FINANCIAL REPORTING DIMENSIONS OF INTANGIBLES IN THE CONTEXT OF ISLAMIC FINANCE

Abstract

Prior studies have identified that not all “intangibles” are reported
as “intangible assets” in the statement of financial position. This
particularly concerns the Islamic finance industry where intangibles
are often used as underlying assets in structuring products.
Accordingly, this research examines the unique Shari’ah
requirements and the dichotomous views on the validity and
permissibility of intangibles to be recognized as assets. As a result of
an apparent need to re-examine the sufficiency of international
financial reporting standards (IFRS/IAS) and the views of Shari’ah
scholars on financial assets, the research is designed to analyse the
sufficiency of IAS 38 Intangible Assets with reference to The
Conceptual Framework for Financial Reporting of International
Accounting Standards Board (IASB). For this purpose, an in-depth
interview, two focus group discussions and a survey of target
respondents from both academia and industry directly involved in
reporting of Islamic financial servicesare carried out. From the
engagement session with the Shari’ah scholars, the research has
identified an alternative view of concern with reference to
appropriate Shari’ah rulings to determine the permissibility and
validity of intangible assets and its reporting implications. Whereas,
a mixed response is observed in the survey in terms of clarity on
accounting policy, treatment and disclosures with reference to the
technicality of the standards as well as the peculiarity of the context
in Islamic finance industry.