Ijarah accounting
How lessors and lessees report ijarah contracts, including leases ending in ownership, under AAOIFI's ijarah standard.
Ijarah accounting covers how lessors and lessees recognise and report ijarah contracts, including ijarah muntahia bittamleek. AAOIFI's accounting standard on ijarah sets out requirements for both parties, including the lessee's recognition of a right-of-use asset and related obligation, and the lessor's treatment of the leased asset and rentals. Because ownership and its risks stay with the lessor until transfer, the accounting follows the contract's substance at each stage.
Sources
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
IjarahA lease: the lessor owns the asset and sells its use for an agreed rent over an agreed period.Ijarah muntahia bittamleekA lease that ends with ownership passing to the lessee, through a separate sale or gift promised by the lessor.AAOIFI Financial Accounting Standards (FAS)The accounting standards AAOIFI issues for Islamic financial institutions, covering contract types and Islamic-specific reporting.Impairment and credit lossesRecognising losses when financing assets lose value or become doubtful; AAOIFI's standard uses an expected credit loss approach.