MASBi- 1 (Presentation of
Financial statements of Islamic
financial institutions
6/28/2016
1
Need for accounting standard for
Islamic financial institutions
•
•
•
•
•
•
6/28/2016
Islamic banking financial reporting practices in Malaysia are under
the purview of BNM, Companies Act 1965, applicable MASB
accounting standard and International Accounting Standard (IAS)
Lack of Shariah consistency as each bank relied on Shariah
advisors of respective banks even with the supervision of BNM
Lack of comparability and consistency on the accounting
treatment on recognition, measurement and disclosure of Islamic
based transactions
Measurement and comparison financial performance of the banks
become impossible
Lack of sound regulation on accounting hinders the development
of Islamic banking
Efforts by MASB with the guidance of AAOIFI’s standards to
develop Malaysian accounting standard for Islamic financial
institution
2
Para 12: Components of
Financial Statements
A complete set of financial statements include the
following components:
(a) Balance sheet
(b) Income statement
(c) Statements showing either
(i) all changes in equity, or
(ii) changes in equity other than those from
capital transactions with owners and
distributions to owners;
(d) Cash flow statement; and
(e) Accounting policies, explanatory notes and
appendices
6/28/2016
3
Part 13: Voluntary Additional
Statements
• A financial review by management describing and
explaining the main features of the IFI’s financial
performance and finacial position, mentioning principal
uncertainities
- Factors determining performance, including changes in
the environment, its response to those changes, and
investment policies aimed at maintaining and enhancing
performance, including its dividend policy;
- Sources of funding, policy on gearing, and its risk
management policies
- The IFI’s strengths and resources whose value is not
reflected in the balance sheet
• An environmental report and value added statements;
and
• Any other statements useful to others, for example ,
Zakat Fund and Qard Fund.
6/28/2016
4
Para 17: Departure from
standards
In the extremely rare circumstances when management concludes
that compliance with a requirement in a Standard would be
misleading, and therefore that departure from a requirement is
necessary to achieve a fair presentation, an IFI should disclose:
• Management’s conclusion that the financial statements fairly
represent the IFI’s financial position, financial performance and
cash flows;
• Complied in all material respects with applicable MASB
Standards except that they have so departed in order to achieve a
fair presentation;
• Nature of departure, including the treatment that the standard
would require, the reason why that treatment would be misleading
in the circumstances and the treatment adopted; and
• Final impact of the departure on net profit or loss, assets,
liabilities, equity and cash flows
6/28/2016
5
Para 19: Accounting policies
Management should select and apply an IFI’s accounting
policies so that financial statements comply with all
MASB Standards where relevant, and other technical
pronouncements issued by MASB. Where there is no
specific requirement, management should develop
policies to ensure that the financial statements provide
information that is:
(a) Relevant to the decision making needs of users; and
(b) Reliable in that they:
(i) represent faithfully the results and financial pattern of
the IFI
(ii) are neutral, that is free from bias;
(iii) are prudent; and
(iv) are complete in all material respects.
6/28/2016
6
Going concern
• Management should make an assessment of an IFI’s ability
to continue as a going concern
• Financial statements should be prepared on a going
concern basis unless management either intends to
liquidate the IFI or to cease trading or has no realistic
alternative but to do so
• When management is aware, in making its assessment, of
material uncertainties related to events or conditions, those
uncertainities should be disclosed
• When the financial statements are not prepared in a going
concern basis, that fact should be disclosed, together with
the basis on which the financial statements have been
prepared and the reason why the IFI is not considered to be
a going concern
6/28/2016
7
Para 22 : Accrual basis of
Accounting
An IFI should prepare its financial
statements, except for cash flow
information, under the accrual basis of
accounting unless otherwise approved
by the National Shariah Advisory Council
of BNM
6/28/2016
8
Para 23: Consistency of
Presentation
The presentation and classification of items in the
financial statements should be retained from
one period to the next unless:
(a) A significant change in the nature of the
operation of the IFI’s or a review of its financial
statements presentation demonstrates that the
change will result in a more appropriate
presentation of events or transactions; or
(b) A change in presentation is required by the
MASB Standard and technical pronouncements
issued by the MASB or other directive or
regulation
6/28/2016
9
Para 26: Offsetting
• Assets and liabilities should not be offset
unless there is a religious and/ or legal
right and/ or when permitted by another
MASB standard
• Offsetting of balance may be made in
respect of unearned profit for Murabaha,
Bai bithanan Ajil and Ijarah financing
against Murabaha, Bai bithaman Ajil and
rental receivables
6/28/2016
10
Para 33 & 34- Identification of
Financial Statements
Financial statements should be clearly identified and
distinguished from other information in the same
published documents.
The following information should be prominently displayed to
provide a proper understanding of the information
presented:
(a) The name of the IFI’s
(b) Whether individual or group financial statements are
presented
(c) The balance sheet date or the period covered by the
financial statements;
(d) Reporting currency; and
(e) The level of precision used in the presentation of figures
in the financial statements
6/28/2016
11
Para 47: Additional Disclosure
• Disclosure useful to users due to the unique features and
associated risks of each type of contract
For example:
- Wadiah contracts guarantee safe custody of deposits. The
IFI can decide on discretionary share of income (hibah) to
be paid to depositors
- Mudarabah deposits are profit sharing deposits where the
profit paid is based on a pre-agreed sharing ratio. Their risk
profiles are different
• The presentation of liabilities is useful to decision makers
due to their distinguishing features. Detailed disclosures of
contract types and nature of obligations are normally made
in the notes to the financial statements
• Other liabilities include Istisna payables, salam payables,
dividend payables, Zakat and tax payables, which are non
profit sharing liability.
6/28/2016
12
Para 71-72 : disclosure of Shariah
advisor and Zakat obligations
• An IFI should disclose the role and
authority of the Shariah advisor or
board in monitoring the IFI’s activites
pertaining to the Shariah matter
• An IFI should also disclose, where
applicable, its responsibility towards
payment of Zakat on behalf of
depositors, shareholders and others
6/28/2016
13
Para 73: Voluntary Disclosure of earnings
or expenditure prohibited by Shariah
An IFI is encouraged to disclose:
• The amount and nature of earnings
realized from sources or means
which are not permitted by Shariah;
• The amount and nature of expenses
not permitted by Shariah; and
• The manner of disposal of prohibited
earnings
6/28/2016
14
Para 80-83: Profit Distribution
policy
• An IFI that co-mingles various types of deposits into a
single pool of funds should disclose the method of
allocation of income among various categories of deposits
• Discloses the distribution of profit derived from investment
of depositor’s funds at gross level after deducting
expenditure to the extent that they are directly attributable
to the investment of those funds
• Allocates income by using a weighted average method
balances and allocates a total income to various categories
of depositors
• Distributes profit derived from investment of depositors
funds based on a pre-determined ratio in the case of
Mudarabah deposits, and on a ratio determined at the
discretion of the IFI’s in the case of Wadiah and other nonMudarfabah deposits
6/28/2016
15