AOSSG Islamic Finance Working Group comments on "gaps" in revenue recognition ED
26 Mar 2012
The Islamic Finance Working Group of the Asian-Oceanic Standard-Setters Group (AOSSG) has submitted a comment letter to the IASB on ED/2011/6 'Revenue from Contracts with Customers', noting "gaps in guidance for Islamic finance transactions".
The Working Group was set up to provide input and feedback on the adequacy and appropriateness of proposed and existing IFRS to Islamic financial transactions and events. The Working Group comprises staff from the standard-setters of Australia, China, Dubai, Korea, Malaysia, Pakistan, and Saudi Arabia.
The Working Group comment letter, which is in addition to the main AOSSG submission on the exposure draft, notes a number of issues. Some of these issues were previously raised in response to the earlier revenue recognition exposure draft (ED/2010/6).
The issues raised in the comment letter include:
- The ED could result in a sale that is a financing transaction being reported differently from other financings under IAS 39
- The application of ‘enforceable’ and ‘unconditional’ in relation to promises to repurchase must be clear
- Contracts with multiple unrelated parties can still be ‘a single contract’. Also, what constitutes ‘a contract’ may be interpreted differently in Islamic finance
- The description of a customer appears to exclude commercial customers
- It would be useful to include an example of a deferred payment sale in the Illustrative Examples.
The submission outlines why each of these issues should be dealt with by the IASB and provides the Working Group's recommendations on how they should be rectified.
Click for access to the letter (link to AOSSG website).