FINANCIAL ASSETS AND LIABILITIES DISCLOSURE PRACTICES IN ISLAMIC BANKS IN MALAYSIA

7/23/2019 FINANCIAL ASSETS AND LIABILITIES DISCLOSURE PRACTICES IN ISLAMIC BANKS IN MALAYSIA

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FINANCIAL ASSETS AND LIABILITIES DISCLOSURE PRACTICES IN ISLAMIC

BANKS IN MALAYSIA

Mustafa Mohd Hanefah1

Zurina Shafii2

Nurazalia Zakaria3

Rosnia Masruki4

Fadilah Asuhaimi5

Uniersiti Sains !slam Mala"sia #US!M$

ABSTRACT

!slami% &anks in Mala"sia are under the su'erision of (ank Ne)ara Mala"sia #(NM$* +he" arere,uired to follo- the )uidelines issued &" (NM and ado't the a%%ountin) standards issued &"Mala"sian A%%ountin) Standards (oard #MAS($ in their 're'aration of finan%ial re'orts*

Althou)h !slami% &anks do not share the same %hara%teristi%s -ith other %ommer%ial andinestment &anks &ut the" are still re,uired to 're'are their finan%ial re'orts a%%ordin) toMala"sian Finan%ial Re'ortin) Standards #MFRS$. -hi%h hae &een %oner)ed -ith!nternational Finan%ial Re'ortin) Standards #!FRS$ &e)innin) /anuar" 2012* +he aim of this'a'er -as to stud" the re'ortin) 'ra%ti%es of si lar)est !slami% &anks in Mala"sia for finan%ialassets and lia&ilities in a%%ordan%e to MFRS 13 Finan%ial !nstruments Re%o)nition andMeasurement. MFRS is%losure of Finan%ial !nstruments and MAS( +e%hni%al Release 1 on

A%%ountin) for Zakat on (usiness #MAS( +Ri61$* +he stud" uses %ontent anal"sis of salientinformation re,uired for dis%losure &" &oth MFRS and MAS( +ri61* !n addition. the 'a'er alsoanal"sed the efforts &" (NM in makin) !slami% &anks7 finan%ial re'ortin) %om'ara&le tointernational 'ra%ti%es* +he findin)s indi%ate oerall %om'lian%e -ith MFRS 13 and MFRS *Ho-eer. limited %om'lian%e -ith MAS( +Ri61 for dis%losure on method used to determinezakat on &usiness -ere found* +his is sur'risin) &e%ause stakeholders need to kno- -hetherthe method used -as in %om'lian%e -ith Shariah 'rin%i'les or not* (ein) trans'arent and'roidin) im'ortant Shariah related dis%losures -ould &enefit stakeholders as -ell as the &ankitself in attra%tin) lo%al and most im'ortantl" international funds*

Keyword: !slami% finan%ial re'ortin). finan%ial instruments. Shariah related dis%losures

1. INTRODUCTION

18rofessor r Ha9ah Mustafa Mohd Hanefah. e'ut" :i%e ;han%ellor. Uniersiti Sains !slam Mala"sia*


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!slami% finan%e industr" in Mala"sia has &een in eisten%e for oer 30 "ears* +he ena%tment of

the !slami% (ankin) A%t 13 ena&led the %ountr"7s first !slami% (ank to &e esta&lished and

thereafter. -ith the li&eralization of the !slami% finan%ial s"stem. more !slami% finan%ial

institutions hae &een esta&lished* +he first !slami% &ank o'erated in 13 for 10 "ears as the

onl" !slami% &ank &efore the )oernment allo-ed other %onentional &anks to offer !slami%

&ankin) seri%es usin) their eistin) infrastru%ture and &ran%hes kno-n as B!slami% -indo-sC*

(" doin) so. the Mala"sian &ankin) industr" is for%ed to &e more %om'etitie -hi%h -ould

in%rease the 'erforman%e and effi%ien%" of the !slami% &ankin) industr"* +oda" in 2013. the

!slami% &ankin) industr" has )ro-n ra'idl" -here the num&er of full6fled)ed !slami% &anks had

in%reased to 1D finan%ial institutions %onsistin) of 10 lo%all" o-ned !slami% &anks and si forei)n

o-ned !slami% &anks #(ank Ne)ara Mala"sia. 2013a$*

Not onl" the num&er of !slami% &anks had )ro-n. the !slami% &ankin) assets also rose shar'l"

from "ear to "ear* !n 1 the total !slami% &anks assets a%%umulated of RM 1* &illion rose

shar'l" to RM *4 &illion in 2003 #Hamim et* al. 200D$* >hile in A'ril 2013. the total

a%%umulated assets of !slami% &anks had rose to RM 3*D &illion #(ank Ne)ara Mala"sia.

2013&$* +his in%rease is e'e%ted to %ontri&ute to Mala"sia E8 -here it is e'e%ted to )ro-

si times of E8 in 2020 from 4*3 times of E8 %urrentl" in 2011 #(ank Ne)ara Mala"sia.

2012$* Mean-hile. the %ontri&ution of the finan%ial seri%es se%tor to nominal E8 is e'e%ted

to )ro- from *D of nominal E8 to &et-een 10 and 12 &" 2020*

@ookin) at the )ood 'erforman%e of !slami% &ankin) se%tor. the )oernment of Mala"sia aimed

to &e%ome the indis'uta&le )lo&al hu& for !slami% finan%e* ue to this. the Mala"sia !nternational

!slami% Finan%ial ;entre #M!F;$ -as laun%hed in 200D to stren)then the %ountr"7s 'osition as an

international hu& of !slami% finan%e* +his initiatie %om'rises a %ommunit" net-ork of finan%ial

and market re)ulator" &odies. )oernment ministries and a)en%ies. finan%ial institutions. human

%a'ital deelo'ment institution and 'rofessional seri%es %om'anies that are 'arti%i'atin) in the

field on !slami% Finan%e* From this initiatie. it 'roides man" im'a%ts on the Mala"sian !slami%2


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finan%ial s"stem -hi%h areG to maintain the %onfiden%e of the 'u&li% -ith !slami% &anks as the

%ustodians of 'u&li% funds. 'romote a %om'etitie finan%ial s"stem -hi%h 'roides effi%ient and

relia&le seri%es. ensure the )ro-th of ea%h !slami% &anks for the deelo'ment of a sound and

sta&le finan%ial s"stem. 'reent the risk of a %onta)ion and s"stemi% failure of the finan%ial

s"stem and 'rote%t %ustomers7 and stakeholders7 interests*

At the international leel. Mala"sia is %onsidered as the -orlds most im'ortant !slami%6finan%e

%entre. des'ite the lar)er size of !slami% &anks in the oil6ri%h Eulf States and !ndonesia that has

the lar)est Muslim 'o'ulation #+he


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!nternational Finan%ial Re'ortin) Standards #!FRS$ I standards issued after 2001G !nternational A%%ountin) Standards #!AS$ I standards issued &efore 2001G Standin) !nter'retations ;ommittee standards #S!;s$ I standards issued &efore 2001G

and ;on%e'tual Frame-ork for the 8re'aration and 8resentation of Finan%ial Statements

#2010$*!nitial efforts &" the standard setters mainl" fo%used on harmonizationJredu%in) differen%es

amon) the a%%ountin) 'rin%i'les used in ma9or %a'ital markets around the -orld* (" the 10s.

the notion of harmonization -as re'la%ed &" the %on%e't of convergenceJthe deelo'ment of a

sin)le set of hi)h6,ualit". international a%%ountin) standards that -ould &e used in at least all

ma9or %a'ital markets #@ukenda and S%annella. 200$*

2*2 ;hallen)es in Ado'tin) !FRS for !slami% Finan%ial +ransa%tions I hile !slami% &anks are ea)er to trul" %om'l" -ith and %ondu%t

their &usinesses in a%%ordan%e -ith !slami% 'rin%i'les. the" also hae to as%ertain that there is

international a%%ountin) and finan%ial standardisation in order to &e 'art of the )lo&al finan%ial

markets #Ratna. 2011$*

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+herefore. the thriin) ,uestion that arises is -hether the a%%ountin) for !slami% finan%ial

transa%tions should

i* hae its o-n e%lusie standards and a%%ountin) treatments. orii* harmonise and &e %om'ara&le. &ut not ne%essaril" identi%al. to its %onentional

%ounter'art. oriii* %oner)e full" -ith %onentional a%%ountin) standards*

A%%ordin) to Mohamad Faiz #2010$. e%lusiit" means that !slami% a%%ountin) is to 'reail as a

'arallel s"stem of a%%ountin) alon) -ith its %onentional %ounter'art* +hus. an" !slami% finan%ial

instrument -ill onl" &e re%orded &" -a" of !slami% a%%ountin)* Harmonisation means that

finan%ial re'ortin) standards are fine6tuned to ena&le )eneral %om'arison -ith its %onentional

%ounter'art. &ut %ertain eem'tions or amendments are allo-ed and Shariah related

dis%losures ma" &e re,uired for s'e%ifi% !slami% finan%ial transa%tions* +he third o'tion of

%oner)en%e means a''l"in) !FRS. in eer" as'e%t. to !slami% finan%ial transa%tions*

Shahul Hameed #200$ ar)ued that there is a need for a different set of standards for !F!s

mainl" &e%ause !F!s are not &ased on the %a'italist -orldie- -hi%h underlies the transa%tions

that %urrent !FRS %ater for* Kther authors also a)reed that the &asi% differen%e &et-een !slami%

and %onentional a%%ountin) is the o&9e%tie of a%%ountin) itself* Shahul Hameed #200$ o'ined

that %onentional a%%ountin) is &ased on 'roidin) information that is de%ision useful. -hile

!slami% a%%ountin) is &ased on a%%ounta&ilit" to Allah #Eod$ and Shariah %om'lian%e* +his ie-

is also su''orted &" Naim #2010$ -here he %onsiders the Ba%%ounta&ilit" frame-orkC -ithin the

!slami% %ontet to mean that !F!s are re,uired to dis%har)e their a%%ounta&ilit" in a%%ordan%e

-ith the Shariah.

Shahul Hameed #200$ also %alled for a different set of standards for !slami% finan%ial

transa%tions &e%ause the fun%tions and %ontra%ts used &" !F!s are different from those of

%onentional &anks* Most of the %ontra%ts are &ased on tradin) #su%h as sale and leasin)$

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-hereas the modus o'erandi of %onentional &anks are &ased on the mo&ilisation of de'osits

and adan%ement of loans on interest*

Rifaat #2001$ dis%ussed that the re)ulators7 inter'retation of the !AS led to the arious

a%%ountin) treatment of mudhara&ah inestment a%%ount #some 9urisdi%tions treat the a%%ount

as lia&ilit" or as e,uit" of takin) it off &alan%e sheet due to fa%t that inestment a%%ount is fund

mana)ement* +hese treatments. a%%ordin) to Rifaat #2001$ rendered the finan%ial statements of

!slami% &anks non6%om'ara&le* +his dra-s attention to the fa%t that !ASs are insuffi%ient to %ater

for the uni,ue %hara%teristi%s of the finan%ial instruments used &" !slami% &anks* +o address this

'ro&lem. he %alled for AAK!F! ado'tion to %ater the uni,ue %hara%teristi%s of the %ontra%ts*

!n )eneral. the differen%e &et-een AAK!F! and !FRS %entres on the re%o)nition and

measurement of finan%ial instruments and leases* AAK!F! additionall" re,uires dis%losures to

%one" Shariah %om'lian%e and 'roides )uidan%e on the 'resentation of %ertain items uni,ue

to !slami% finan%e* Another differen%e is that the AAK!F!7s a%%ountin) re,uirements are drafted

to em'hasise the le)al forms of %ontra%ts a''roed &" its Shariah (oard* !t does not %onsider

%ontra%ts #su%h as Bai al-Inahand Tawarruq$ -hi%h are not a''roed &" its Shariah (oard een

thou)h the" ma" &e used etensiel" in some !slami% finan%e 9urisdi%tions*

A;;A and L8ME #2010$. Naim #2010$ and Ratna #2011$ a)reed that the &est -a" to resole

the differen%es in the a%%ountin) treatment and dis%losure of !slami% finan%ial transa%tions is &"

harmonizin) &oth AAK!F!7s standards and !FRS as the" are %om'lementar" to one another* +his

means that !FRS hae to &e fine6tuned to a%%ommodate Shariah 'rin%i'les* Naim #2010$ and

A;;A and L8ME #2010$ su))ested that s'e%ifi% !FRS &e issued for use onl" &" !F!s* (" takin)

into a%%ount the uni,ue features of !slami% finan%ial transa%tions. the issuan%e of s'e%ifi% !FRS

-ould 'roide more useful information for de%ision makin) 'ur'oses*

+he third a''roa%h is the full %oner)en%e of a%%ountin) standards for !slami% finan%ial

transa%tions -ith !FRS* +he Mala"sian A%%ountin) Standards (oard7s #MAS($ initiaties are in

line -ith this a''roa%h* For instan%e. -hile issuin) its SK8 i61 #200$. the MAS( a''ears toD


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hae alread" ado'ted this a''roa%h althou)h it is tem'ered -ith %aution for the remote

'ossi&ilit" for Shariah %onfli%t* 8ara)ra'h D of SK8 i61 #200$ re,uires that Shariah compliant

transactions and events shall be accounted for in accordance with !SB approved accounting

standards" unless there is a Shariah prohibition#* !n deelo'in) SK8 i61. the MAS( also sou)ht

the adi%e of the Shariah Adisor" ;oun%il of (ank Ne)ara Mala"sia -hi%h %on%luded that

)enerall" a%%e'ted a%%ountin) 'rin%i'les #EAA8$ do not %onfli%t -ith Shariah methodolo)ies*

More re%entl" in /anuar" 2012. the MAS( has offi%iall" 'ronoun%ed its %oner)en%e to !FRS*

+his is not to sa" that there -ould not &e an" a%%ountin) issues under full !FRS %oner)en%e*

+hus. those in faour of %oner)en%e &eliee that those issues. similar to other issues not

related to !slami% finan%e. %an &e resoled -ithin the !FRS frame-ork -ithout hain) to resort to

a se'arate frame-ork #e%lusiit"$ or ado'tin) mied standards #harmonisation$*

2*3 Finan%ial Re'ortin) Re)ulation for !slami% (anks in Mala"sia+he a%%ountin) standard settin) in Mala"sia is s'earheaded &" Mala"sian A%%ountin)

Standards (oard #MAS($* Mala"sia has had a %om'aratiel" eas" 9ourne" to-ards

%oner)en%e sin%e it has &een in%or'oratin) the 'roisions of !AS into lo%al a%%ountin)

standards sin%e 1 #Zainal A&idin. 200$* +he %urrent Finan%ial Re'ortin) Standards #FRSs$

issued &" the MAS( are alread" %om'liant -ith !FRS* Kn 1 Noem&er 2011. the MAS( has

issued a ne-l" a''roed a%%ountin) frame-ork. the MFRS Frame-ork* +he MFRS Frame-ork

%om'rises standards as issued &" the !AS( -hi%h are effe%tie as from 1 /anuar" 2012*

A'art from the MFRS Frame-ork. MAS( also issues 'ronoun%ements in the form of te%hni%al

releases as additional )uidan%e on a%%ountin) for !slami% finan%ial transa%tions* +his te%hni%al

releases su''lement the MAS( a''roed a%%ountin) standards and still effe%tie to &e used

to)ether -ith the MFRS Frame-ork* ;urrentl". MAS( has four !slami% te%hni%al releases as

follo-s

i) MAS( +e%hni%al Release +R i61.!ccounting for $a%at on Business

ii) MAS( +e%hni%al Release +R i62. I&arah


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iii) MAS( +e%hni%al Release +R i63. 'resentation of (inancial Statements of Islamic

(inancial Institutions

iv) MAS( +e%hni%al Release +R i64. Shariah )ompliant Sale )ontracts

!n 2005. (ank Ne)ara Mala"sia #(NM$ %ame out -ith the Euidelines on Finan%ial Re'ortin) for

@i%ensed !slami% (anks #E86i$* +he o&9e%tie of this )uideline is to 'roide the &asis for

'resentation and dis%losure of re'orts and finan%ial statements of !slami% &anks in %arr"in) out

its &ankin) and finan%e a%tiities* Re%entl". in e%em&er 2012. (NM issued a reised E86i.

-hi%h is effe%tie in /anuar" 2014* +his re%ent )uideline stresses that !slami% &anks must

ensure finan%ial statements are 're'ared in a%%ordan%e to MAS( a%%ountin) standards and the

re,uirement to use fair alue o'tion for measurement 'ur'oses* Additionall". it also outlines

minimum dis%losure re,uirements -ith re)ards to Shariah related dis%losures for finan%in) and

de'osit 'rodu%ts. zakat related information. 'ur'ose and sour%e of fund of ,ard finan%in).

mura&ahah inentories. i9arah assets further &reakdo-n of finan%in) and de'osits a%%ordin) to

Shariah %ontra%t*

2*4 Re%o)nition. Measurement and is%losure for !slami% Finan%ial +ransa%tions!slami% &ankin) 'ros'erit" de'ends on the 'u&li% trust es'e%iall" the trust of de'ositors and

inestors* +he trust in !slami% &anks relates to etent of adheren%e to Shariah 'rin%i'les* Kne

ma9or sour%e of 'u&li% %onfiden%e is the ,ualit" of information issued to the inestin) 'u&li%

a&out &anks7 a&ilit" to a%hiee &oth finan%ial and Shariah6related o&9e%ties #+a)


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is spot trade carried out amongst +ourselves" then +ou are not to blame for not recoding itC. #Al6

(a,arah 22$*

!slami% a%%ountin) shares -ith their %onentional %ounter'arts the same %ommon 'ro%ess of

re%o)nition. measurement and re%ordin) of transa%tions and fair 'resentation of ri)hts and

o&li)ations* Re%o)nition of ri)hts and o&li)ations must a''l" to a )ien 'eriod of time tra%in) all

%han)es of %onsummated transa%tions that ma" hae taken 'la%e* Measurement is the

,uantifi%ation of finan%ial effe%ts of %onsummated transa%tions and the im'a%t of other eents

durin) the same 'eriod of time* +he re%ordin) 'ro%ess offers a lu%id %lassifi%ation s%heme of

finan%ial effe%ts to)ether -ith other eents. in order to sho- the results of the entit"7s o'erations

and %han)es in its finan%ial 'ositions in%ludin) %ash flo-* 8eriodi% re'orts are. then. 're'ared

and issued &" the entities to dis%lose their finan%ial re%ords durin) a )ien 'eriod of time*

+he reason -h" !slami% finan%ial a%%ountin) methods and 'rin%i'les hae to &e %arefull"

distin)uished from their %onentional %ounter'arts is the same reason -h" !slami% &anks and

%onentional finan%ial institutions hae eisted in the first 'la%e* 8rohi&ition of interest in

finan%ial dealin)s is the 'rimar" reason. &ut there are arious other issues and fine details -hi%h

make u' for the %ase of !slami% finan%ial a%%ountin) standards*

A%%ountin) re%o)nition for !slami% &anks is %ru%ial due to re%o)nition of assets a%,uired under

arious !slami% modes of finan%in). 'rofitloss inestment a%%ounts. and funds #e*)* -hen

should Mura&aha 'rofit. or Mudara&ah %a'ital &e re%o)nisedO >hen should inestment 'rofit &e

re%o)nised. and ho- is it measuredO$* +a)


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and not merel" fo%usin) on attainin) 'rofit* +herefore. the 'rimar" o&9e%tie of a%%ountin)

information is to fulfil the ultimate a%%ounta&ilit" to Allah S>+*

(ased on this ar)ument. it affe%ts the a%%ountin) %on%e'ts of re%o)nition. measurement and

dis%losure* !n terms of re%o)nition. A&dul Rahim #2003$ o'ines that a%%ountin) re%o)nition for

!slami% &anks is not that different from the %onentional 'ra%ti%e -here it defines the &asi%

'rin%i'les that determine the timin) of reenue. e'ense. )ain and loss re%o)nition in the

entit"7s in%ome statement. and the timin) of assets and lia&ilities re%o)nition* Here. the %on%e't

of a%%rual a%%ountin) is relied u'on. -here reenue is re%o)nised -hen realised and e'ense is

re%o)nised in a%%ordan%e to the mat%hin) 'rin%i'le* A&dul Rahim #2003$ further mentions that

a%%rual a%%ountin) does meet the re,uirement of !slami% o&9e%ties to determine Preal7 -ealth*

Ho-eer. most s%holars do not a)ree on the use of histori%al %ost in measurin) the alue to &e

re%orded for assets and lia&ilities due to it %onfli%ts -ith the %on%e't of fairness and 9usti%e* +his

is es'e%iall" true for determinin) zakat. -here&" ma9orit" s%holars re%ommend the use of

%urrent 'ri%e on the due date of zakat #Al6arda-i. 1$* +he ar)ument for the use of %urrent

market alue has &een &ased on the needs for the most a%%urate aluation of -ealth to &e

su&9e%ted for zakat* +his is to sere 9usti%e to &oth the zakat re%i'ients and zakat 'a"ers*

Man" literatures hae dis%ussed the im'ortan%e of dis%losure for !slami% &anks. -here most

authors like (a"doun and >illet #1$. Shahul Hameed et al #2004$ and Maliah #2001$ hae

e'anded the s%o'e of dis%losure to in%lude so%ial a%%ounta&ilit" dis%losure and full dis%losure*

+his has e'anded the %ontent of finan%ial re'ortin) to in%lude enironmental re'ortin). so%ial

re'ortin) and the like* Furthermore. AAK!F!7s FAS 1 eneral 'resentation and isclosure in

(inancial Statements of I(Isstresses the im'ortan%e of hain) a s'e%ifi% statement outlinin) the

use of ,ard fund and zakat %olle%tion and dis&ursement* +his more or less si)nifies the

im'ortan%e of so%ial res'onsi&ilit" &" !slami% &anks to the so%iet"*

. RESEARC! MET!OD

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+he stud" utilizes %ontent anal"sis method to anal"se the finan%ial re'ortin) dis%losure 'ra%ti%es

of sele%ted !slami% &anks in Mala"sia* +he sam'le %hosen for the %om'aratie dis%losure

anal"sis -ere si !slami% &anks -ith the hi)hest asset alue in finan%ial "ear 2011. -hi%h

%om'rise of three lar)est lo%al !slami% &anks and three lar)est forei)n o-ned !slami% &anks

o'eratin) in Mala"sia* Finan%ial "ear 2011 -as %hosen due to the unaaila&ilit" of the full

finan%ial "ear finan%ial statements for %ertain &anks in "ear 2012* Knl" a fe- &anks hae

'u&lished the full "ear results -hile man" onl" 'u&lished the ,uarterl" finan%ial results* +he list

of !slami% &anks and their res'e%tie total asset alue for the finan%ial "ear 2011 is 'roided in

+a&le 1*T"#$e 1: L%&' o( I&$")%* B"+,& "+d A&&e' V"$-e %+ F%+"+*%"$ Ye"r 211

N")e o( B"+,& To'"$ A&&e' V"$-e 211RM/

@o%all" K-ned !slami% (anks(ank !slam Mala"sia (erhad #(!M($ 32.22D.504;!M( !slami% (ank (erhad #;!M($ 43.0.5Ma"&ank !slami% (erhad #M!($ 4.011.330

Forei)n o-ned !slami% (anksAl Ra9hi (ankin) ? !nestment ;or'oration #Mala"sia$

(erhad #AR($

D.10D.5

Lu-ait Finan%e House #Mala"sia$ (erhad #LFH$ 10.122.1DDHS(; Amanah Mala"sia (erhad #HS(;$ 10.432.4

Sour%e Res'e%tie &anks7 annual re'orts 2011

0. ANALYSIS AND DISCUSSION+he items of dis%losure used for %om'arison are &ased on sele%ted re%o)nition and

measurement 'rin%i'les of finan%ial assets and lia&ilities outlined in the MFRS 13 (inancial

Instruments/ 0ecognition and easurement" MFRS isclosure of (inancial Instruments.

MAS( +ri61!ccounting for $a%at on Businessand dis%losures uni,ue to !slami% &ankin). su%h

as ar-rahnuand qard* +a&le 2 summarizes the %om'aratie anal"sis 'erformed*

T"#$e 2: Co)"r"'%e D%&*$o&-re Pr"*'%*e& o( '3e L"r4e&' S%5 I&$")%* B"+,& %+ M"$"y&%"

No I'e)& o( D%&*$o&-re BIMB CIMB MIB ARB KF! !SBC

(0S 123 (inancial Instruments/ 0ecognition and easurement1 Initial recognition

A finan%ial asset or finan%ial lia&ilit" isQ Q Q Q Q Q

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re%o)nized in the statement of finan%ial

'osition -hen the entit" &e%omes a 'art" to

the %ontra%tual 'roisions of the instrument*

2 erecognition of financial asset 415A finan%ial asset is dere%o)nize -hen#a$ the %ontra%tual ri)hts to the %ash flo-s

from the finan%ial asset e'ireG or#&$ the entit" transfers the finan%ial asset

Q Q Q Q Q Q

3 erecognition of financial asset 465U'on dere%o)nition of a finan%ial asset. the

differen%e &et-een4a5 the %arr"in) amount and4b5 the sum of #i$ the %onsideration re%eied

and #ii$ an" %umulatie )ain or loss that

had &een re%o)nised in other

%om'rehensie in%ome shall &e

re%o)nised in 'rofit or loss*

N N N Q Q N

4 erecognition of a financial liabilit+ 415A finan%ial lia&ilit" is remoed from the

statement of finan%ial 'osition -hen it is

etin)uishedJie -hen the o&li)ation s'e%ified

in the %ontra%t is dis%har)ed or %an%elled or

e'ires*

Q Q Q Q N Q

5 erecognition of a financial liabilit+ 415+he differen%e &et-een the %arr"in) amount of

a finan%ial lia&ilit" etin)uished or transferred

to another 'art" and the %onsideration 'aid

shall &e re%o)nised in 'rofit or loss*

N N Q N N N

D Initial measurement of financial assets and

financial liabilities!nitiall". the entit" shall measure a finan%ial

asset or finan%ial lia&ilit" usin) its fair alue

'lus transa%tion %osts that are dire%tl"

Q Q Q Q Q Q

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attri&uta&le to the a%,uisition or issue of the

finan%ial asset or f inan%ial lia&ilit"* Subsequent measurement of financial assets

After initial re%o)nition. loans and re%eia&les

shall &e measured at amortised %ost usin) the

effe%tie 'rofit method*

Q Q Q Q Q Q

Subsequent measurement of financial

liabilitiesAfter initial re%o)nition. an entit" measure all

finan%ial lia&ilities at amortised %ost usin) the

effe%tie 'rofit method*

Q Q Q Q Q Q

Impairment and uncollectibilit+ of financial

assetsA finan%ial asset or a )rou' of finan%ial assets

is im'aired and im'airment losses are

in%urred -hen there is o&9e%tie eiden%e of

im'airment as a result of a loss eent* +here

should &e o&9e%tie eiden%e of im'airment

throu)h o&sera&le data of the loss eents

outlined in the standard*

Q Q Q Q Q Q

10 (inancial assets carried at amortised cost 415>hen there is an im'airment loss on loans

and re%eia&les has &een in%urred. the

amount of the loss is measured as the

differen%e &et-een the asset7s %arr"in)

amount and the 'resent alue of estimated

future %ash flo-s dis%ounted at the finan%ial

asset7s ori)inal effe%tie 'rofit rate*

+he %arr"in) amount of the asset shall &e

redu%ed dire%tl" or throu)h use of an

allo-an%e a%%ount* +he amount of the loss

Q Q Q Q Q Q

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shall &e re%o)nized in 'rofit or loss*11 (inancial assets carried at amortised cost 465

!n su&se,uent 'eriod. -hen the amount of the

im'airment loss de%reases #su%h as an

im'roement in the de&tor7s %redit ratin)$. the

'reiousl" re%o)nised im'airment loss shall

&e reersed either dire%tl" or &" ad9ustin) an

allo-an%e a%%ount* +he amount of the

reersal shall &e re%o)nised in 'rofit or loss*

Q Q Q Q Q Q

12 erivative instruments and hedging disclosureis%losure on the t"'es of deriatie finan%ial

instruments. -hether it is used as a hed)e

instrument and hed)e a%%ountin) throu)h fair

alue or %ash flo- hed)e*

Q Q Q NR Q Q

(0S 7 isclosure of (inancial Instruments

13 is%losure on the method used &" &anks to

determine fair alue measurement #i*e* fair

alue hierar%h" and aluation te%hni,ues$

Q Q Q Q Q Q

!SB Tri-1 !ccounting for $a%at on Business

14 is%losure on method used to determine zakat

on &usiness*

N N Q N N N

8ther unique disclosures pertinent to Islamic Ban%ing

15 9ard :asanfinan%in) N N N Q Q Q1D !r-0ahnufinan%in) Q N N N N N

Per*e+'"4e o( d%&*$o&-re 678 98 ;18 678 678 678

N Not is%losedNR Not Related

+he %om'aratie anal"sis sho-s the items of dis%losure 'resented &" the si !slami% &anks in

their finan%ial statements. s'e%ifi%all" information in the notes to the a%%ount* !t sho-ed that M!(

dis%losed 1 'er%ent of the sele%ted items re,uired &" MFRS 13. MFRS and MAS( te%hni%al

release on zakat for &usiness* +his is the hi)hest rate of dis%losure as %om'ared to other

!slami% &anks identified in this sam'le*

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+he re'ortin) 'ra%ti%es for !slami% &anks in Mala"sia are hi)hl" re)ulated &" the (NM* As (NM

stron)l" re,uired the use of MAS( standards in the re'ortin) 'ra%ti%es of !slami% &anks. it is not

sur'risin) that the leel of dis%losure is relatiel" moderate and hi)h at 5 'er%ent and more*

+his is to the e%e'tion for ;!M( rankin) the lo-est at D 'er%ent of dis%losure items* +he items

not dis%losed &" ;!M( relate to dere%o)nition of finan%ial assets and lia&ilities. method for

determinin) zakat on &usiness. dis%losure -hether hain) ,ard or ar-rahnufinan%in)*

For deriatie finan%ial instruments. all &anks 'roided the re,uired dis%losure. -hereas onl"

AR( did not dis%lose an" information on deriaties* Further reie- of the finan%ial statements

sho-ed that AR( does not hae an" deriatie finan%ial instruments in the finan%ial "ear 2011*

An area of fo%us is the dis%losure on the method used &" &anks to determine zakat &ase for its

'a"ment of zakat on &usiness* Knl" M!( dis%lose the method used &" their &anks -hereas

other &anks are silent on the method 'ra%ti%ed* Su%h dis%losure is re,uired &" the E86i and

MAS( +R6i 1 as it refle%ts the so%ial res'onsi&ilit" of !slami% &anks to-ards the so%iet" and

uni,uel" distin)uishes it from %onentional &anks*

+a&le 3 also hi)hli)hted -hether !slami% &anks offered qard hasanor ar-rahnufinan%in) to its

%ustomers* For AR(. LFH and HS(;. the" onl" identified qard hasan -ithout additional

dis%losure mentionin) ar-rahnuis in%luded or not in%luded as 'art of qard hasan* (!M( on the

other hand. onl" dis%losed that the" offered ar-rahnufinan%in) -ithout mentionin) hain) qard

hasan* Ho-eer. ;!M( and M!( does not identif" either t"'e of finan%in) -here the" onl"

mention PKther finan%in)7 as one of the line item* !t is im'ortant for !slami% &anks to s'e%ifi%all"

identif" -hi%h t"'e of finan%in) offered &" them as these are uni,ue finan%in) offered &" !slami%

&anks not offered &" %onentional &anks* Additional dis%losure in the notes -ould &e 'roen

hel'ful for users to &etter understand the 'rodu%ts offered &" these !slami% &anks*

+he limitation for this %om'aratie anal"sis is that non6dis%losure item %ould &e assumed as

either the !slami% &anks do not hae su%h 'ra%ti%etransa%tion or the !slami% &anks do 'ra%ti%e

15


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&ut did not dis%lose su%h a%tiities* +his limitation -as also fa%ed in a stud" &" :inni%om&e

#2010$ and +o-er et. al#1$*

!dditional isclosure 0equirement b+ the newl+ revised ';-i(ank Ne)ara Mala"sia7 #(NM$ E86i is a )uideline on Finan%ial Re'ortin) for @i%ensed !slami%

(anks issued in "ear 2005 to 'roide the &asis for !slami% (anks in 'resentation and dis%losure

of re'orts and finan%ial statements* +his effort is to ensure %onsisten%" and %om'ara&ilit" of the

statements amon) the !slami% &anks and at the same time to fa%ilitate users in their ealuation

and assessment of the finan%ial 'osition and 'erforman%e of an !slami% &ank* +he E86i

'ro'osed the minimum dis%losure re,uirements that should &e o&sered &" the re'ortin)

institutions and the" are en%oura)ed to dis%lose additional information on the a%%ountin)

'oli%ies. ne- finan%ial instruments and other material a%tiities of the re'ortin) institutions*

!n e%em&er 2012. a reised E86i -as issued. there are arious %han)es introdu%ed &" (NM

es'e%iall" em'hasizin) the im'ortan%e of adherin) to MAS( a%%ountin) standards kno-n as

MFRS and 'roidin) additional dis%losures in relation to Shariah %ontra%ts underl"in) the

finan%in) and de'osits 'rodu%ts offered &" !slami% &anks. sour%es and uses of ,ard fund et%*

Additionall". it stresses on the use of fair alue o'tion for re%o)nition and measurement of

finan%ial instruments* +a&le 3 'roides a %om'arison of the ma9or %han)es 'ro'osed &" the

reised E86i #2012$*

T"#$e : Co)"r%&o+ o( '3e Re%&ed "+d C-rre+'$y %+ -&e


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D%&*$o&-re %'e) Re%&ed 212? e((e*'%e %+

ye"r 210

27?

%ontra%ts -hi%h is seemed to &e

%om'rehensie and refle%tie of the

o'erations of !slami% &ank founded

on Shariah 'rin%i'les*Nature of in%ome deried from

Shariah non6%om'liant a%tiities.

in%ludin) its amount. method of

dis'osal and %ontrol measure to

aoid re%urren%e of su%h 'rohi&ited

in%ome*

Not mentioned a&out this &ut in the

Shariah ;ommittee Re'ort Format hasinformation on the dis'osal of Shariah

non6%om'liant a%tiities ia %harit" et%*

e'osits from

%ustomer

+he follo-in) information are

re,uired to &e dis%losed

+"'es of de'osits +"'es of inestment a%%ount

#restricted and unrestricted

investment account$ +"'es of %ustomers Maturit" stru%tures of term

de'osits

!tems to &e dis%losed are

+"'es of de'osits +"'es of %ustomers

Finan%in).

re%eia&les and

other loan

+he follo-in) information are


Measurement &asis +"'es of finan%in) Eeo)ra'hi%al distri&ution 8rofit rate sensitiit" Se%tor or e%onomi% 'ur'ose Residual %ontra%tual maturit"


+"'e of finan%in) ;ontra%t +"'e of %ustomer 8rofit rate sensitiit" Maturit" Se%tor

Zakat +he follo-in) information are


res'onsi&ilit" to-ards zakat

'a"ment method a''lied in the


'ur'ose of zakat &asis of %al%ulation of zakat

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D%&*$o&-re %'e) Re%&ed 212? e((e*'%e %+

ye"r 210

27?

determination of zakat &ase &enefi%iaries of zakat fund

ard A moement s%hedule of the ,ard

loanfinan%in) -hi%h in%ludes

o'enin) and %losin) &alan%es.

sour%es and uses of the,ard fund

+he )uideline does not mention a&out

this dis%losure*

Mura&ahah is%lose the a%,uisition or transfer

of o-nershi' 'rior to its su&se,uent

sale. the%arr"in) amount held for the

'ur'ose of Mura&ahah#%ost 'lus

sale$-hi%h %an &e transa%ted at s'ot or

deferred &asis*


this dis%losure*

!9arah +he follo-in) information are

re,uired to &e dis%losed dis%losure of %arr"in) amount dis%losure of the etent of the

transfer of usufru%t!t 'roides a su))ested format for

the !slami% &anks to %onsider

a''l"in)*


this dis%losure*

Kn %om'arison &asis. the reised E86i re,uires )reater amount of dis%losure that refle%ts the

uni,ue nature of !slami% &anks7 o'erations* Anal"sin) further the a&oe additional dis%losure

-ith )uidelines and standards issued &" international &od" su%h as !nternational Finan%ial

Standards (oard #!FS($ and AAK!F!7s entails the follo-in) dis%ussion*

!FS( 4 isclosures to 'romote Transparenc+ and ar%et iscipline for Institutions 8ffering

Islamic (inancial Services 4


19/22

dis%losures for the inestment a%%ount to in%lude &oth restri%ted and unrestri%ted a%%ounts as

-ell as se'arate 'ro'osed dis%losures for restri%ted and unrestri%ted inestment a%%ount*

AAK!F! in its FAS 1 eneral 'resentation and isclosure in (inancial Statements of I(Is

re,uired !slami% &anks to hae an off &alan%e sheet dis%losure statement on the moement of

the restri%ted inestment a%%ounts to &e a%%ounta&le for the inestment a%%ount holders for

restri%tin) the inestment 'ur'oses of the )ien inestments* !n addition. the reised E86i

re,uires the !slami% &anks to dis%lose a se'arate statement on the moement of ,ard fund and

dis%losin) on -ho are the zakat &enefi%iaries some-hat refle%t the harmonization effort &" (NM

in &ein) ali)n -ith AAK!F!*

7. CONCLUSION+his resear%h studied the %urrent re'ortin) 'ra%ti%es for finan%ial assets and lia&ilities of the

lar)est three lo%al and three forei)n !slami% &anks in Mala"sia a)ainst MFRS 13. MFRS and

MAS( +R16i on zakat for &usiness* !n )eneral. these &anks lar)el" %om'lies -ith MFRS 13

and MFRS &ut has limited %om'lian%e -ith MAS( +R16i for zakat* Knl" one !slami% &ank

dis%loses the method used to determine the in%ome eli)i&le for 'a"in) zakat* is%losure on

information related to zakat is im'ortant as it stron)l" sho- ho- the !slami% &ank is &ein)

Shariah %om'liant in determinin) zakata&le amount* !n addition. the 'a'er also anal"sed the

%han)e in dis%losure re,uirements in the E86i #2012$ 'ut forth &" (NM in order to &e more

)lo&all" %om'ara&le and a%%e'ted* !t is a''arent that (NM as the re)ulator of !slami% &anks

'la"s an a%tie role in ensurin) !slami% &anks7 a%%ountin) and re'ortin) 'ra%ti%e are in line -ith

Shariah 'rin%i'les as -ell as adherin) to the a%%ountin) standards issued &" MAS(* +his is

eiden%ed &" the issuan%e of the reised E86i in 2012 that sho-s the harmonization effort &"

(NM to in%or'orate items of dis%losure 'ro'osed &" !FS( as -ell as AAK!F! for %om'ara&ilit"

'ur'ose at the international leel* +herefore. it is hi)hl" re%ommended that %ontinuous

%olla&oration and su''ort from MAS( and (NM in 'roidin) standards and )uideline that are

&oth Shariah %om'liant and )lo&all" a%%e'ted*

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REFERENCESA&dul Rahim. A*R* 2003* A%%ountin) Re)ulator" !ssues on !nestments in !slami% (onds*

International =ournal of Islamic (inancial Services4#4$*

A;;A and L8ME* 2010* :armonising (inancial 0eporting of Islamic (inance* @ondon. UnitedLin)dom*

A%%ountin) Auditin) Kr)anisation for !slami% Finan%ial !nstitutions #AAK!F!$ #2010$*!ccounting"!uditing and overnance Standards for Islamic (inancial Institutions* Finan%ial A%%ountin)Standards No* 1* Manama. (ahrain AAK!F!*

Al Ra9hi (ankin) ? !nestment ;or'oration #Mala"sia$ (erhad* Finan%ial Statements for theFinan%ial ear ended 31 e%em&er 2011* Luala @um'ur. Mala"sia*

Al6arda-i. * 1* (iqh !z-$a%at/ ! )omparative Stud+#translated$. @ondon ar Al6+a,-a*

(ank !slam Mala"sia (erhad* 2011* Finan%ial Statements* Luala @um'ur. Mala"sia*

(ank Ne)ara Mala"sia* 2012* Knline referen%e a%%essed Noem&er 10. 2012 fromhtt'---*&nm*)o*m"inde*'h'O%hfsTmfs?')fsTmfsT&ank

(ank Ne)ara Mala"sia* 2013a* Knline referen%e a%%essed /une 21. 2013 fromhtt'---*&nm*)o*m"inde*'h'O%hli?%atislami%?t"'e!(?fund0?%u0

(ank Ne)ara Mala"sia* 2013&* Monthl" Statisti%al (uletin A'ril 2013* Knline referen%e a%%essed/une 21. 2013 fromhtt'---*&nm*)o*m"inde*'h'O%henT'u&li%ationT%atalo)ue?')enT'u&li%ationTms&?mth4?"r2013?lan)en?e!d&o1

(a"doun. N and >illet. R* 1* B!slam and A%%ountin)


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Mala"sian A%%ountin) Standards (oard 200* Standard 8perating 'rinciples (inancial0eporting from an Islamic 'erspective* Luala @um'ur. Mala"sia*

Maliah. S* 2001* +estin) A Model Kf !slami% ;or'orate Finan%ial Re'orts Some orld ;on)ress of A%%ountants. 611 Noem&er. Luala@um'ur. Mala"sia*

Naim. A* 2010* Au)ust* !slami% a%%ountin) I


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:inni%om&e. +* 2010* AAK!F! re'ortin) standards Measurin) %om'lian%e* !dvances in!ccounting incorporating !dvances in International !ccounting 2D 556D5*

Zainal A&idin. 8* 200* Full ;oner)en%e -ith !FRS in 2012* !ccountants Toda+. K%to&er 22623*

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FINANCIAL ASSETS AND LIABILITIES DISCLOSURE PRACTICES IN ISLAMIC BANKS IN MALAYSIA

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Transcript of FINANCIAL ASSETS AND LIABILITIES DISCLOSURE PRACTICES IN ISLAMIC BANKS IN MALAYSIA