THIS ASSIGNMENT IS A PARTIAL FULFILLMENT FOR IE1002

Reporting of Islamic Financial Transactions

CERTIFIED ISLAMIC FINANCE PROFESSIONAL (CIFP)

INCEIF
Student Name: FASHOLA OLAYINKA NURUDEEN
Student ID: 1100275




Question 1.
Decision Usefulness.
One of the cardinal objectives of Islamic accounting is the full disclosure of all the companys
activities to all stakeholders, the importance of full disclosure ensures that information that are
provided in the financial statements are useful to the stakeholders in terms of making the right
decisions as at when due base on the information provided.
This fact is corroborated by the AAOIFI (1996) in its statement of Financial Accounting (SAF)
no.1 recognized that the objectives of financial accounting determine the type and nature of
information which should be included in financial reports in order to assist users of these reports
in making decisions (SFA para 25). Therefore, financial reports should provide the information
which is useful for users, such as:

Information about the Islamic banks compliance with the Islamic Shariah (SFA para
37);

Information about the economic resources and obligations and the effect of transactions,
other events and circumstances and related obligations (SFA para 38);

Information to assist the concerned party in the determination of Zakat on the fund (SFA
para 39);
Information to assist in estimating cash flows that might be realized from dealing with the
Islamic bank, the timing of those flows and the risk associated with their realization (SFA
para 40);
Information to assist in evaluating the Islamic banks discharge of its fiduciary
responsibility to safeguard funds and to invest them (SFA para 41);
Information about the Islamic banks discharge of its social responsibility (SFA para 42).
This information are vital to ensure that the company is responsible to her shareholders and assist
them in making a well informed decision as to how the company is being managed.

Stewardship
Man is the vicegerent of ALLAH on earth and ALLAH Has made the universe subservient to
him. In the discharge of the companys activities it is pertinent that the managers of the company
ensure that they give proper account of how the activities of the company are conducted with the
view towards ensuring that the objective set out by the stakeholders are met. They are also
expected to have shown beyond every reasonable doubts that the resource at their disposal are
used effectively and judiciously towards the attainment of the companys goals and objectives.
The AAOIFI (1996) also recognizes stewardship as one of its objectives. It points out that the
objective of financial accounting is to contribute to the safeguarding of the assets, and to the
enhancement of the managerial and productive capabilities of the Islamic bank while
encouraging compliance with its established goals and policies (SFA para 33 34).

Thus Islamic accounting and reporting is expected to show in details how the company assets
have been managed within a given period of time, this will ensure that the stakeholders are well
acquainted of the activities within the organizations. In this situation emphasis is laid on the
companys balance sheet and profit and loss account.

Accountability.
Islam believes that in the hereafter every man will be accountable to all the activities he/she has
done while on the surface of the earth because ALLAH has entrusted him with some certain
responsibilities to discharge. Likewise managers of companies or organization are entrusted with
the vast company resources thus they must be accountable to the owners of the company.
Once of the major objectives of Islamic accounting is accountability, thus the reporting of the
companys activities must be reported in such a way that the managers of the company are
accountable to the owners of the company.
One of the ways this can be done is the through the implementation of Zakat as the cornerstone
of the companys accounting system, thus Muslim organization are more interested in the
maximization of payment of Zakat which is a social responsibility on their part and making them
more accountable to just making profit. This will also ensure that the organization is run from a
Shariah point of view and all their activities are Sharia compliant because they are conscious of
the fact that in the hereafter they would have to give a stewardship of their account. By so doing
the company will ensure that more wealth are circulated within the Muslim community as one of
the major objectives of the Zakat is to move money/ wealth from area of concentration to where
its less concentrated which will ultimately impact on the living standard of the populace this will
eventually reduce crime in the society and everyone sees themselves are partners in progress.

Question 2.
Below are the objectives of Islamic financial institutions indicated by AAOIFI
To determine rights and obligations of interested parties
To safeguard entity assets and rights of others
To contribute to enhancement of managerial productive capacities
To provide useful information to make legitimate decisions
Syariah compliance
Distinguish prohibited earnings and expenditure
Present entitys economic resources, obligations and related risks
Determine Zakat obligations
Estimate cash flow and related risk
Ensuring reasonable (or equitable) rates of returns to investors
Disclose Islamic Banks discharge of social responsibility (not as a constraint but as a
goal)
AAOFIF suggests seven sets of financial statements required by Islamic Financial Institutions as
listed below, the first 4 are similar to the conventional institutions while the last 3 are unique to
Islamic Financial institutions.
Income Statement
Balance Sheet
Cash Flow
Equity Statement
Statement of changes in restricted investment
Statement of sources and uses of funds in the Zakat and charity funds
Statement of sources and uses of funds in the Qard fund

The suggestions by AAOFIF might not be adequate to effectively and efficiently report the
activities of the Islamic Financial Institutions the following reports if included will add more
value to the reporting of IFI these are:
Analytical financial reports on Shariah prohibition earnings and expenditure:
o This will ensure and show that all the earnings by the IFI are shariah complient
and their expenditures are spent in the right and proper manner.
Social responsibility report:
o The IFI has a social responsibility to the host communities where they operate the
inclusion of this type of report will ensure that the transparency and giving back
to the community required by the IFI is well detailed in the report and can be seen
and verified by all concerned.
Human Resource development report:
o The IFI are required not just to employ staff but they must also improve their
human capacity development. This type of report will show how the IFI has
ensured that the development of their staff is well taken care off.
Social and environmental report.
o For IFI operating in areas where their produce impact on the environment, they
should be able to show how they have mitigated the impact of their activities on
the host communities and the environment at large.

Question 3(i)
S/N SIAM Method Pooling Method
1 In this method overhead cost is burn by the
Rab ul Mal (Finance provider depositor)
In pooling method the overhead cost is
shared by the Rab ul Mal (Finance provider
depositor) and the Mudarib
(Entrepreneur)
2 The gross profit is used for the bases of the
distribution of the profit
The net profit is used for the bases of the
distribution of the profit.
3 More profit for distribution if this method
is used
Less profit for distribution is this method is
adopted
4 From the Mudarib perspective the method
is better, because there will be more funds
to be shared as profit
From the Mudarib perspective this method
is less preferred.
5 From the Rab ul Mal perspective this
method is less preferred.
From the Rab ul Mal perspective this
method is more preferred.


Question 3 (ii)
The bank should adopt the SIAM - Separate Investment Account Method. This is because the
profit earned by the bank is based on the gross profit declared.


Question 3(iii)
The table below provides answers to question a, b and c
a. The weighted average for each deposit type is calculated by multiplying the average Bal
in 2008 with the weights, that is (20,000,000*0.5) = 10,000,000
b. Depositor share of profit on the weighted balance is calculated by dividing the weighted
balance by the total weighted balance. The result is then multiplied by the total net profit
to the depositor , that is (10,000,000/146,250,000)* 950,000
Note that the total net profit to the depositor is calculated as shown below:
The gross profit from the Mudaraba is divide base on the sharing agreement the bank
keep 40% of the profit while the remaining 60% goes to the depositor. The overhead
expense for the year which is 550,000 is then deducted from the share of the depositors
since the sharing policy adopted is SIAM which allows the deduction of the overhead to
be burn by the Rab ul Mal (Finance provider depositor). Thus the net profit that will be
distributed by the depositors will be 950,000









Profit from Mudaraba 2,500,000.00
Profit to the Bank (40%) of
Gross 1,000,000.00
Gross Profit to the
Depositor (60%) of Gross 1,500,000.00
Overhead expenses (550,000.00)
Net Profit to the Depositor 950,000.00

c. The depositors rate of return is calculated by dividing the depositor share by the Average
Bal in 2008, that is 64,957.69/20,000,000 = 0.32%
Deposit Types Average Bal in 2008 Weights
Weighted
Balance
Depositor
Share
Depositor
s Returns
6 Months & less 20,000,000.00 0.50

10,000,000.00

64,957.26 0.32%
9 Months & less 30,000,000.00 0.75

22,500,000.00

146,153.85 0.49%
12 Months &
less 45,000,000.00 1.0

45,000,000.00

292,307.69 0.65%
More than 12
months 55,000,000.00 1.25

68,750,000.00

446,581.20 0.81%

150,000,000.00


146,250,000.00

950,000.00


d. Ahmed investment of RM 450,000 is 7 months old (March Sept) from the table above
he falls in the category of 9 months & less with a depositors return rate of 0.49% . Thus
his profit is 0.49% * 450,000 = RM 2,192.39