Conceptual Framework of IFRS and Islamic bank’s Financial Reporting
Keywords:Islamic Banks, IFRS, AAOIFI, Time value of money, Financial Reporting, substance over form
The recording and disclosing of financial transactions are executed by following a set of principles and standards issued by standard setting bodies. The prohibition of Riba and requirement of following Shariah guidelines by Islamic banks motivated experts and scholars to advocate for separate set of accounting standards. In this study, a thorough critical examination is presented of two main aspects i.e., ‘time value of money’ and ‘substance over form’ which make base for separate accounting standards for Islamic banks. The study concluded that, time value of money is accounted in Islamic finance when investment is done in real assets and economic substance of Islamic financial transactions is not different from its legal. However, if there is a difference in substance over form then economic substance shall prevail. In the end, the accounting standards issued by ICAP on Murabaha is comparatively analyzed with AAOIFI guidelines and how well IFRS provisions address the recording of Murabaha transactions without violating Shariah provisions while keeping in view the time value of money and substance over form.
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