Murabaha & Tawarruq: An Examination of Issues and Challenges from an Accounting Perspective

Abstract

This study investigates the critical issues surrounding the accounting treatment of Murabaha and Tawarruq within the scope of Islamic finance. It aims to propose recommendations for augmenting the Islamic financial accounting standards, thereby aligning them with Shariah principles and ensuring their practicality and relevance in financial reporting. Employing a qualitative approach, the study conducted an in-depth comparative analysis of the International Financial Reporting Standards (IFRS) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Through an extensive review of relevant literature and accounting standards, the article presents a comprehensive assessment of contemporary practises in contrast to Shariah-prescribed accounting principles. Notably, the accounting treatments of Murabaha and Tawarruq under IFRS and AAOIFI exhibit significant variations, necessitating a critical evaluation of conventional accounting standards' applicability to Islamic financial modes. This concern is further magnified by the application of uniform accounting principles to two distinct financial modes operating on disparate models. By identifying the limitations in the accounting for Murabaha and Tawarruq, this study contributes to the development and improvement of Islamic financial standards. The findings offer valuable insights into the deficiencies within current accounting practises and pave the way for the implementation of enhanced Islamic financial accounting standards that adhere more closely to Shariah requirements. Consequently, the proposed improvements seek to enhance the practicality and relevance of financial reporting while upholding the principles of Shariah in the accounting treatment of these integral modes of Islamic finance.