end of the financial period, the amortization of initial direct cost, if material, shall be recognized as an expense. At the end of the financial period also, the AAOIFI’s standard states that

Ijarah installments

receivable shall be measured at their cash equivalent value. Another statement that also

f a l ls w i t h i n t h i s c a t e g o r y is r e l a t e d t o t h e r e p a i r o f a l e a s e d a s s e t . T h e s t a t e m e n t a s s e r t s t h a t i f t h e r e p a i r o f a l e a s e d a s s e t is m a t e r i a l , i t s h a l l b e r e c o g n i z e d in t h e f i n a n c i a l period.

T h e a b o v e r e s u l t s a r e n o t u n e x p e c t e d a s n e i t h e r t h e I A S 1 7 n o r t h e M A S B 10 m e n t i o n e d anything about the amortization of initial direct cost, or the measurement of

Ijarah

(operating leases) installment receivable, or the treatment of repair of leased assets. These treatments only exist in the AAOIFl’s standard on

Ijarah. T h e r e f o r e , it is a s s u m e d

that the treatments are not popular with most of the

Ijarah p r a c t i t i o n e r s in M a l a y s i a ;

t h u s , t h e y h a v e a l o w e r m e a n s c o r e . T h i s a s s u m p t i o n is b a s e d o n t h e f a c t t h a t m o s t o f t h e Ijarah practitioners follow the IAS and MASB because they are more familiar with these t w o s t a n d a r d s t h a n t h e A A O I F I ’s s t a n d a r d .

T h e i a s t s t a t e m e n t t h a t f a l l s w i t h i n t h i s c a t e g o r y is t h e s t a t e m e n t t h a t l e a s e d a s s e t s s h a l l

be presented in the financial statement under investment in

Ijarah assets. On the other

hand, Paragraph 49 of the MASB 10 and Paragraph 43 and 51 of the IAS 17 have a different opinion on this matter. Both the IAS 17 and MASB 10 agree that the lessors should present assets subject to operating leases in their balance sheet according to the nature of the asset and usually as property, plant and equipment. It can be rationalized

that the different treatment by the IAS 17 and MASB 10 has led to a lower mean score for the statement set by the AAOIFI on the matter of asset presentation in the financial

statement.

It can be concluded here that the main reason some of the statements set by the AAOIFI

h a v e a s c o r e l o w e r t h a n 3 ( i n t h i s c a s e f r o m 2 . 5 t o 2 . 9 9 ) is t h a t t h e y a r e t r e a t e d differently compared with the IAS 17 and MASB 10 and some of the treatments only

e x i s t i n t h e A A O I F I ’ s s t a n d a r d a n d n o t in t h e I A S 1 7 a n d M A S B 1 0 . F u r t h e r m o r e , m o s t of the

Ijarah p r a c t i t i o n e r s in M a l a y s i a a r e s t i l l u s i n g t h e I A S 1 7 a n d M A S B 1 0 a s t h e i r main guidelines for

Ijarah. This can be verified by the survey conducted on the adoption

o f a c c o u n t i n g s t a n d a r d s b y f i n a n c i a l i n s t i t u t i o n s ( p l e a s e r e f e r t o T a b l e 1 ).

VoL IS, N o.l/2,D esem ber 2005 © Centre f o r Indonesian A ccounting an d M anagem ent Research Postgraduate Program , Brawijaya University

The International Journal o f A ccounting and Business Society 61

Table 3: Relatively w eak support for the A A O I F I ’s Stan dard (Mean less than 2.5). Item

Attributes Mean

1. R e p a i r o f l e a s e d a s s e t , - i f m a t e r i a ! a n d d i f f e r i n g in a m o u n t f r o m

2.25 year to year, a provision for repairs shall be established.

2. If a provision for repairs has been established, cost of repairs

2.08 shall be charged against the provision.

are chargeable to the lessor, then the lessor shall recognize these repairs as an expense.

a m o u n t f r o m y e a r t o y e a r . T h e s e c o n d s t a t e m e n t b y t h e A A O I F I is t h a t i f a p r o v i s i o n f o r repairs has been established, cost of repairs shall be charged against the provision. The t h i r d s t a t e m e n t h i g h l i g h t s t h a t i f t h e l e s s e e u n d e r t a k e s r e p a i r s w i t h t h e l e s s o r ’s c o n s e n t and the costs are chargeable to the lessor, then the lessor shall recognize these repairs as an expense.

Most of the

Ijarah practitioners give a low score to these statements. The reason behind t h i s s c e n a r i o is t h a t m o s t o f t h e m a g r e e d t h a t t h e r e p a i r o f t h e l e a s e d a s s e t i s t o t a l l y u n d e r t h e l e s s e e ’s r e s p o n s i b i l i t y . T h e r e f o r e , t h e f i n a n c i a l i n s t i t u t i o n s t h a t a c t a s a l e s s o r d o n o t

have any concern about matters that relate to the repair of the leased asset. Furthermore, the IAS 17 and MASB 10 are also silent on the repair of leased assets. Thus, it gives a

low mean score to these statements.

Nevertheless, the lessee should bear the maintenance expenses to keep the leased assets in g o o d w o r k i n g o r d e r a n d b e r e s p o n s i b l e f o r r e p l a c i n g a n y w o r n o r d a m a g e d p a r t s ( A b d u l l a h , 2 0 0 0 ; H a i r e t d i n o v , 1 9 9 8 ) . B u t in o t h e r e x a m p l e s , t h e p a r t i e s t o t h e l e a s e agreement agree that the main maintenance work must be the responsibility of the lessor

a n d t h e p e r i o d i c a l a n d p a r t i a l m a i n t e n a n c e is t o b e a s s i g n e d t o t h e l e s s e e a s it is considered regular and may be considered part of the rental.

A n o t h e r p o s s i b l e r e a s o n t h a t 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

a r e f o l l o w i n g t h e I A S 17 a n d M A S B s t a n d a r d s f o r l e a s i n g , w h e r e a s w h a t t h e y a r e

a c t u a l l y d o i n g is I j a r a h f i n a n c i n g . I n a d d i t i o n , P a r a g r a p h 4 o f t h e M A S B 1 0 s t a t e s t h a t this standard does not deal with Islamic leases as these will be dealt with under separate Islamic Accounting Standards.

Vol. 13, N o.l/2,Desentber 2005 © Centre f o r Indonesian Accounting and M anagement Research Postgraduate Program , Brawijaya University