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A critique on accounting for the mudarabah contract

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Purpose – The purpose of this paper is to examine the accounting treatment for mudarabah contract
and its implications on the reliability and fairness of the financial statements. In addition, the paper
also aims to explore the effect of provisions and reserves on profit allocation among unrestricted
investment account holders (UIAHS).
Design/methodology/approach – This study reviews the accounting treatment for mudarabah
contract as stated in the Accounting Standards for Islamic Financial Institutions issued by the AAOIFI
and compares it with other financial reporting frameworks, especially the IFRS.
Findings – The paper finds that presenting UIAHS in a separate category in the financial position
statement (balance sheet), without reclassifying the assets in the financial position statement to reflect
the assets attributable to UIAHS, suggests undue bias in the financial statements. This contradicts the
concepts of full disclosure and true and fair view of the financial statements. The paper also reveals
that reserves may result in profit misallocation among UIAHS. Additionally, there is an overlap
between provisions and reserves, which may affect the reliability and fairness of the financial
statements. It is also revealed that reserves presented under the UIAHS section could not be readily
understandable since investors have no right to these reserves. The paper further finds that using a
donation contract in business may result in diverting wealth from the less wealthy to the wealthier.
Originality/value – The paper criticizes the AAOIFI treatment for UIAHS and suggests an
extension to this treatment by presenting assets attributable to UIAHS in order to enhance disclosure.
Additionally, it questions the applicability of using donation (Tabarru) contract in transactions with
profit-making substance.

Keywords Mudarabah, Islamic accounting, Investment risk reserve, Financial reporting, Investments,
Financial risk, Accounting and Auditing Organization for Islamic Financial Institutions

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Ketersediaan

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Informasi Detail

Judul Seri

Journal of Islamic Accounting and Business Research

No. Panggil

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Penerbit

: Emerald Group., 2012

Deskripsi Fisik

Journal of Islamic Accounting and Business Research Vol. 3 No. 1, 2012 pp. 7-19

Bahasa

English

ISBN/ISSN

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Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

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Subjek

AKUNTANSI

Info Detail Spesifik

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Pernyataan Tanggungjawab

Asmawati/Syahrial

Versi lain/terkait

Lampiran Berkas

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