Accounting for Ijarah – Reviewing the Need for Exclusive Accounting Standards

Abstract

Purpose: This paper compares the presentation of ijarah ¯ Muntahia
Bittamleek (IMBT), as outlined by conventional and Islamic accounting
standards, to re-examine the need for exclusive accounting standards for
presenting ijarah ¯ instrument by IFIs operating in Pakistan.
Methodology: IMBT instrument is presented using both Islamic and
conventional accounting standards, and experts’ opinions are gathered
(accountants, academics, and Islamic bankers) on quality of reported
financial information. Finally, the statistical significance of the difference
in the quality score is tested.
Findings: Results show that IFRS pose a significant advantage regarding
presentation of IMBT, which reduces the need for exclusive accounting
standards for presenting ijarah instrument in Pakistan. ¯
Significance: Earlier studies by Morshed (2022); El-Halaby et al. (2020);
Ullah (2020) do not apply Islamic and conventional financial reporting
standards to Islamic financial instruments when making comparisons.
Additionally, most studies do not consider recent updates in conventional
standards due to the standardization efforts by IASB and FASB. This
paper addresses both these gaps emerging from the literature.
Practical Implication: The study exhibits valuable policy implications
for regulators regarding adopting conventional accounting and reporting
standards for IFIs. Regulatory intervention may favor improving the
IFRS framework’s applicability on IMBT by collaborating with other
international standard-setting bodies. Finally, the regulatory bodies
should create an instrument-wise handbook to guide IFIs in applying
IFRSs for Shar¯ıah-compliant presentation