A critique on accounting for murabaha contract

Ahmed, Mezbah Uddin; Sabirzyanov, Ruslan; Rosman, Romzie

doi:10.1108/jiabr-04-2016-0041

Cited by 16 publications

(12 citation statements)

References 1 publication

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“…This is, in essence, the "interest" rate method from conventional financing; however, scholars such as Muhamat et al (2011) convey that Islamic banks use terminology that appeals to customers to gain a competitive advantage. Using the effective profit rate method is a departure from the previous accounting standard for Murabaha, which required profit to be allocated on a straight-line basis (Ahmed et al 2016). This means that both AAOIFI and IFRS use the amortized cost method to account for the Murabaha contract, resulting in higher cashflows at the beginning of the contract, which subsequently reduces over the period of the contract.…”

Section: Discussionmentioning

confidence: 99%

“…The existing studies, however, focus on FAS 2: Murabaha and Murabaha to the Purchase Order which FAS28 has subsequently replaced: Murabaha and Other Deferred Payment Sales. The study by Ahmed et al (2016), sought to compare the AAOIFI and IFRS accounting standards when accounting for a Murabaha contract. The authors conclude that FAS 2, developed by AAOIFI, considers the Sharia requirements contained within the Murabaha contract and requires profit distribution on a straight-line basis.…”

Section: Related Studies On Accounting For the Murabaha Contractmentioning

confidence: 99%

“…For instance, Al-Sulaiti et al (2018), found that Islamic banks in Qatar and Bahrain complied most with the Murabaha accounting standard developed by AAOIFI. Others, such as Ahmed et al (2016), examined the accounting treatment for the Murabaha contract and its effects on the financial statements when using AAOIFI and International Financial Reporting Standards (IFRS) accounting standards. The authors report that AAOIFI standards take the legal structure of contracts into account; hence, IFRS standards do not capture the essence of the Murabaha contract.…”

Section: Introductionmentioning

confidence: 99%

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An Overview of Islamic Accounting: The Murabaha Contract

Moosa

2023

JRFM

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The purpose of this study is to consider the events leading to the development of modern accounting standards for Islamic banks and, thereafter, to consider the accounting process and related impact on the financial statements for the Murabaha contract. A qualitative review of the available literature was conducted to meet this purpose. First, the influence of culture on accounting is considered, and after that, the historical development of Islamic accounting is explored. Next, the modern development in Islamic accounting is explained. The discussion then summarizes the contracts used by Islamic banks, with a particular focus on the Murabaha contract as it is the most widely used contract. The structure of the Murabaha contract is detailed, along with the criticisms found in the literature. Thereafter, the accounting treatment of the Murabaha contract is highlighted, followed by a simulation to illustrate the accounting process and its impact on the financial statements. This study contributes to the debate about the need for Islamic accounting standards as it relates to Islamic financial institutions.

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Section: Discussionmentioning

confidence: 99%

Section: Related Studies On Accounting For the Murabaha Contractmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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An Overview of Islamic Accounting: The Murabaha Contract

Moosa

2023

JRFM

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“…IFRS and its compatibility with the Islamic financial institutions has been explored by many scholars (Ahmed et al , 2016; Albarrak and El-Halaby, 2019; Shafii and Abdul Rahman, 2016; Sharairi, 2020). AAOIFI governance disclosure and IFRS comparison is provided by Albarrak and El-Halaby (2019); critical analysis of AAOIFI and IFRS for Murabaha contract is discussed by Ahmed et al (2016); factors affecting the adoption of IFRS standards by the Islamic banks and unique characteristics of Islamic banks that prohibits Islamic banks to adopt IFRS standards are explored by Sharairi (2020). Moreover, the specific issues such as fair value measurement for Islamic financial instruments related to IFRS and IFIs have been investigated by Shafii and Abdul Rahman (2016) and Gharbi (2016).…”

Section: Discussion and Recommendationmentioning

confidence: 99%

Sharia governance standards and the role of AAOIFI: a comprehensive literature review and future research agenda

Hassan

Rabbani²

2022

JIABR

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Purpose The purpose of this study is to investigate the role of Auditing and Accounting Organization for Islamic Financial Institution (AOIFI) governance disclosure on the performance of Islamic financial institutions (IFIs) through systematic literature review approach. Design/methodology/approach This study is based on the review of literature related to the AAOIFI accounting standards downloaded from Scopus database. This study includes review of 126 research articles, 10 review papers, 9 book chapters and 5 conference papers related to different roles played by AAOIFI in providing standards for accounting, auditing, governance and ethics for global IFIs. Findings The findings of this study suggest that AAOIFI has played a critical role in developing the accounting standards for the IFIs and contributed positively to the overall growth of the Islamic finance industry. Practical implications AAOIFI has played a critical role in issuing and development of accounting and auditing standards and has contributed positively to the financial performance of IFIs. Research gaps are identified, and there is a need to work on these gaps. Originality/value This study will contribute to the understanding the role of AAOIFI in issuing and development of accounting and governance standards and future research agenda based on a thorough review of literature.

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“…This raises the issue of the relevance of conventional accounting standards such as IFRS15 "revenue from contracts with customers" to account for this transaction. According to Ahmed et al (2016), IFRS requires that Murabaha contract is recognized as a financing instrument and the measurement is based on amortized costs, which apply the concept of the time value of money. This would amount to treating the credit facility as a loan and the mark-up as interest on this loan, which is not acceptable from the Islamic view.…”

Section: B Murabaha Financingmentioning

confidence: 99%

The economic reality of Islamic banks’ transactions: a qualitative inquiry

Maali

Fendi

Atmeh

2020

IMEFM

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Purpose This paper aims to investigate the economic substance of Islamic banks’ transaction as perceived by the employees and regulators of banks and the effect of such substance on the need for special accounting standards for Islamic banks. If there is a distinctive “Islamic economic substance”, then special accounting practices may be necessary such as the standards of the Accounting and Auditing Organization for Islamic Financial Institutions. Design/methodology/approach A qualitative inquiry on one of the leading Islamic banks in the Middle East was conducted to investigate the economic substance of the bank’s main two transactions; the deposit system and Murabaha financing, as perceived by informants within one of the earliest Islamic banks and its regulators. Findings It is found that despite the belief that the transactions under examination were different from equivalents within conventional banking, practice within the bank was not consistent with such a belief. Informants largely perceived the economic reality of the investigated transaction as being not different from conventional banks’ transactions, and this would affect the need for special accounting and regulatory frameworks. Research limitations/implications This investigation is confined to informants working within one Islamic bank; their views and perceptions may not coincide with those working in other Islamic banks in the world. Practical implications The results of this investigation provide policy implications for Islamic banks, regulators and standards setters in regard to the need for special accounting standards for Islamic banks. Originality/value The paper is one of the first papers that uses a qualitative inquiry on the main transactions of Islamic banks and the related need for special accounting practices. The paper provides a new perspective on the debate over whether Islamic banking is genuinely innovative or is merely a replicate for conventional banking.

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A critique on accounting for murabaha contract

Cited by 16 publications

References 1 publication

An Overview of Islamic Accounting: The Murabaha Contract

An Overview of Islamic Accounting: The Murabaha Contract

Sharia governance standards and the role of AAOIFI: a comprehensive literature review and future research agenda

The economic reality of Islamic banks’ transactions: a qualitative inquiry

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