Islamic accounting, financial reporting, financial status, accounting, financial statements
To start with, substance over form is an accounting concept which is widely used by all accounting entities. This concept emphasizes more on the reality of the financial status of an entity instead of the legal standards that the entity has taken in its events and transactions as seen in their financial statements (College Accounting Coach, 2006).For the operationalization of this concept of accounting, it is very important that there be an understanding of the company in question, heredeepinvestigationd to have a deep investigationn into the issues to look for proof supporting the financial statements being evaluated (Supreme Justice, 1935).
[...] In this case, the transaction is a sale of a mansion and the repurchase of the same. Contrary to the IFRS standards where they do not indicate the building on the balance sheet, in the AAOIFI, there must be the inclusion of the building in the end year balance sheet accounts as well as the gain from the sale of the building and the rental income. Thus, the accounts would be as under: (Yousaf) Thus, it is evident that the deviations in the standards affect the presentation of contracts in practice. [...]
[...] However, this is not the case when it comes to Islamic finance. According to the Islamic finance, money being used as a store of value does not and cannot apply. The focus of money being used as a store of value is what the concept of time value of money focuses on. This being the case, it can be deduced from the analysis that the AAOIFI does not adhere to this concept. The Islamic finance focuses on the form while the IFRS focuses on the substance of the contracts and transactions. [...]
[...] Assuming that a bank bought a commodity, such as a machine for 1000 Pounds, later the company resold the same machine to its customer at 1250 Pounds repayable in a timeframe of five years. In this case, there is a 250 increment since the customer is given time before payment. This is the manifestation of the time value of money concept. According to the Murabaha concept in the AAOIFI accounting standards, the bank is supposed to defer the two hundred and fifty Poundsprofit. (Islamic Banking, 2006). [...]
[...] Thus, in developing standards, they should include such factors as this to avoid confusion. In essence, the mutual exclusivity that exists between these two standards of accounting must be done away with if convergence is to be achieved. Thirdly, the two bodies can achieve convergence through the adoption of an entirely new accounting standard which is favorable to all their followers. This means that there will be no disagreements and the cases of standards crashes will not be experienced any longer. [...]
[...] It is usually stated as a percentage of the amount that has been borrowed over a specified amount of time. The periods, in the concept are intervals of time, which are evenly spaced which are not stated in annuity intentionally because the intervals must be corresponding to a specific period of compounding. Another thing included in the concept is the payments; here the term refers to a series of cash flows which are equal and evenly spaced. They must show all the outflows and the inflows. [...]
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