Advanced CIFE™ in Islamic AccountingLive Session I

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Advanced CIFE™in Islamic AccountingLive Session I

Recap: Module I And II

• Role of AAOIFI

• Objectives of Islamic financial accounting

• Financial accounting process

• Islamic financial statements

• Statement of financial position

• Income statement

• Statement of changes in owner’s equity

• Statement of cash flows

• Statement of changes in restricted investment accounts

• Statement of sources

• Going concern and periodicity concepts

• Accounting recognition

• Role of AAOIFI

• Objectives of Islamic financial accounting

• Financial accounting process

• Islamic financial statements

• Statement of financial position

• Income statement

• Statement of changes in owner’s equity

• Statement of cash flows

• Statement of changes in restricted investment accounts

• Statement of sources

• Going concern and periodicity concepts

• Accounting recognition

Advanced CIFE™ in Islamic AccountingLive Session I

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Recap: Module I And II

• Materiality and adequate disclosure

• Accounting for Murabaha

• Measurement of asset’s value: Historical cost/advance againstMurabaha

• Receivables: Measured at cash equivalent value minus anyprovision

• Profit recognition:

• Spot payment: recognized at contract’s execution

• Installments: profit recognized when actual installmentsreceived

• Deferred payment: Proportionate transfer from deferredincome to income

• Materiality and adequate disclosure

• Accounting for Murabaha

• Measurement of asset’s value: Historical cost/advance againstMurabaha

• Receivables: Measured at cash equivalent value minus anyprovision

• Profit recognition:

• Spot payment: recognized at contract’s execution

• Installments: profit recognized when actual installmentsreceived

• Deferred payment: Proportionate transfer from deferredincome to income

Users Of Financial Statements

• Equity holders

• Investment account holders

• Current and Saving Account holders

• Other dealers with Islamic banks

• Zakah Agencies

• Regulatory agencies

• Equity holders

• Investment account holders

• Current and Saving Account holders

• Other dealers with Islamic banks

• Zakah Agencies

• Regulatory agencies

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Key Concepts Of An Islamic Bank

Balance Sheet

• Assets side: Physical assets plus interest-free financialassets: Murabaha, Ijarah, Istisna, Salam, Mudarabah,Musharakah etc.

• Liability side: Interest-free demand deposits, interest-freesaving deposits- no fixed return term deposits

Balance Sheet

• Assets side: Physical assets plus interest-free financialassets: Murabaha, Ijarah, Istisna, Salam, Mudarabah,Musharakah etc.

• Liability side: Interest-free demand deposits, interest-freesaving deposits- no fixed return term deposits

Statement Of Financial Position

Asset Disclosure

• Cash and cash equivalent

• Receivables ( Murabaha, Salam, Istisna)

• Investment securities

• Mudarabah investment

• Musharakah investment

• Investment in other entities

• Investment in real estate

• Assets acquired for leasing

• Other investments (disclosure of their types)

• Fixed assets (disclosure of depreciation for significant asset types)

• Other assets (disclosure of significant types)

Asset Disclosure

• Cash and cash equivalent

• Receivables ( Murabaha, Salam, Istisna)

• Investment securities

• Mudarabah investment

• Musharakah investment

• Investment in other entities

• Investment in real estate

• Assets acquired for leasing

• Other investments (disclosure of their types)

• Fixed assets (disclosure of depreciation for significant asset types)

• Other assets (disclosure of significant types)

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Statement Of Financial Position

Liability Disclosure

• Current accounts, saving accounts and other accounts withseparate disclosure of each category

• Deposits of other banks

• Salam Payable

• Istisna Payable

• Zakah and taxes payable

• Other accounts payable

Liability Disclosure

• Current accounts, saving accounts and other accounts withseparate disclosure of each category

• Deposits of other banks

• Salam Payable

• Istisna Payable

• Zakah and taxes payable

• Other accounts payable

Financial Statements:Audit Report

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Financial Statements:Statement Of Financial Position

Financial Statements:Income Statement

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Financial Statements:Statement Of Comprehensive Income

Financial Statements:Statement Of Changes In Owner’s Equity

Advanced CIFE™ in Islamic AccountingLive Session I

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Financial Statements:Statement Of Cash Flows

Financial Statements:Statement Of Cash Flows

Advanced CIFE™ in Islamic AccountingLive Session I

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Financial Statements: Allocation OfIncome & Expenses To Deposit Pool

Financial Statements: Allocation OfIncome & Expenses To Deposit Pool

Advanced CIFE™ in Islamic AccountingLive Session I

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Financial Statements:Statement Of Sources

Financial Statements:Statement Of Sources

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Financial Statements: Statement OfSources And Uses Of Charity Fund

Financial Statements:Disclosure For Charity Fund

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Financial Statements:Disclosure For Charity Fund

Sample Accounting Entries For Murabaha

At the time of payment to client

Advance against murabaha XXXXXXXX

Pay order XXXXXXXX

At the time of declaration

XXXXXXXX

Murabaha financing XXXXXXXX

Murabaha profit receivable XXXXXXXXAdvance against Murabaha XXXXXXXX

Deferred Murabaha income

Booking of accrual

Deferred Murabaha income XXXXXXXXIncome on Murabaha financing XXXXXXXX

On maturity of Murabaha

Party bank account XXXXXXXXMurabaha financing XXXXXXXX

Murabaha profit receivable XXXXXXXX

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Q&A

Some Islamic banks structure the current account productson “Qard Hasan.” Banks are reporting these accountsunder “Deposits.”

Is this reporting right?

Some Islamic banks structure the current account productson “Qard Hasan.” Banks are reporting these accountsunder “Deposits.”

Is this reporting right?

Q&A

As per the definition of Assets (Should be able to generatepositive cash flow in future), please explain the following:

1. What about the Fixed Assets (Buildings, furniture andfixtures, equipment). Do these fall under the samedefinition as above?

2. Banks also report other assets like Cash, Receivables,Debtors, Reserves maintained with central bank etc.

As per the definition of Assets (Should be able to generatepositive cash flow in future), please explain the following:

1. What about the Fixed Assets (Buildings, furniture andfixtures, equipment). Do these fall under the samedefinition as above?

2. Banks also report other assets like Cash, Receivables,Debtors, Reserves maintained with central bank etc.

Advanced CIFE™ in Islamic AccountingLive Session I

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Q&A

How do you define deferred income, deferred payment andthe accounting treatment of these in the financial statement?How do you define deferred income, deferred payment andthe accounting treatment of these in the financial statement?

Q&A

When a Murabaha asset is purchased, how is the asset and it’sprofit treated in the financial statement?When a Murabaha asset is purchased, how is the asset and it’sprofit treated in the financial statement?

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Q&A

“One of the differences in conventional and Islamicaccounting is that, conventional accounting is based uponhistoric cost, whereas Islamic banks consider cashequivalent value of assets.”

Do this mean that Islamic banks should calculate thedepreciation based on the current market value of assetsevery time?

“One of the differences in conventional and Islamicaccounting is that, conventional accounting is based uponhistoric cost, whereas Islamic banks consider cashequivalent value of assets.”

Do this mean that Islamic banks should calculate thedepreciation based on the current market value of assetsevery time?

End Of Live Session - I