Revenue recognition of Islamic banks

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Accounting for revenue recognition has been a subject of interest for regulators and other market participants. The interest stems from the fact that revenue forms the greatest single item in the financial statements (FASB, 2002 , p. 1). Indeed, aggressive revenue recognition has always been associated with corporate financial scandals like Enron, Worldcom and Parmalat. It has been used to mask firms' real performance with the aim of preventing shareholders and stakeholders from scrutinizing their financial performance and other wrongdoings. The Securities and Exchange Commission in the US documented that mistake in revenue recognition as the lead issue in "financial reporting errors" (SEC , 2003, p. 6). Also, revenue is one of key financial indicators and the most scrutinized item in financial statements in assessing firms' health and ability to continue as a going concern entity. This chapter examines the practice of using the 'Effective Profit Rate Method' in estimating revenue (or profit share) from financing activities under various Islamic finance contracts by Islamic banks (IBs) that operate in Malaysia ...
Effective Profit Rate Method , Revenue , Profit share , Islamic banks , Islamic finance , Malaysia
Muhamad Sori, Zulkarnain. (2019). Revenue recognition of Islamic banks. In Zulkarnain Muhamad Sori, Sazali Abdul Wahab & Mahmoud Al Homsi (Eds.), Contemporary issues in financial reporting of Islamic financial institutions (pp. 65-94). Kota Bharu, Kelantan: UMK Press.
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