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Introduction

Over the last 20 Harmonisation =


Aim: Provide
years increasing process of bridging
accountability in
interest in international
term of financial
enhancing the accounting
statement
harmonisation of standards that could
presentation and
accounting and provide uniformity in
disclosures to the
financial reporting accounting
users and
by Islamic banks standards across
stakeholders
countries
AAOIFIs recommended set of Financial
Statement
Statement of Financial Position
Statement of Comprehensive Income
Statement of Cash Flow
Statement of Retained Earning / Statement of Changes in Owners
Equity

Added 3 additional statements:

Statement of changes in restricted investment


Statement of sources and uses of funds in the Zakah and charity
fund
Statement of sources and uses of funds in Qard fund

3
Addition of the conventional
disclosures (on functions
On policies: relates to the
policies adopted but not
On earnings /
consistent with the
expenditures
concepts of financial
prohibited by the
accounting for Islamic
Shariah
banks

AAOIFIs
Disclosures related to recommended On valuation: the policies,
unrestricted and disclosures bases, and method use for
restricted investment revaluation. Cash equivalent
accounts value over historical value

Disclosures on the
distribution of Disclosure of the method used by the
unrestricted investment Islamic bank in allocating investment
accounts, by types, in profit (losses) between unrestricted
accordance with investment account holders or their
maturity equivalent
Addition of the conventional disclosures (on functions):

1. The role of the Shariah adviser/Shariah board in supervising the banks activities and the
nature of advisers or boards authority in accordance with the banks by-laws and in actual
practice
2. zakah
On earnings / expenditures prohibited by the Shariah.
Disclose the amount and nature which are not permitted by Shariah
Disclose how IFIs intends to dispose of the assets generated by/through prohibited
earnings/expenditures
Rationale: To enhance the confidence of the stakeholders on the integrity of IFIs
Disclosures related to unrestricted and restricted investment accounts
Disclosures on the distribution of unrestricted investment accounts, by types, in accordance with
maturity
Changes in the maturity period used should be disclosed
Rationale: to ensure transparency on the accounting & management of the unrestricted
investment accounts
Financial statement for changes in
restricted investments

- Disclosure of the method used by the Islamic bank in allocating investment


profit (losses) between unrestricted investment account holders or their
equivalent
- Disclosure on returns of each type of investment accounts & rate of return
- Restricted investments are not assets of the Islamic bank and should not be
reflected in the banks statement of financial position
- The bank does not have the right to use or dispose of these investments
except within the conditions of the contract between the bank and holders of
these accounts
- The statement must show deposits and withdrawals by holders of restricted
investments and their equivalent as of a given date
S TAT E M E N T O F S O U R C E S AN D U S E S O F
FUNDS IN THE QARD FUND

The period covered by the statement

Balances of qard outstanding and funds available beginning

Amounts and sources of funds contributed to the fund

Amount and uses of funds

Balances of qard outstanding and funds available


MASB TRI - 3
In Malaysia, IB financial
reporting under the purview of
BNM (GP8),Companies Act
1965,applicable MASB
accounting standard and IFRS

For Islamic Financial Institutions,


Technical Release (TR i-3) on
Presentation of Financial Statements of
IFIs effective beginning on or after 1
January 2010 is adopted in Malaysia

Formerly known as MASB FRSi-1


Its established because of lack of
Shariah consistency lead to lack of
comparability & consistency of
accounting treatment on recognition,
measurement and disclosure of Islamic-
based transactions
COMPONENTS IN
FINANCIAL
STATEMENT
C i. Balance sheet
ii. Income statement
O iii. Statement showing either:
All changes in equity, or
M Changes in equity other
P than those arising from
capital transaction with
O owners and distributions
to owners.
N
E iv. Cash flow statement
v. Accounting policies,
N explanatory notes and
appendices
T
S
Management to describing & explaining
the main features of IFIs financial
performance and financial position

Additional
statements
review by:

Present others useful statement to users.


For example Zakat fund and Qard fund
MASB guidelines

MASB Tri-3 also prescribed guidelines on going concern


principles
Management should make an assessment of an IFIs ability
to continue as going concern.
FSs should be prepared on a going concern basis unless
management intends to liquidate the IFI/ cease/ no realistic
alternative but to do so.
Material uncertainties related to events should be disclosed
If not use going concern, that fact should be disclosed
together with basis use and reason why

Accounting recognition: accrual basis, except for cash flow


unless approved by National Shariah advisory Council of BNM
FSs should be clearly identified and distinguished from other
information. The information are:

o The name of the IFIs


o Whether individual or group financial statements are presented
o The balance sheet date / period covered by the financial statements
o Reporting currency
o Level of precision used in the presentation of figures in financial
statements
MASB Disclosure

Unique disclosure:

Risks of Islamic contracts; wadiah hibah

Profit sharing; mudharabah based on pre-agreed ratio since risk profiles


are different

Liabilities should be useful to decision makers

Other liabilities unique to IFIs such as istisna payables, salam payables,


dividend payables, zakat and tax payables non profit sharing liabilities

On shariah advisor and zakat obligations disclose the role and authority
of the Shariah advisor /board in monitoring, pertaining Shariah matter;
responsibility towards payment of zakat on behalf of depositors,
shareholders and others.
Para 73, disclose:
Amount and nature of earnings from not permitted by Shariah
activities
Amount and nature of expenses not permitted by Shariah
Manner of disposal of prohibited earnings

Para 74 (risk reporting), disclose on the magnitude of the assets


invested, deposited / used in any following concentrations:
Economic sector
Customer
Geographical area with unique economic characteristics

Para 80-83 (related to comingles various types of deposit into a


single pool of funds), disclose:
Method of allocation of income
Distribution of profit at gross level (SIAM vs Pooling Method)
Potential Barriers in applying
IFRSs to Islamic Finance

Substance over Form


Time Value of Money
On or Off Balance Sheet treatment
Takaful
Need for additional disclosures
Impacting the Need for Accounting
Standards in Islamic Banking

Developments of Islamic Banking demand financial


reporting framework and information useful for investors and
stakeholders.

Existing financial reporting standards on conventional


financial institutions are not adequate to address the
information needs of Islamic financial Institutions.

Nature of Islamic banking emphasizes importance of lawful


and equitable banking business and financial activities -
require accounting treatment of unique features of IFI
activities

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