Staff paper on issues in the application of IFRS 9 to Islamic finance

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21 Aug 2014

The IASB's Consultative Group for Shariah-Compliant Instruments and Transactions will meet in Kuala Lumpur on 5 September 2014 to discuss issues in the application of IFRS 9 'Financial Instruments' to Islamic finance. To this end a staff paper has been prepared addressing issues in the classification of financial instruments under IFRS 9.

The working group was formed as a result of the IASB's 2011 agenda consultation and held an initial meeting in Kuala Lumpur in July 2013. During the meeting, the group identified four areas that it wants to address:

  • The application of IFRS 9's classification and measurement principles;
  • the application of the IASB's proposed lease standard to Ijarah;
  • whether restricted and unrestricted investment accounts are to be presented on- or off-balance sheet; and
  • profit equalisation reserves (PER) because of significant differences in practice.

The upcoming discussion in Kuala Lumpur will address the first of these points and will be based on a staff paper made recently available on the IASB's website. The paper identifies three main issues that need to be considered:

  1. Which IFRS applies to the accounting of Islamic financial instruments? Are these contracts with customers that fall within the scope of IFRS 15 Revenue from Contracts with Customers?
  2. Do some of the instruments common in Islamic finance meet the characteristics-of-the-instrument test in IFRS 9 Financial Instruments?
  3. How should the revenue from Islamic finance instruments be described and measured?

Please click for access to the full staff paper offering background and considerations on the three issues on the IASB's website.

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