Technical Analysis of IFRS 9 Application to Sukuk

Abstract

This Chapter aims to examine the International Financial Reporting Standard 9 (IFRS 9) from a technical perspective in relation to sukuk (commonly known as Islamic certificates) in light of the most common and widely used sukuk instruments in the Islamic finance industry. Sukuk are the Shariah compliant alternative to conventional bond, it is an investment certificate that represents an undivided ownership share in the underlying assets of the sukuk. As part of this technical analysis of IFRS 9 application to sukuk, I identify key contractual clauses that are embedded in various sukuk structures and analyse whether cash flows are compliant with IFRS 9 requirements. The analysis provided here outlines a framework that would function as a guide for the Islamic finance industry. This framework will help all Islamic financial institutions (IFIs) tailor any accounting or reporting standards, such as IFRS 9 to reflect their Shariah governance and requirements in relation to all sukuk structures while still complying with that standard or any other accounting and reporting standards, which might be issued in the future.