Shariah-compliant leases on the IASB's agenda for May

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26 Apr, 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.

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