Accounting for Murabahah – Reviewing the Need for Exclusive Accounting Standards




Islamic Banking, Islamic Finance, Financial Reporting, Islamic Accounting, Murabahah Accounting, Qualitative Characteristics



This paper examines the need for exclusive financial reporting standards for Islamic financial transactions by considering the accounting treatment of deferred payment Murabahah, as practiced in Pakistan. Being analogous to the conventional banking model, Murabahah is one of the most widely deployed modes in Islamic banks. The paper compares the quality of presentation of deferred payment Murabahah as practiced, following both conventional and Islamic accounting standards.


The paper presents the deferred payment Murabahah (credit sale) using International Financial Reporting Standards (IFRSs) and Islamic Financial Accounting Standards (IFASs) and collects the opinion of experts (accountants, academicians, and Islamic bankers) on the extracts of the prepared financial statements. The opinions are centered on three qualitative characteristics of the financial information (relevance, faithful representation, and comparability) and a t-test is applied to examine the statistical significance of the difference of opinions received.


The results show that the overall quality score for IFRSs is higher than the IFASs for the selected qualitative characteristics. However, the difference observed is not significant, advocating the possibility of the harmonization among both Islamic and conventional accounting practices of the financial intuitions operating in Pakistan.


Earlier studies (Morshed (2022); El-Halaby, Albarrak, and Grassa (2020); Ullah (2020); Ibrahim and Ling (2016)) do not directly compare the presentation of the Islamic financial instruments by applying the financial reporting standards issued by AAOIFI and IASB on same instrument. This paper addresses this gap by comparing the qualitative characteristics of presented financial information for deferred payment Murabahah as guided by conventional and Islamic accounting standards by introducing an innovative approach for presentation (from the perspective of a credit sale). The paper also compares the accounting treatment of IFRSs with IFAS 1 (Pakistan), which has not yet been done.


Based on the findings of the paper, it is recommended that, like Malaysia, the IFIs in Pakistan should adopt the IFRS framework. The focus of the regulatory bodies functioning in Pakistan should be to improve existing accounting standards through meaningful engagement with standard-setting bodies and take an active part in making IFRSs more compatible with the nature of Islamic financial transactions. An instrument-wise handbook should be published for the IFIs to help in the application of the IFRS framework, ensuring a Shariah-compliant presentation where alternative measuring and valuing approaches are allowed by the framework.

Author Biographies

Ozair Siddiqui, Fellow member of Association of Chartered Certified Accountant (ACCA)

Fellow member of Association of Charterd Certified Accountatnts, Certified Internal Auditor and Cerfiied Information Systems Auditors. 

Muhammad Khaleequzzaman, International Islamic University Islamabad

Former Associate Professor and Chairman, School of Islamic Banking and Finance, International Islamic University, Islamabad.

Muhammad Suleman Afzal, International Institute of Islamic Economics, International Islamic University Islamabad

Lecturer, International Institute of Islamic Economics, International Islamic University Islamabad.