The working group opens its comment letter on the IASB's ED/2013/6 Leases by expressly stating that the concepts developed fit well into the world of Islamic accounting and prominent Sharia'a scholars commend the IASB for the proposals.

However, the working group also stresses that not less but even more guidance is needed for distinguishing between a lease and a sale. The 2010 Exposure Draft ED/2010/9 Leases contained some guidance which was particularly important for ijarah muntahia bittamleek (lease contracts followed by a legally separate contract to transfer ownership of the underlying asset) and which would have clearly resulted in many (if not most) ijarah muntahia bittamleek being treated as a sale. The elimination of that guidance is from an Islamic viewpoint not clarifying but may instead lead to confusion and may result in disparate reporting of ijarah muntahia bittamleek that are economically similar.

The working group also points out that superseding SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease is problematic from an Islamic viewpoint in connection with sukuk ijarah where an entity transfers an asset to a special purpose entity which will 'sell' proportionate ownership of the asset to investors/financiers. The investors/financiers then lease the asset to the original transferor entity.

The principles in SIC 27 are currently crucial in assessing whether a sukuk ijarah should be accounted as a financial instrument under IAS 39/IFRS 9 or as a sale and leaseback under IAS 17. The loss of SIC 27 may have negative repercussions, especially since sukuk ijarah structures form a substantial portion of the Islamic capital market in many jurisdictions.

The comment letter also contains references to several implementation issues that may not necessarily require amendments to the exposure draft.

Please click for more information in the comment letter from the AOSSG Islamic Finance Working Group which is attached as Appendix B to the general comment letter on the AOSSG website.