An exploratory study of accounting practices for murabahah and bai`bithaman ajil by islamic banks in Malaysia

Abstract

The study aims firstly to examine whether the accounting recognition, measurement and disclosure on Murabahah and BBA under FRS 118, BNM GP8i, MASB TRi-3 and MASB TRi-4 are compatible with AAOIFI FAS 2 and FAS 20. Secondly, the study examines the perceptions of accountants and financial accounting executives on existing accounting standard and guidelines on Murabahah and BBA of Islamic banks in Malaysia. Thirdly, perceptions of accountants and financial accounting executives on AAOIFI accounting standards for Murabahah and Bai’ Muajjal (deferred payment sales) are examined accordingly. Finally, the study analyses the relationship between training of Islamic banking finance, total working experience and education background with the level of acceptability of AAOIFI FAS 2 and FAS 20 among the Islamic banks’ accountants and financial accounting executives of Islamic banks in Malaysia. The study found that there are major differences in terms of revenue recognition, asset and profit measurement and disclosure between those standards and guidelines. The result of the questionnaire survey indicated high degree of acceptability towards MASB FRS 118 and MASB TRi-3 and TRi-4 and thus, indicated the support towards convergence with IFRS. Whereas, the moderate acceptability of AAOIFI FAS 2 and FAS 20 signifies the implementation of the Islamic accounting practices to the Islamic banking industry in Malaysia will be a paramount challenge. Perhaps, the accountants and financial accounting executives of the Islamic banks are not aware of the accounting issues related to Murabahah and BBA due to their moderate acceptability of the statements related to accounting issues in Murabahah and BBA. The result of Pearson Correlation Coefficient test has indicated that there are no significant relationship between attendance in training of IBF, total working experience and education background with the level of acceptability of AAOIFI FAS 2 and FAS 20. However, the result of the correlation are not conclusive due to certain limitations exist in the study. The study implies that the ability to compare the financial performance of different Islamic financial institutions becomes seriously impaired because the difference in accounting practices exists among global Islamic financial institutions. There are paramount challenges on the harmonisation of financial reporting of the Islamic finance as a result of inconsistency of the financial reporting of Islamic financial institutions worldwide. The challenges will involve many parties, the scholars, practitioners and regulator to discuss, research and engage toward developing a just and fair accounting that will benefit not only the business but more importantly to humanity.