Abstract
The Islamic financing sector has grown exponentially around the world in recent years. With a significant growth rate of 8.3% in 2017, the total worth of the sector surpassed USD 2 trillion, establishing the dominance of the Islamic banking industry. Islamic Financial Institutions (IFIs) around the world are required to prepare financial statements in accordance with International Financial Reporting Standards (IFRS), however, at the same time, they are required to uphold to the principles of Shari’ah. In order to achieve standardised accounting applications and compliance with the principles of Shari’ah, an industry-led, non-profit corporate body known as the Auditing and Accounting Organization for Islamic Financial Institutions (AAOIFI) was established. To this end, AAOIFI has developed a framework of standards to provide guidance for IFIs. South African IFIs are thus required to comply with local regulations, namely, IFRS, while also adhering to the principles of Shari’ah through AAOIFI. This means that South African IFIs would need to maintain two books of accounts one prepared in accordance with IFRS and the other prepared in accordance with AAOIFI. Early indications suggest that the recognition and measurement of items between the reporting frameworks of IFRS and AAOIFI are the same or similar, however, the presentation and disclosure may differ between the two frameworks.
This study analysed the differences between the financial statements prepared in accordance with IFRS and those prepared in accordance with AAOIFI for a South African IFI, Albaraka Bank Ltd. The study also considered the impact of the differences (if any) on the financial ratios of the IFI. The research took a two-step approach, first conducting an in-depth literature review, followed by an empirical evaluation based on an intrinsic case study approach. A comparative content analysis was thus conducted on the IFRS and AAOIFI financial statements of Albaraka Bank Ltd for the reporting periods ended 31 December 2015 and 31 December 2016.
The findings suggest that in most instances, recognition and measurement were the same between IFRS and AAOIFI. However, differences were noted in the presentation and disclosure between the financial statements prepared in accordance with IFRS and AAOIFI. One key finding was that AAOIFI requires items classified as equity from...
M.Com. (International Accounting)