Shariah-compliant leases on the IASB's agenda for May
Apr 26, 2011
Even though the meeting is still marked as "tentative" the IASB has posted to its website a very insightful staff paper on Shariah-compliant leases for the IASB/FASB special meeting on 11 and 12 May 2011. Wayne Upton, the IASB's Director of International Activities, has compiled the paper as background paper about issues in lessor accounting.
The paper focuses on Ijarah (leasing), Ijarah Muntahia Bittamleek (leasing with transfer of ownership) and Ijarah Thumma al-Bai' (leasing with subsequent sale of the leased object). The latter two are special constructions that were developed to allow for transactions that are common yet in their usual form not Shariah-compliant as they link two contracts that are by themselves permitted into a single contract that is not permitted. For the IASB's project on Leases this seems to suggest that a performance-obligation approach is Shariah-compliant while a derecognition approach or in-effect sale treatment would not be.
Please click for:
- Staff paper on Shariah-compliant leases on the IASB's website (PDF 47k)
- Asia-Oceania Standard Setters Group (AOSSG) Research paper Financial Reporting Issues relation to Islamic Finance with additional background on the topic (link to AOSSG website, PDF 560k)
- Our IAS Plus page on Islamic accounting
