ACCOUNTING REGULATORY ISSUES ON INVESTMENTS IN ISLAMIC BONDS

Abdul Rahim Abdul Rahman

The main objective of this paper is to examine contemporary accounting regulatory issues oninvestments in Islamic bonds or sukuk. Investments on Islamic bonds (sukuk) give rise to anumber of accounting and reporting issues related to recognition, measurement anddisclosure. The underlying rationale of this paper is that proper development of Islamicfinancial market requires a well regulated Islamic financial instruments and one of the keyelements of regulation is accounting regulation. Therefore, a well regulated Islamic financialmarket requires a sound accounting and reporting standard of Islamic financial instrumentsthat, first, meet the requirements of syari’ah, and, second, relevant to be practiced in our time.The need for Islamic accounting that deals with Islamic financial instruments has promptedAAOIFI recently to introduce Financial Accounting Standard No.17 on investments insecurities (AAOIFI FAS 17, 2003). The need for a codified Islamic accounting standard areprimarily stemmed from the need that Islamic accounting objectives, concepts and principlesto be developed based on syari’ah requirements. However, the Islamic accounting regulationalso needs to adapt to the modern accounting regulatory environment to make it relevant to bepracticed in our time. The examination of AAOIFI FAS 17 shows that AAOIFI has beenpragmatic in its approach by considering both requirements when developing its standard.This is a pro-active step to provide a sound accounting regulation as part of a comprehensiveregulation of Islamic financial institutions.

1. Introduction

The growth of Islamic financial market and institutions, culminating in the growing interest in Islamicbanking, finance and insurance reiterates the need for different accounting requirements. Islamic accountingis needed to serve different principles of financial instruments that are founded on the Islamic worldviewand syari’ah requirements. The efforts of Accounting and Auditing Organizations of Islamic FinancialInstitutions (AAOIFI) in the 1990s to develop accounting standards for Islamic financial institutions arecommendable as a positive contribution towards harmonizing accounting practices of Islamic financialinstitutions. The standards developed by AAOIFI are also expected to facilitate the needs of the users ofaccounting information of Islamic financial institutions who, in theory, demand different sets of information.The main objective of this paper is to examine contemporary accounting regulatory issues on Islamicbonds or Islamic Private Debt Securities (IPDS) or sukuk. Investments on Islamic bonds (sukuk) give riseto a number of accounting and reporting issues. These issues relate to recognition, measurement anddisclosure. This study also highlights and discusses the requirements made by AAOIFI’s FinancialAccounting Standard No.17 (FAS 17) on accounting for investments in Islamic bonds or sukuk. The underlying rationale of this paper is that proper development of Islamic financial market requires awell regulated Islamic financial instruments and one of the key elements of regulation is accountingregulation.Therefore, a well regulated Islamic financial market requires a sound accounting and reportingstandard of Islamic capital market instruments that, first, meet the requirements of syari’ah, and, second,relevant to be practiced in our time.The paper will be structured accordingly to address the above objectives, by first, introducing how theIslamic worldview influences the objectives and concepts of modern accounting and reporting. Secondly,the paper examines accounting objectives and concepts from an Islamic perspective. Thirdly, accountingissues on investments in Islamic securities particularly Islamic bonds or sukuk are discussed to highlightcontemporary accounting issues on providing a sound accounting regulation for Islamic financial marketinstruments.

2. Islam and Accounting

Islam literally means ‘peace’ and ‘obedience’, and adherence to Islam have to be ‘obedient’ to God and toappreciate the purpose of their existence in this world (Al-Faruqi, 1982). God is said to have proclaimedthat, “I have only created… men that they may serve me” (al-Qur’an, 51:56). The nature of this serviceis taken to have been spelled out clearly when God, upon creating men, declared,“I will create a vicegerenton earth”(al-Qur’an, 2:30). Muslims consider humans to be vicegerents of God. Thus, whatever worldlypossession a Muslim has is to be held in a stewardship capacity – that is simply in trust from God (Abu-Sulayman, 1994). According to Islam, Muslims are trustees (or stewards) for God: Man therefore agreesto assume this great responsibility in a covenant with God.In a Muslim society, accounting is expected to be influenced by the way the economic system is organizedand the philosophy underpinning its system. If we examine the role of economic activities in Islam we willfind that the philosophy of human activity should be directed towards the achievement of Falah acomprehensive humanwelfare in this life and also in the hereafter. According to Siddiqi (1972) Falahisa tangible quality towards the achievement of God’s pleasure. Human welfare as believed by Muslims canbe achieved without any conflict in the genuine interest of this worldly life and the Hereafter.Toachieve this Falah, economic activities must be morally directed. In any economic decisions, includingfinancial reporting upon economic activities, the ethical values should act as a norm and economicrelationship must be regarded as moral relationship. The achievement of Falah is neither dependent onnor related to maximization of wealth or profit nor to the size of the individual business enterprise andquantity of output. Therefore, to a profit making organization their activities should serve as a means forthem to function in the economy. The worldview should be that they provide service to the public bymanufacturing and/or trading goods or providing services and in return profit is only aim to ensure theycan operate and grow.Accounting functions to discharge the accountability of enterprise as a result of separation of ownershipand the management. The users might be shareholders, creditors, potential investors and the public. In theMuslim society, the concept of accountability is ingrained in the basic creation of Man as a vicegerent ofGod on the earth. Man mission on earth is to fulfill the purpose of its existence in the universe. Man is thuscreated as trustees and accountable for all their actions (Abu-Sulayman, 1994). In Islam, accounting sould function not only as a service activity providing financial information to the users and to the publicat large but more important accountants should discharge their accountability by providing information toenable society to follow God’s commandments.The Muslims also believed that Men are vicegerents on earth and directly accountable for all their actionsas they are only trustees of God. Therefore, in this sense, accountants should lay formal claim to the statusof moral arbiters to ensure the responsibility and transparency of an organization’s internal procedures, sothat issues of policy and governance are properly debated and recorded, at the point where the moralproblems arise in the first place (Gambling and Karim, 1991).In the light of the above worldview of Islam, some ethical notions assume a broader and more holisticsignificance to the accountant. In terms of responsibility, the accountant in Islam is not merely responsibleto human superiors, the management/client or shareholders. He/She is a servant and trustee of God in allsituations, is simultaneously responsible to God the Owner of his very self and the resources he is utilizingand managing. To forget or to neglect this fundamental aspect of this responsibility is tantamount to abetrayal of divine trust with all the attending consequences in this world and in the next (Hassan, 1995).The accountant in Islam is not only required to maintain good relationship with superiors, client or themanagement but also maintain, improve and strengthen his relationship with his Master by fulfilling thereligious obligations. In fact the relationship with the Master (Hablun Min’Allah) will determine themode of relationship with fellow servants (Hablun Min’An-Nas) (Hassan, 1995). Guided by the properrelationship with God, the human Accountant and public relations would then be inspired by value oftruthfulness, fairness, tolerance and uprightness etc.The accountant in Islam is motivated to provide work and excellent service because as a holder of Amanah(Trustee of God) on earth he must search for the bounties of God. His/Her work is a form of Amal Salih(virtuous deed) which is then the key for the attainment of Falah (true success in this world and in thehereafter). His/Her work is also a form of Ibadah(servitude to God) in so far as it is in conformity with thedivine norms and values. The Accountant who is imbued with the world-view of Tawhid(oneness of God)is not anti profit or anti-worldly gain within the limits provided by religion. His vision of success andfailure however extends beyond worldly existence to the life in the hereafter.

3. An Islamic Perspective of Accounting Objectives and Concepts

According to conventional accounting, accounting objectives and concepts are needed to guide existingaccounting practice; prescribe future accounting practice; and define key terms and fundamentalaccounting issues (Miller, 1985). According to AAOIFI’s Statement of Financial Accounting No.1 (AAOIFISFA 1), the need for accounting objectives for Islamic financial institutions stemmed from the role ofaccounting. Since the role of financial accounting is to provide the information which users of the financialstatements of Islamic banks depend on in assessing the bank’s compliance with the precepts of syari’ah,therefore, in order for the Islamic financial institutions to perform the role effectively, accounting standardsneed to be developed and complied with by Islamic banks. The development of such standards must bebased on clear objectives of financial accounting and agreed upon definitions of its concepts.Allah SWT said:“We shall set up justice scales for the day of judgement, not a soul will be dealt unjustly in the least. Andif there be (no more than) the weight of mustard seed, we will bring it (to account); And enough are Weto take account” (Al-Qur’an Chapter 21, verse 47).“O you who believe! When you deal with each other, in transactions involving future obligations in afixed period of time, reduce them to writing” and “Let a scribe write down faithfully as between theparties” (Al-Qur’an Chapter 2, verse 282)Based on the above verses we can deduce that the objectives of accounting should be to ensure fair and justfinancial transactions between human beings. Accounting information is expected to fulfill the needs ofthose who are in need or expected to require such information. However, the primary objective ofaccounting information must be to fulfill the ultimate accountability to Allah SWT.In addition to fulfilling the ultimate accountability to Allah SWT, the preparers of financial informationmust know the common information needs of users of financial reports. Common information needs of theusers are normally consist of the needs for information which can assist in evaluating the entity’s ability inusing its economic resources and fulfill its obligations. In this respect AAOIFI’s SFA 1 has broaden thescope beyond just economic responsibilities to encompass information that can assist in evaluating theentity’s compliance with the principles of syari’ah and its ability to carry out social responsibilitiesspecified by IslamSome scholars have also argued that accounting objectives can be derived from the way one account for hisor her zakat obligations (Adnan & Gaffikin, 1997). Adnan and Gaffikin (1997) argue that by makingzakat the primary objective, one tend to avoid the unwanted practices of cheating or ‘window dressing’because he or she believes that accountability to Allah SWT is of utmost important and Allah SWT alwayswatches him or her.On the other hand, accounting concepts are variously referred to as principles, axioms, postulates,assumptions and rules. One of the basic accounting principles is the use of historical cost for assetvaluation that basically derived from the concept of conservatism. Many Islamic accounting writers (e.g.Gambling and Karim, 1991; Adnan and Gaffikin, 1997) cast doubt on the relevance of the concept ofconservatism. Many refer to the principles of zakat where trade assets subjected to zakat must be based oncurrent market value (Qardawi, 1999) or cash equivalent value (AAOIFI FAS 9). Adherence to the costprinciples leads to the conventional accounting practice that is lower of cost or market value. This will leadto understatement of trade assets to be subjected for zakat. Thus, the cost concept cannot be acceptable inIslam.The preparation of financial information in Islam should be aimed among others for zakat purposes. Thus,the aim for zakat purposes may lead to the need of periodicity assumption as zakat is only paid once a year.The periodicity assumption has led to the development of accruals accounting, and the principles ofincome recognition and matching. Therefore, accounting statements would, therefore, be prepared for thatparticular period, showing the amount of which zakat would be levied (Gambling and Karim, 1991).

4. Islamic Accounting Concepts on Recognition, Measurement & Disclosure

Accounting recognition refers to recording the basic elements of the financial statements. The concepts ofaccounting recognition define the basic principles that determine the timing of revenue, expense, gain andloss recognition in the entity’s income statement and, in turn, the basic principles that determine the timingof assets and liabilities recognition. AAOIFI’s SFA 2 recommends that “revenues should be recognizedwhen realized”. Realization of revenue shall take place when one of the three conditions are met: (1) Theentity has the right to receive the revenue; (2) There is an obligation on the part of another party to remit;and (3) The amount of revenue should be known and collectible with reasonable degree of certainty.The above recommendation indicates the use of accrual basis accounting which has been claimed to bebetter than the alternative cash basis accounting. Accrual basis of income recognition does meet therequirement of Islamic objectives to determine the ‘real’ wealth of an entity. Contrary to cash accounting,it likely provides an underestimate value of wealth as the recognition is based on actual cash received andpaid.In addition, according to the matching principle, expense recognition is realized either because the expenserelates directly to the earning of revenues or because it relates to the period when the expense is incurred.From the Islamic perspective, the matching principle which allocates expenses to their related revenues,provides fairness and justice simultaneously to the shareholders and other stakeholders (El-Tegani,undated)The conventional accounting measurement is based on the cost principle that considers the acquisition costor historical cost as the appropriate measurement basis. However, this principle is questionable from theIslamic point of view due to it conflicts with the concept of fairness and justice. In the case of zakatdetermination, majority scholars recommended the use of current prices on the due date of zakat (Al-Qardawi, 1999). The argument for the use of current market value has been based on the needs for the mostaccurate valuation of wealth to be subjected for zakat in order to serve justice to both the zakat recipientsand zakat payers.AAOIFI, however, asserts that the measurement attributes should be guided by the relevance, reliability,understandability and comparability of the information to be provided to the users. AAOIFI hasrecommended the use of cash equivalent value that indicates the value that would be realized if an assetwas sold for cash in the normal course of business as at the date of the financial statement. In order toensure the reliability and comparability of the cash equivalent value, it must be supported with objectiveindicators; logical and relevant valuation methods; consistency of the use of valuation methods; expertvaluation; and conservatism in the valuation process (AAOIFI SFA 1). AAOIFI also recommends analternative method i.e. historical cost that refers to its fair value at the date of its acquisition includingamounts incurred to make it usable or ready for disposition.In terms of disclosure requirements, it is of interest to examine Baydoun and Willet’s (1997) proposedobjectives of accounting disclosure. They argued that there are at least four objectives of accountingdisclosure for an Islamic firm, whereby the first two are specific requirements laid down by syari’ah for thefirm to avoid riba’ and pay zakah. The second two objectives are based on inferred general requirementswhich can be referred to as ‘social accountability’ and full disclosure’.While the first two objectives i.e. prohibition of riba’ and payment of zakat have extensively been coveredby many past literature, the second two objectives require special attention. Baydoun and Willet (1997)viewed the Islamic concept of social accountability to encompass the accountability ultimately to God.The fundamental concept of Islamic accountability is where Muslims believed that all resources are madeavailable to individuals in a form of trust. The success of individuals in the life hereafter depends upontheir performance in this world.The implications of Islamic accountability on accounting is that the management and providers of capitalneed to be accountable for their actions (or in-action) both within and outside the firm by providing properaccounting and reporting. Thus, the Islamic concept of social accountability departs clearly from thewestern attitudes toward accountability which are most applicable to the concept of private accountability.The concept of social accountability in Islam is also related to the principle of full disclosure. According toBaydoun and Willett (1997) full disclosure does not mean to disclose everything down to every minutedetail of transactions. There is, however, the need for the preparer of account to disclose everything that isbelieved as importance to users for purposes of serving God. In a more precise word, AAOIFI’s Statementof Financial Accounting No. 2 on Concepts of Financial Accounting for Islamic Banks and FinancialInstitutions (SFA 2) made it very clear that the Islamic concept of disclosure revolved around the conceptof ‘adequate’ disclosure. Here, adequate disclosure means that the financial statements should contain allmaterial information necessary to make them useful to users.AAOIFI’s SFA 2 elaborated the concept of adequate disclosure into two aspects namely optimal aggregationand appropriate descriptions and clarifications. Optimal aggregation means the financial statements shouldprovide sufficient details to meet the users’ need for information. However, too much detail can contributeto confusion. Therefore, it needs appropriate descriptions and clarifications to make the informationprovidedtobeuseful to users and sufficient additional notes become necessary.

5. Aaoifi Fas 17 & Accounting Issues On Investments In Islamic Securities

Background of the Standard

The AAOIFI Financial Accounting Standard No. 17 (AAOIFI FAS 17) shall apply to the institution’sinvestments, whether in the form of direct investment funds or investment portfolios, in sukuk (Islamicbonds), shares, and real estate. The standard is relatively new that is it shall only be effective for financialperiods beginning 1 Muharram 1424H or 1 January 2003. Thus, it makes the discussion of this standardnecessary especially for institutions that have investments in Islamic capital market instruments. There islack of academic writings in this area that require special attention to ensure proper accounting for com-plex instruments such as Islamic bonds (sukuk).
AAOIFI FAS 17 classifies Islamic bonds (sukuk) into at least four types:

(a) Mudaraba (Muqaradah) sukuk

These are investments in sukuk that represent ownership of units of equal value in the Mudaraba equityand are registered in the names of holders on the basis of undivided ownership of shares in the mudarabaequity and its returns according to percentage of ownership of share. The owners of such sukuk are therabbul-mal (capital provider).

(b) Musharaka sukuk

These are investments in sukuk that represent ownership of Musharaka equity. It does not differ from theMudaraba sukuk except in the organization of the relationship between the party issuing sukuk forms acommittee from the holders of the sukuk who can be referred to in investment decisions.

(c) Ijarah sukuk

These are sukuk that represent ownership of equal shares in a rented real estate or the usufruct (benefit) ofthe real estate. These sukuk give their owners the right to own the real estate, receive the rent and disposeof their sukuk in a manner that does not affect the right of the lessee, i.e. they are tradable. The holders ofsuch sukuk bear all cost of maintenance of and damage of the real estate.

(d) Salam or Istisna’ sukuk

These are sukuk that represent a sale of a commodity on the basis of deferred delivery against immediatepayment. The deferred commodity is a debt in-kind against the supplier because it refers to a commoditywhich is accepted based on the description of the seller. The Istisna’ sukuk is similar to Salam sukuk,except it is permissible to defer payment in an Istisna’ transaction, but not in a Salam. In both Salam andIstisna’, the subject matter of the sale is an obligation on the manufacturer or builder in the case of Istisna’and the seller in the case of Salam. Hence both instruments can neither be sold nor traded before theirmaturity date if either the buyer or the seller of the commodity issues them. Accordingly, these sukuk aretreated as investments held to maturity.

Classification of Investment

One notable contribution of AAOIFI FAS 17 is the classification of investment in sukuk into three typesnamely: for trading purposes; available for sale; and held to maturity. The basis of AAOIFI classificationis based on the well-known syari’ah classification of trade commodities for the purpose of zakat. Forexample, the jurists of Maliki School have classified trading assets into the following: (a) assets that aremeant for buying and selling; (b) assets that are held for sale in the expectation of making profits throughprice appreciation in the future; and (c) assets acquired not for trade, but for personal use.However, if we examine the conventional classification of investment in securities, normally it is onlyclassified into 2 types i.e. either dealing (short-term); or investment (long-term). The use of AAOIFI’sclassification of investment into three types would be more desirable and useful to users of accountinginformation as it provides an additional classification that distinguishes the intention or purpose ofinvestment. However, the main problem of classifying the investments is to objectively determine theintention of the investors and intention may also subject to change overtime due to the changes in economicclimate.

Recognition

AAOIFI’s FAS 17 has recommended that recognition for investment in sukuk and shares shall berecognized on the acquisition date and shall be measured at cost. However, at the end of accountingperiod, investment in sukuk and shares held for trading purposes and available for sale shall be measuredat their fair value. The unrealized gains or losses as a result of re-measurement need to be recognized in theincome statement.The additional requirement is the share of portion of income related to owners’ equity and portion relatedto unrestricted equity investment account holders must be taken into consideration. This is consideredcrucial as no proper treatment and disclosure of this transaction of profit sharing and distribution may leadto confusion as to the method, ratio and process to disburse profit that have been taken place. This is toensure transparency in profit and loss sharing on re-measurement of investment at the end of the year to beproperly disclosed to the users. At the same time it fulfils the syari’ah requirement of ensuring fair and justprofit sharing and distribution between shareholders and depositors (investors).Any unrealized gain or loss resulting from re-measurement at fair value, according to AAOIFI FAS 17shall be recognized in the statement of financial position under the “investment fair value reserve”. Thisreserve account will reflect the net gain or loss at the end of the year. The standard also makes a provisionthat in case the institution has reserves created by appropriation of profits of previous financial periods tomeet future investment risks, it is recommended that unrealized loss resulted from re-measurement ofinvestment at fair value shall be deducted from this reserve.

Measurement

In the case of sukuk held to maturity, it needs to be measured based on historical cost except that if there isimpairment in value it should be measured at fair value. The difference in value will then need to berecognized in the income statement and the information related to the fair value is then need to be disclosedin the notes to the financial statements. For securities held for trading and available for sale, AAOIFI FAS17 recommends the measurement to be based on fair value.Fair value is normally defined as the amount which the instrument could be exchanged or settled betweenknowledgeable and willing parties in an arm’s length transaction, other than forced or liquidation sale.Quoted market price, when available, normally are used as the measure of fair values. However, for manyfinancial instruments and it may include Islamic bonds (sukuk), quoted market prices may not available.In the case of unquoted securities, conventionally the estimate is based on the net present value or othervaluation techniques. However, these techniques involve uncertainties and are significantly affected by theassumptions used and judgments made regarding risk characteristics of various financial or capital marketinstruments. The uncertainties include the arbitrary used of discount rates, future cash flows, expected lossand other factors.The determination of fair value for unquoted securities requires the availability of objective indicator andexpertise, as well as conservatism in the valuation process. The objective of Islamic valuation should be toprovide both relevant and reliable value that can be relied on by the users of financial statements to makeuseful judgment and decision (El-Tegani, undated).In the case of securities held to maturity, the rationale of AAOIFI’s FAS 17 to recommend historical costrather than fair value could be because of the inherent uncertainties in relation to the use fair value forcapital market instruments. Another reason could be because there is no intention to trade in the securitiesbefore maturity, thus, there is no apparent need to measure the securities at the end of the year at fair value.The AAOIFI’s FAS 17 also prescribes that the realized profits or losses resulting from sale of anyinvestment shall be measured at the difference between the book value and the net cash proceeds from thesale of investment. The standard also makes recommendation that different types of investment must beshown separately according to the three classifications as defined earlier. This is important to give a betterpicture of profit resulted from different types of investment. This recommended treatment is also necessaryto assist users in determining and comparing profitability between different types of investment.In the case of dividends received from investment in shares and sukuk, the standard requires it to berecognized in the income statement at the declaration date rather than at the date when the cash proceed isreceived. This indicates the use of accrual basis of accounting to ensure that the institution recognizedincome when it is realized based on the contract or the right to receive that income. The use of accrual hereis required in order to reflect the actual or fair income at that point when it is realized.The additional requirement of realized profit from sale of investment and dividends received is the need todistinguish between the portion to be shared by owners’ equity and depositors (investors). The rationale issimilar to the case of treatment of profit on re-measurement of investment at fair value as discussed above,as it will ensure sufficient information to be provided to users of accounting information particularly on thedistribution of profit between equity holders and depositors.

Disclosure

AAOIFI’s FAS 17 has made special requirements of disclosure in the case of investments in sukuk. Amongthe requirements are that disclosure shall be made by the issuer of sukuk, if material, the face value ofsukuk, the percentage of sukuk acquired from each party issuing the sukuk and each type of sukuk. Thereis also a requirement to disclose the party guaranteeing the sukuk and the nature of the guarantee. Anotheruseful disclosure requirement is the need to disclose the contractual relationship between the issuer and/ormanager of sukuk and the holders of such sukuk. The additional disclosure with respect to investment insukuk is the requirement to disclose the classification of sukuk according to their maturities.All the above disclosure requirements indicates the need for the Islamic institutions to be more transparentin disclosing financial information pertaining investment in securities especially sukuk. The underlyingrationale is to provide useful information for users to make informed judgement especially about institution’sinvestment in securities. The users are expected to require all the above information and disclosure notonly with respect to the risks of investment undertaken and the potential return (full disclosure) but thecontractual relationships of the parties involved that is expected to fulfill the syari’ah requirements (socialaccountability).

6. Concluding Remarks

The need for Islamic accounting that deals with Islamic financial instruments has prompted AAOIFIrecently to introduce Financial Accounting Standard No.17 on investments in securities. The need for acodified Islamic accounting standard are primarily stemmed from the need that Islamic accountingobjectives,concepts and principles to be developed based on syari’ah requirements. However, the Islamicaccounting regulation also needs to adapt to the modern accounting regulatory environment to make itrelevant to be practiced in our time. The examination of AAOIFI FAS 17 shows that AAOIFI has beenpragmatic in its approach by considering both requirements when developing its standard. This is apro-active step to provide a sound accounting regulation as part of a comprehensive regulation of Islamicfinancial institutions.The development of modern accounting has shown that accounting itself is an emerging and pragmaticdiscipline. Another paramount challenge and conventional accounting is of no exception, is compliance ofthe standard. For the standard to be adopted by commercial participants, the regulatory agencies ofrespective Muslim states at least must be convinced not only for the need of such standard but the necessityto adopt it as a mandatory requirement.Another pre-requisite for a sound accounting regulation is the credibility of standard setter. In the case ofAAOIFI, the credibility of its standard will be subjected to ‘acid’ test of acceptance by commercialparticipants especially Islamic financial institutions. In addition, another challenging task would be theacceptance of juristic rules made by AAOIFI’s board of syari’ah scholars by Islamic financial institutionsworldwide. As syari’ah opinion can be subjected to vast differences among scholars, this leads to anotherneed that is a standard or a codified syari’ah rules based on consensus of credible Muslim scholars of ourtime that transcends beyond geographical boundaries of nation states.Finally, the development of a new discipline called Islamic accounting establishes an urgent need for theaccounting academics and practitioners to undertake studies that attempt to understand how accounting isinfluenced by and adapted to the way the economic system is organized and the philosophy underpinningits system. The interests on Islamic accounting has been growing for the past two decades, however, thedevelopment of Islamic accounting is still at the infancy stage. This paper is just a small contribution to theliterature on contemporary accounting regulatory issues on investments in Islamic bonds or sukuk

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