Ijarah

International Journal of Islamic Financial Services, Vol. 5, No. 3

AN EXPLORATORY STUDY OF IJARAH ACCOUNTING PRACTICES IN MALAYSIAN FINANCIAL INSTITUTIONS
Ros Aniza Mohd. Shariff Abdul Rahim Abdul Rahman

Prior studies on Ijarah were mainly focusing on the economics, legal and financial aspects, there was, however, so far no in-depth study on accounting for Ijarah. The main objective of this study is to explore the nature of accounting for Ijarah financial instruments as practiced by Malaysian financial institutions. First, the study makes a comparison between the International Accounting Standard on leasing (IAS 17); the accounting standard for Ijarah (FAS 8) as developed by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI); and the Malaysian Accounting Standard on leasing (MASB 10). The study found that there are major differences as to the nature of leasing and Ijarah, and as a result accounting principles that have driven all the three standards as well as accounting techniques developed for leasing and Ijarah are significantly different. Secondly, the study examines the level of acceptability of the AAOIFI’s FAS 8 among the Malaysian financial institutions. The result of the questionnaire survey shows a low level of acceptability of FAS 8 and thus, it indicates that, first, the effort to harmonise the accounting practices on Islamic financing practices by financial institutions internationally may be a difficult task. Secondly, until and unless the AAOIFI standard is adopted by the regulatory agency as in the case of Malaysia, Bank Negara Malaysia, AAOIFI standards will remain only as a reference but do not have the legal authority. Consequently, the quality and comparability of accounting information of Islamic financing such as Ijarah will be seriously at a stake. Introduction Ijarah has been conceptually understood as a contract of exchange where one party enjoys the benefit arising from employment by another party

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