Islamic accounting & Financial reporting assignment

Islamic accounting & Financial reporting - Assignment Example However, it has a number of similarities that can be identified. The main difference between these two is can be seen in the focus each of the two standards. For instance, the ijarah contracts as standardized by the AAOFI are geared towards making it possible for the firm to be able to report its income in such a way that it shows the honesty of its operations, especially with regard to the principles outlines in the Quran. The IFRS standards on the other hand focus on the economic aspect of any business transaction between the firm and the customer. This means that minor differences will arise while trying to compare the two statements of accounts prepared by either of the standards. However, this does not lead to a full dichotomy of the two standards but only leads to some minor differences that can be reconciles when preparing he books of accounts. As has been discussed, ijarah is a form of banking arrangement that allows banks and individuals to gain some form of profit after giving a loan to another individual. Instead of the lender charging an interest, they enter into an agreement with the lessee. The agreement is made in a way that allows the lender to gain some profit by the end of the transaction. Basically, ijarah based contracts have two phases (Ismal, 2013). For instance, when a person goes to the banks to take a car loan in a Sharia compliant bank, the bank will finance the purchase of the car and instead of requiring the customer to pay interest, the bank will hire out the car to the customer. The first phase of the contract, there will be an agreement with regard to how long the lease period will last (Karim, 2010). Once the period of the lease is over and the cusromern has aid al the lease charges, the first contract ends the second contract, or the second phase of the ijarah kicks in. This second part of the ija rah is the sale of the car. The value of the car is priced by calculating the residual value of the