Accounting for leasing: the case of Islamic car financing
Views & Download
This case was developed based on a real-life experience dealing with an Islamic car financing contract (i.e. Al-ljarah Thumma Al-Bay |AITAB] contract - Sale and Leaseback) between a Malaysian Islamic Financial Institution and their customer. It is well recognised that AITAB is governed by the Malaysian Hire Purchase Act 1967, that oversees conventional (nor Islamic) car financing, yet it is used for both financing modes. The contract requires clarification on the following: understanding of the nature of the contract used and the relevant transactions involved; revenue recognition (current and future); capitalisation of relevant costs in the asset's value; fair value of leased asset; recognition of financial assets and liabilities; and disclosure requirements from the bank and customer perspectives. Users of the case are assumed to be familiar with the various regulatory requirements and theoretical foundation of the "Accounting for Islamic Financial Transactions" from IFRS/MFRS (International Financial Reporting Standards/Malaysian Financial Reporting Standards) and the AAOFI (Accounting and Auditing Organization for Islamic Financial Institutions) reporting perspectives.
IFRS/MFRS , AAOIFI , Islamic finance , Financial assets , Financial Iiabilities
Muhamad Sori, Z., & Ramadili Mohd, S. M. (2018). Accounting for leasing: the case of Islamic car financing. In Ahmed Ali Siddiqui, Sarwat Ahson & Shazia Farooq. (Eds.), Case studies in Islamic finance and Shari'ah compliance (pp. 82-91). Karachi, Pakistan: IBA Press.