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The specifics of accounting for lease (Ijarah) and bonds (Sukuk) of Islamic financial institutions

Vol. 23, Iss. 1, JANUARY 2020

PDF  Article PDF Version

Received: 5 August 2019

Received in revised form: 9 November 2019

Accepted: 11 November 2019

Available online: 16 January 2020

Subject Heading: INTERNATIONAL STANDARDS OF ACCOUNTING AND REPORTING

JEL Classification: M41

Pages: 4–16

https://doi.org/10.24891/ia.23.1.4

Subject The article discusses the Islamic financial mechanisms and their accounting recognition by Islamic financial institutions. The study reveals the specifics of Islamic instruments, such as Ijarah and Sukuk, which are one of the most popular instruments in the Islamic finance practice.
Objectives The study discovers the specifics of lease finance and investment in securities as per the Islamic accounting model.
Methods Research employs methods of comparative analysis, systematization, classification, analogy and matching.
Results I unveil financial instruments, such as Ijarah and Sukuk, find the difference between traditional analogies and exemplify how they are carried in accounting books in Russia. What makes a lease contract under IFRS and Islamic accounting rules different is the subject of the contract, risks a party undertakes and the recognition of assets. The Islamic bond Sukuk is secured with a tangible asset, without providing for fixed interests.
Conclusions and Relevance The article reviews the accounting standard on lease Ijarah and compares it with the identical IFRS 16 – Lease. I point out the difference between the Islamic and international accounting models. The article describes the usage of the instrument, probable risks, accounting records to enter and derecognize the asset, its values and impairment, distribution of earnings and expenses among the lessor and lessee, accrual of profit and loss in accounting ledgers, provisions for each particular case and recognition of some off-balance sheet entries. I also refer to operating and finance lease when the lessee leases the property for its subsequent purchase. The article gives a detailed account of Sukuk and classifies types and classes of Sukuk, showing accounting records on income, provisions, valuation and revaluation of the asset and accrual of profit and losses. The findings is of applied and theoretical use in accounting.

Keywords: Islamic accounting, reporting, AAOIFI, standards, accounting records

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