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) Any source