Islamic Banking & Finance Project

Honourable Supervisor
Mr. Muhammad Rafy Ashraf Usmani
Lecturer
Member Shariah Board, the Bank of Punjab
School of Business, Management & Administrative Sciences BJ Campus Bahawalpur
Submitted By
Name: Naveed Ahmad
Registration: F20-BMGMT-3E-03075
Class: MS Management Sciences (Finance)
Semester: 2nd
 Project Topic
Islamic Financial Accounting Standards (IFAS)

(1)Introduction

(2)Most Important Criteria For IFAS

(3)Due Process For Development of IFAS in Pakistan

(4)Conclusion
 IFAS: Introduction
 Accounting Standards for financial reporting by Islamic Institutions have to
be developed because these institutions encounter accounting problems
due to existing accounting standards such International Financial
Reporting Standards(IFRS) or Generally Accepted Accounting Principles
(GAAP) being developed on conventional institutions, conventional products
& structures/ practices.

 The need for accounting records as means for trust building is emphasized
in the Holy Quran: “Never get bored with recording it, however small or
large, up to its maturity date, for this is seen by Allah as closer to justice,
more supportive to testimony and more resolving to doubt. (Al- Baqara 2 82)
 Most Important Criteria For IFAS
 Usefulness: To be useful accounting information must target the interest of external users.
 Relevance: A close relationship must exist between the Islamic financial accounting and the purpose for which this
information is provided. Accounting information is relevant if it helps the main users of financial statements to
evaluate the potential outcomes of maintaining or establishing relationships with the specific Islamic Institution.

 Reliability: Reliability should satisfy the properties of faithfulness, objectivity and neutrality.

 Comparability: Usefulness of accounting information is enhanced by comparability of bank’s performance over

time.

 Consistency: Islamic Institutions (Banks) should stick as much as possible to the same measurement/disclosure
methods from one period to another unless there is genuine call for change.

 Understandability: Accounting information is targeted to common users not to accountants. The nature of
information the way it is presented and the technical background of external users are important factors in the
preparation of understandable information.

 Measurable Attributes: An Islamic Financial Accounting Standard(IFAS) must be measurable for its acceptance and
implementation.
 Due Process For Development of IFAS
 The Accounting Standard Board (ASB) develops Islamic Financial
Accounting Standards(IFAS) complying with the following due
process:

Step-I Step-II Step-III

Identification of Relevant Subject by Formation of Working Group by ASB Review of ED by ASB
ASB for Development of the Exposure Draft
(ED)

Step-IV Step-V Step-VI

ED Issued For Members Comments Coalition and Analysis of Members Presentation of DTS Analysis to the WG
Comments by DTS

Step-VII Step-VIII Step-IX

Preparation of Revised ED to ASB Consideration of Revised ED by ASB Submission of IFAS to Council for
for Issuance of Final Standard Approval

#
Step-X(Final)
IFAS Approved by Council Sent to Securities & Exchange Commission of Pakistan
(SECP) for Notification
 Conclusion
 IFAS-I (Murabaha): The Securities and Exchange Commission of Pakistan (SEC) has
notified the Islamic Financial Accounting Standards (IFAS-1) on Murabaha Transactions
(Approved by ICAP) and directed financial institutions to follow IFAS-1 in preparation of
their financial statements.

 IFAS-II (Ijarah): Vide Notification No. S.R.O 431(1)2007, the SECP has directed that
IFAS-2, issued by ICAP, shall be followed by companies while accounting for Ijarah
(Lease) transactions as defined by the said standard.

 IFAS-III (Profit and Loss Sharing on Deposits): SECP has notified IFAS- 3, “Profit and
Loss Sharing on Deposits” issued by the Institute of Chartered Accountants of Pakistan.
The standard is effective from January 1, 2014 and deals with the accounting for
transactions relating to “Profit and Loss Sharing on Deposits” as defined by the standard.