Abstract

Purpose:

This paper compares the presentation of ijarah ¯ Muntahia Bittamleek (IMBT), as outlined by conventional and Islamic accounting standards, to re-examine the need for exclusive accounting standards for presenting ijarah ¯ instrument by IFIs operating in Pakistan.

Methodology:

IMBT instrument is presented using both Islamic and conventional accounting standards, and experts’ opinions are gathered (accountants, academics, and Islamic bankers) on quality of reported financial information. Finally, the statistical significance of the difference in the quality score is tested.

Findings:

Results show that IFRS pose a significant advantage regarding presentation of IMBT, which reduces the need for exclusive accounting standards for presenting ijarah instrument in Pakistan.

Significance:

Earlier studies by Morshed (2022); El-Halaby et al. (2020); Ullah (2020) do not apply Islamic and conventional financial reporting standards to Islamic financial instruments when making comparisons. Additionally, most studies do not consider recent updates in conventional standards due to the standardization efforts by IASB and FASB. This paper addresses both these gaps emerging from the literature.

Practical Implication:

The study exhibits valuable policy implications for regulators regarding adopting conventional accounting and reporting standards for IFIs. Regulatory intervention may favor improving the IFRS framework’s applicability on IMBT by collaborating with other international standard-setting bodies. Finally, the regulatory bodies should create an instrument-wise handbook to guide IFIs in applying IFRSs for Shar¯ıah-compliant presentation.

Keywords

Islamic Banking, Islamic Finance, Financial Reporting, Islamic Accounting, Ijarah ¯ Accounting, Qualitative Characteristics