MASB faces uphill task in getting feedback on draft

By Habhajan Singh
THE Malaysian Accounting Standards Board (MASB) is facing an uphill task in its attempts to get feedback for a draft of its exposure on financial reporting for the growing Islamic finance fraternity. Earlier attempts to receive feedback for the 'Financial Reporting from an Islamic Perspective' exposure draft, whose lifespan for comments ended on April 3, proved futile.
It is understood that the regulatory body did not get much feedback from industry practitioners as well as from the academic circles on the 95-page document containing the draft statement with five key appendices.
With so little feedback, the regulatory body decided to take the exposure draft directly to the floor for a discussion, hoping that would generate enough relevant and pertinent feedback before the exposure draft is moved up a notch in becoming a policy statement.
On Thursday, MASB is organising a forum for this very purpose.
"The forum is part of the due process in engaging the public. If some people have violent objections, they need to be heard," said MASB executive director Dr Susela Devi.
The draft statement is designed to underscore financial reporting for Islamic financial institutions, which among others, affirms that MASB-approved accounting standards shall apply in relation to Shariah compliant financial transactions and events, unless there is a Shariah prohibition.
A key statement in the draft is the pronouncement that financial reporting from an Islamic perspective may not necessarily be issued in the form of an approved accounting standard but may be issued via other technical pronouncements.
As a banker told The Malaysian Reserve in an earlier report, the statement is "akin to AAOIFI's statement. Once converted into a policy statement, it would underlie future MASB pronouncements on financial reporting from an Islamic perspective."
AAOIFI, or the Accounting and Auditing Organisation for Islamic Financial Institutions, is a Bahrain based standard setting body which is active in developing and promoting Islamic accounting, auditing, and Shariah standards.
To date, MASB has only released one set of accounting standards for Islamic financial institutions (IFIs), with a number of other standards still being drafted.
As the name suggests, the maiden 'MASB Standard i-1: Presentation of financial statements of Islamic financial institutions', lays the foundation for the presentation and disclosure of financial stataments of IFIs.
In addition, it provides guidelines for the structure, and a basis of contents of the financial statements to ensure conformity with Shariah requirements. In its introduction, the exposure draft notes that the existing Financial Reporting Standards, which have been developed in harmony with the International Accounting Standards (IASs), have not been able to address accounting issues within Islamic banking operations adequately.
"Fundamental differences within the underlying principles, along with the distinctive nature of Islamic financial practices, have rendered many facets of conventional accounting standards irrelevant to Islamic banking.
"Hence, the existing Financial Reporting Standards and prevailing IASs are useful in providing a structural framework for reporting, but these standards are inadequate to accommodate Shariah precepts, which form the basis of all Islamic transactions," it said.

(This story appeared in The Malaysian Reserve on June 22, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Alternative accounting standards sought

The Islamic financial industry needs a corresponding alternative set of accounting standards which can best be harmonised, not standardised due to the different nature and activities of the Islamic banks and financial institutions, says an accounting expert.
"These standards already exist, developed by AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions). The International Accounting Standards Board (IASB) should reconsider its position and allow alternatives live and let live, just as there is a need for differential reporting requirements for small and medium businesses," says Associate Professor Dr Shahul Hameed Mohamed Ibrahim of International Centre for Education in Islamic Finance (Inceif).
Dr Shahul, a qualified accountant now with Inceif's department of finance and accounting, moderated an Inceif discussion series on Friday. Malaysian Institute of Accountants (MIA) Nik Mohd Hasyudeen Yusoff, who was the key speaker at the series, said International Financial Reporting Standards (IFRS) were developed by IASB as a single set of high quality, understandable and internationally-recognised financial reporting standards.
"The IFRS concept and operational model demonstrates the ability of Shariah-compliant structures to co-exist with the conventional framework," he said, according to an Inceif statement.
PricewaterhouseCoopers partner Mohammad Faiz Azmi and Amanie Business Solutions Sdn Bhd principal consultant Dr Syed Musa Alhabshi were the two commentators at the discussion series.
Nik Hasyudeen added that as Islamic finance transactions are backed by productive assets, structured through contracts within the same legal framework with conventional transactions, there is no likelihood that such transactions cannot be accounted for using the IFRS.
In any occasion, he said the contracts entered into by the parties should ensure that the principles of Shariah are complied with. Commending the efforts of AAOIFI, Nik Hasyudeen suggests the Bahrain-based organisation to consider working with and compliments IASB in ensuring the convergence incorporates the Islamic finance agenda.
"This does not mean that IFRS is perfect and the accounting standards developed by AAOIFI are inferior," he said, adding that serious participation in the development and enhancement of the IFRS by promoters of Islamic finance could influence the acceptance of the values and principles promoted by Islamic finance into the IFRS.
The AAOIFI standards are not intended to fully replace the IFRS but merely cover those standards and transactions that IFRS does not.
In most cases the differences between the IFRS and AAOIFI's standards are more apparent than real, the statement said. IASB's refusal to recognise the AAOIFI standards has resulted in Islamic financial institutions in countries such as Bahrain which adopts the latter's standards, having to have their financial statements qualified by auditors who are affiliated to IASB.
Auditors affiliated to IASB through the International Federation of Accountants (IFAC) are obligated to enforce IFRS, it added.
IFRS is currently mandatory for all domestic listed entities in 85 countries and encouraged in 113 countries including Malaysia. The AAOIFI's standards, which have yet to be widely accepted, are seriously being considered by countries in the Gulf and Malaysia.

(This story appeared in The Malaysian Reserve on May 26, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

MASB: Reporting standards for Islamic lenders in the pipeline

By Habhajan Singh
The finance and business community has till Monday to comment on a draft statement designed to underscore financial reporting for Islamic financial institutions, which among others, affirms that Malaysian Accounting Standards Board (MASB)-approved accounting standards shall apply to Shariah compliant financial transactions and events, unless there is a Shariah prohibition.
Another key statement in the draft is the pronouncement that financial reporting from an Islamic perspective may not necessarily be issued in the form of an approved accounting standard but may be issued in the form of other technical pronouncements.
The draft statement of principles entitled 'Financial Reporting from an Islamic Perspective' is a 95-page document containing the draft statement and five key appendices.
"It's akin to AAOIFI's statement. Once converted into a policy statement, it would underlie future MASB pronouncements on financial reporting from an Islamic perspective," said a banker from an Islamic bank.
AAOIFI, or the Accounting and Auditing Organisation for Islamic Financial Institutions, is a Bahrain-based standard setting body that is active in developing and promoting Islamic accounting, auditing, and Shariah standards.
To date, MASB has only released one set of accounting standards for Islamic financial institutions (IFIs), with a number of other standards still being drafted.
As the name suggests, the maiden 'MASB Standard i-1: Presentation of financial statements of Islamic financial institutions', lays the foundation for the presentation and disclosure of financial stataments of IFIs. In addition, it provides guidelines for the structure, and basis of the contents of financial statements to ensure conformity with Shariah requirements.
In the financial reporting from an Islamic Perspective draft statement, MASB said it has intended to "communicate to the public board's approach and deliberations on financial reporting from an Islamic perspective". MASB has posed six key questions in the draft, including whether there is a need for such documentation in the first place.
Another question is whether pronouncements on financial reporting from an Islamic perspective need to be in the form of approved accounting standards, or take the form of other technical pronouncements.
Other questions in the draft are as follows:
* Whether Shariah compliant financial transactions and events can be satisfactorily accounted for by MASB approved accounting standards?
* It may be possible that in rare instances, MASB approved accounting standards may not satisfactorily account for a particular Shariah compliant financial transaction or event.
* Are you aware of any such instances? What would they be?
* Do you agree that pronouncements on financial reporting from an Islamic perspective should be applicable to entities under the purview of the Financial Reporting Act 1997 [amended 2004], and not just Islamic financial institutions or 'Islamic entities'?
The appendices in the 95-page document provide an overview of financial reporting from an Islamic perspective, an assessment of assertions in the samework, an explanation of issues in the development of the statement, a commentary on substance over form from a Shariah perspective, and a summary by the Shariah Advisory Council of Bank Negara Malaysia (BNM).

(This story appeared in The Malaysian Reserve on Feb 11, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

ACCA: ‘Need to ensure level playing field for Shariah banking’

By Habhajan Singh
While it is not possible for United Kingdom (UK) regulation to distinguish Islamic finance from other forms of banking on a non-secular basis, there is a need to ensure a level playing field as far as possible. This was one of the pointers highlighted by Association of Chartered Certified Accountants (ACCA) president Richard Aitken-Davies during a recent breakfast meeting he hosted in London with some players from the Islamic finance sector.
He also noted that Islamic banks are not a panacea as they are increasingly beginning to feel the effects of the slowdown, due to the interconnection with the global financial system.
The discussion also touched on the role Islamic finance could play in helping in the current credit crisis. It revolved round a recent ACCA paper — "Islamic Finance: An Ethical Alternative to Conventional Finance?" — which explores the basic tenets of Islamic finance, the role of the UK in leading its development and whether it is a serious alternative to conventional finance.
"Once seen as a marginal industry by some, Islamic finance is now recognised as a vital and thriving market. "It has been widely acclaimed as the fastest growing sector within the world of finance and positions itself as an alternative model," Aitken-Davies wrote on his blog.
"Some suggest much of the current problems might have been avoided in an Islamic system (for example, because short selling and derivatives are generally prohibited).
"Advocates of this view point to the fact that funds adhering to Islamic (Shariah) investment principles have so far avoided the worst effects of the credit crisis," he added.
In November 2007, UK's Financial Services Authority (FSA), UK's single financial regulator, produced a paper entitled "Islamic Finance in the UK: Regulation and Challenges", setting out FSA's role in the development of the UK as the major European financial centre for Islamic financial products and services.
In the paper, it noted that UK's tax and legislative framework is becoming favourably inclined to Islamic financing, establishing a level playing field for a variety of Islamic products such as mortgages, bonds and insurance.
It also said it believes that these could lead to the availability of new retail products, the expansion of wealth and asset management services and the development of sukuk and other wholesale markets.
"Although we cannot promote Islamic finance (or any other particular kind of finance), we can give a clear regulatory framework which is flexible enough to adapt to changes in the market.
"We are keen to see the industry expand, although we recognise this will bring new regulatory challenges," the paper noted.
Since ACCA student, and members live in countries with a thriving Islamic finance market in the Middle East, Malaysia and Pakistan, he said it was keen to play its part in increasing the understanding and development of this sector. During the discussion, he also noted the the need to raise awareness of the principles of Islamic finance, with particular emphasis on the embedded principles of ethics and social responsibility.
"Further development of Islamic finance will require a wider range of products to stimulate competition and provide the best service to the public," he said.
(The Malaysian Reserve, Dec 15, 2008, p32, by Habhajan Singh. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays)