Student Name

Rahmat UllahFollow


Master of Science in Islamic Banking & Finance


Department of Finance

Faculty/ School

Faculty of Business Administration (FBA)

Date of Submission

Fall 2020


Dr. Irum Saba, Program Director, Centre for Excellence in Islamic Finance (CEIF), Institute of Business Administration (IBA), Karachi


The recording and reporting of financial transactions are different in the conventional and Islamic financial institutions. Conventional financial institutions (CFIs) adopt financial accounting standards issued by International Accounting Standards (IAS) while Islamic Financial Institutions (IFIs) employ this procedure under Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

According to IAS, the recording of conventional lease financing was conflicting to the Ijarah financing because it was not presented fairly under IAS-17. Therefore, IAS-17 was replaced by International Financial Reporting Standards (IFRS-16) while introducing the term “right-to-use asset” for usufruct (Manfa’t). While AAOIFI has also issued a new Ijarah standard FAS-32 almost similar to the globally accepted conventional accounting standard (IFRS-16).

To address this issue, there is a need of time for standardization and reducing the gap between reporting by IFIs & by CFIs. This standardization could help in regulatory and financial reporting frameworks in providing fair, comparable, and reliable presentation of financial information to the stakeholders. Considering ongoing issues, the objective of the current study is to explore the asset (Māl) and ownership (Milkīyah) as two exclusive dimensions of usufruct. This study also explores the accounting treatment of Ijarah and conventional lease financing in the lessee’s book of accounts. For these objectives, a qualitative research approach was applied in which secondary data was collected from the related books of Islamic Fiqh, and Islamic & conventional accounting standards.

The key findings have shown that usufruct (Manfa’t) is an asset and as per ownership structure, the leased assets could be registered on lessee’s name. The findings further shown that usufruct could be recorded as an asset in the lessee’s books of accounts without compromising Sharīah principles. These findings could contribute to help the financial & Sharīah experts and relevant financial institutions before adopting and implementing the standard. This study further will also provide help to the researcher in their future research.

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