The Influence of AAOIFI Accounting Standards in Reporting Islamic Financial Institutions in Malaysia

AbstractThis paper focuses on the issue relevant to the need for Islamic accounting standards in reporting Islamic Financial Institutions (IFIs), in the context of Malaysia. With recent rapid growth of IFIs, there is still inconclusive stance regarding the need for specificity accounting standards for IFIs such as the ones issued by Accounting and Auditing for Islamic Financial Institutions (AAOIFI), prompting this paper to examine this issue in more detail. Drawing upon seven in-depth semi-structured interviews conducted with IFIs’ leading officers who are highly involved in preparing financial statements in Malaysia, the paper offers evidence on the influence of AAOIFI accounting standards in reporting IFIs. Whilst interviewees admit the feasibility of IFRSs in reporting IFIs, many interviewees placed greater emphasis on the spirit of Islam based on Islamic contract. In that case, the findings show that in order to convince the public that they offer Shariah compliance products approved by Shariah Advisory Council, there is a need for specificity guidelines or standards for IFIs within the IFRS framework. The main concern raised in the paper is that separate Islamic accounting standard is not needed, instead the option need to be within the IFRS framework with the collaboration work of Accounting and Auditing for Islamic Financial Institutions (AAOIFI) and the International Accounting Standard Board (IASB). Without such collaboration, the intended specific guidelines for IFIs will be unlikely to be accepted globally