---
title: "What is Impairment and credit losses? | IslamicOpenFinance™"
description: "Recognising losses when financing assets lose value or become doubtful; AAOIFI's standard uses an expected credit loss approach."
url: https://islamicopenfinance.com/glossary/impairment-and-credit-losses/
lang: en-GB
source: "IslamicOpenFinance"
---

[Glossary](https://islamicopenfinance.com/glossary/) / [Accounting and reporting](https://islamicopenfinance.com/glossary/#accounting)

Accounting and reporting

# Impairment and credit losses

Recognising losses when financing assets lose value or become doubtful; AAOIFI's standard uses an expected credit loss approach.

Impairment and credit losses cover how an institution recognises reductions in the value of its financing and investment assets, and provisions for expected losses on receivables such as murabaha and ijarah. AAOIFI's standard on impairment, credit losses and onerous commitments sets out an expected credit loss approach for institutions that apply AAOIFI standards. Because Islamic financing assets are often sale debts or leased assets, these concepts are applied contract by contract.

## Sources

- [AAOIFI, Financial Accounting Standards (issued standards list): FAS 30 Impairment, Credit Losses and Onerous Commitments](https://aaoifi.com/accounting-standards-2/?lang=en)

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

[**Deferred profit** The profit on a deferred-payment sale that is recognised over the payment period rather than all at once at the sale date.](https://islamicopenfinance.com/glossary/deferred-profit/) [**AAOIFI Financial Accounting Standards (FAS)** The accounting standards AAOIFI issues for Islamic financial institutions, covering contract types and Islamic-specific reporting.](https://islamicopenfinance.com/glossary/aaoifi-fas/) [**Murabaha** A sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.](https://islamicopenfinance.com/glossary/murabaha/) [**Ijarah accounting** How lessors and lessees report ijarah contracts, including leases ending in ownership, under AAOIFI's ijarah standard.](https://islamicopenfinance.com/glossary/ijarah-accounting/)

**Accounting and reporting**

1. [AAOIFI Financial Accounting Standards (FAS)](https://islamicopenfinance.com/glossary/aaoifi-fas/)
2. [Deferred profit](https://islamicopenfinance.com/glossary/deferred-profit/)
3. [Quasi-equity](https://islamicopenfinance.com/glossary/quasi-equity/)
4. [Off-balance-sheet assets under management](https://islamicopenfinance.com/glossary/off-balance-sheet-assets-under-management/)
5. [Investment pool](https://islamicopenfinance.com/glossary/investment-pool/)
6. [Takaful accounting](https://islamicopenfinance.com/glossary/takaful-accounting/)
7. [Promotional gifts and prizes](https://islamicopenfinance.com/glossary/promotional-gifts-and-prizes/)
8. [Profit allocation (investment accounts)](https://islamicopenfinance.com/glossary/profit-allocation/)

[All 221 terms](https://islamicopenfinance.com/glossary/)