The readiness of Malaysian Islamic banks for the MRFS 16 adoption

Abstract

Standardisation of financial reporting has attracted a lot of interest in the accounting field lately. It has become apparent as the financial reporting became the global language used by companies and stakeholders to read different financial statements and acquire information needed. The recent implementation of the IFRS 16 on Leases by the International Accounting Standards Board (IASB) was meant to fill in the gaps faced by the reporting for accounting for leases. In Malaysia, the new Leases standard was adopted as the Malaysian Financial Reporting Standard 16 (MFRS 16) in April 2016. Prior to its full implementation, companies were given three years to prepare and adopt it. The banking industry, as one of the highly regulated industry, was one of those industries faced with this challenge to adopt MFRS 16. This has not excluded the Islamic banking industry that also required to apply this standard. To provide more insights about the preparedness of the Islamic banking industry towards MFRS 16 implementation, this current study investigates the readiness of the Malaysian Islamic Banks (MIBs) in applying this new standard. This study obtained data related to the implementation readiness using a mixed method involving quantitative and qualitative methods. The quantitative method was through content analysis of Annual Reports of 16 Islamic banks and 2 banks with Islamic-window for the years 2016 to 2019, while the qualitative method was through conducting interviews with 3 academicians and 2 professionals. The analysis of the results was based on the Weiner’s (2009) theory of organisational readiness to change, and it showed mainly that MIBs were partially prepared to implement MFRS 16 as the standard was applied by these banks to only operating leases, while the Islamic Leases Service (Ijarah) were not and are not intended to be reported under MFRS 16 anytime soon. The results might also raise a concern related the need for more clarity on the MFRS 16 when it comes to its application on the Islamic Leasing service (Ijarah).