Accounting, Reporting, and Shariah Governance
This domain covers how Islamic transactions are recorded, disclosed and overseen. Expect questions on profit distribution mechanics, charity and reserve treatment, separate books for Islamic windows, and the governance chain from Shariah Board to branch.
Accounting rules
Islamic banks follow IFRS as instructed by the regulator, with AAOIFI financial accounting standards used as Shariah-relevant guidance (for example FAS 2 for murabaha, FAS 4 for musharakah, FAS 8 for ijarah, FAS 10 for istisna). Investment account holders' funds are not shown as ordinary deposits or as equity; they are presented distinctly, with profit allocation bases and reserve movements disclosed.
Governance chain
Each bank appoints a Shariah Board of qualified scholars; the regulator maintains a central Shariah advisory body. Below it sit the Shariah Compliance Officer, product approval, ex-ante review, internal Shariah audit and an annual Shariah compliance review. The Shariah Board reports in the annual financial statements, and any income from non-compliant activity is given to charity.
Worked example
A client pays a PKR 50,000 late-payment penalty. It is not recognised as income; it is credited to a charity account and disclosed. Suppose PKR 2,000,000 of income is later found to have arisen from an improperly documented murabaha; that amount is also purged. Shareholders bear the loss of income, not depositors, because the pool was never entitled to it.
Traps
Recognising penalties as revenue; netting investment account holders' funds inside deposits; reporting PER and IRR as equity; omitting the Shariah Board report; assuming the internal auditor satisfies the Shariah audit requirement.