The Effect Of Shariah Principles on Accounting Methods for Islamic Banks

10 November 2010

Daud Vicary Abdullah, CIFP Global Islamic Finance Leader, Deloitte.

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Agenda

Rapid Acceptance of Islamic Finance

The fundamental principles of Islamic Finance

Issues & Supporting Infrastructures In Islamic Accounting

Perceived Gaps & Possible Solutions

Rapid Acceptance of Islamic Finance

Increasing pressure to have global standards

Global Crisis

Product Development & Innovation

Increasing Market demand

Islamic Finance Opportunities

Access to Liquidity

Increasing Muslim Population

Government & Infrastructure Support

The Fundamental Principles of Islamic Finance

An overview

No conflict with Principle of Islam & Assertion of Religious Law

Risk & profit sharing

Real Economic Transactions & Asset Backed

Ethical Value & Social Justice (Maqasid AlShariah)

Prohibited Activities & Elements

Islamic Finance

Islamic Finance : Issues & Supporting Infrastructures

Key issues & who is responsible for what
Substance Vs. Form Liability & equity Interest & dividend Ownership in Sukuk & Sukuk Default

Accounting

AAOIFI IFRS Local Shariah Board & Local Regulators.

Financial Reporting

Harmonisation of accounting standards Flexibility and transformation with the development of Islamic financial innovations Building consumers confidence and trust

AAOIFI IFSB IFRS

Auditing

Ex-Ante compliance & Ex-post compliance Lack of expertise & human capital

AAOIFI IFRS Local Shariah Board & Local Regulators.

Governance Framework

Ensure consistency in requirements and policies concerning reporting practices Roles & duties between Shariah Advisors and Auditors

AAOIFI IFSB IIFM Local Shariah Board 5 & Local Regulators.

Islamic Finance : Issues in Islamic Accounting

The possible roadmap

Live side by side with its conventional counterpart

Exclusivity
All Islamic financial institution transactions will be recorded by way of Islamic Accounting

3 options

International Financial Reporting Standards (IFRS) are fine tuned

Harmonisation
The certain exemptions are allowed/disallowed.

Convergence

Applying IFRS in every aspect

Perceived Gaps & Possible Solutions

The way moving forward
Having the right perception

Misperception & Unanimity in understanding Shariah law

Research & development

Shortage of literature & research on Islamic accounting

Perceived gaps & Possible Solutions

Shortage of Islamic accounting expert & human capital

Education & Training

Lack of understanding of Islamic finance opportunities

Perceived gaps Possible Solutions

Articulating value proposition

Any Questions?

Daud Vicary Abdullah, CIFP Global Islamic Finance Leader Deloitte Email : dvicary@deloitte.com Tel : +603 77236500, 77261833 Website : www.islamicfinance.deloitte.com

THANK YOU!
10 November 2010