Dear Dr Kantakji I hope this email finds you well
It came to my attention tp pinpoint some issues in the application of IFRS 9 'Financial Instruments' to Islamic finance as members f your respected goup might share their opinions to the consultative paper joined. *http://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2014/September/IFRS-9-Discussion-paper-September-2014.pdf <http://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2014/September/IFRS-9-Discussion-paper-September-2014.pdf>* A working group was formed as a result of the IASB's 2011 agenda and held an initial meeting in Kuala Lumpur in July 2013. During the meeting, the group identified four areas that it wants to address: - The application of IFRS 9's classification and measurement principles; - the application of the IASB's proposed lease standard to Ijarah; - whether restricted and unrestricted investment accounts are to be presented on- or off-balance sheet; and - profit equalisation reserves (PER) because of significant differences in practice. The upcoming discussion in Kuala Lumpur needed to address the first of these points and will be based on a staff paper made recently available on the IASB's website. The paper identifies three main issues that need to be considered: 1. Which IFRS applies to the accounting of Islamic financial instruments? Are these contracts with customers that fall within the scope of IFRS 15 <http://www.iasplus.com/en/standards/ifrs/ifrs15>* Revenue from Contracts with Customers*? 2. Do some of the instruments common in Islamic finance meet the characteristics-of-the-instrument test in IFRS 9 <http://www.iasplus.com/en/standards/ifrs/ifrs9>*Financial Instruments*? 3. How should the revenue from Islamic finance instruments be described and measured? Background ** *In 2009, the Board issued the chapters of IFRS 9 dealing with the classification and **measurement of financial assets. IFRS 9 reduced the number of categories of **financial assets to two main categories - instruments reported at fair value through **profit and loss and assets initially measured at fair value, plus transaction costs and * *subsequently measured at amortized cost. Lease contracts, and therefore Ijara **transactions that meet the definition of a lease, are excluded from the scope of **IFRS 9.* *6. Paragraph 4.1.2 of IFRS 9 describes two conditions that must be satisfied for an asset **to be measured at amortised cost:* *A financial asset shall be measured at amortised cost if both of the **following conditions are met:* ** *a) The asset is held within a business model whose objective is to hold **assets in order to collect contractual cash flows.* *b) The contractual terms of the financial asset give rise on specified **dates to cash flows that are solely payments of principal and interest * *on the principal amount outstanding. * ** *7. Paragraph 4.1.3 explains what constitutes 'interest':* *interest consists of consideration for the time value of money, for thecredit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.8. Paragraphs B4.1.8 and B4.1.9 (including 4.1.9 A through E)read:An entity shall assess whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding for the currency in which the financial asset is denominated.However, in some cases, the time value of money element may be modified (ie imperfect). That would be the case, for example, if a financial asset's interest rate is periodically reset but the frequency of that reset does not match the tenor of the interest rate (for example, the interest rate resets every month to a one-year rate) or if a financial asset's interest rate is periodically reset to an average of particular short- and long-term interest rates. In such cases, an entity must assess the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. In some circumstances, the entity may be able to make that determination by performing a qualitative assessment of the time value of money element whereas, in other circumstances, it may be necessary to perform a quantitative assessment.* ** *a) The asset is held within a business model whose objective is to hold **assets in order to collect contractual cash flows.* *b) The contractual terms of the financial asset give rise on specified **dates to cash flows that are solely payments of principal and interest * *on the principal amount outstanding. [Emphasis added.]* ** *7. Paragraph 4.1.3 explains what constitutes 'interest':* *interest consists of consideration for the time value of money, for thecredit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.8. Paragraphs B4.1.8 and B4.1.9 (including 4.1.9 A through E)read:An entity shall assess whether contractual cash flows are solely payments of principal and interest on the principal amount outstanding for the currency in which the financial asset is denominated.However, in some cases, the time value of money element may be modified (ie imperfect). That would be the case, for example, if a financial asset's interest rate is periodically reset but the frequency of that reset does not match the tenor of the interest rate (for example, the interest rate resets every month to a one-year rate) or if a financial asset's interest rate is periodically reset to an average of particular short- and long-term interest rates. In such cases, an entity must assess the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. In some circumstances, the entity may be able to make that determination by performing a qualitative assessment of the time value of money element whereas, in other circumstances, it may be necessary to perform a quantitative assessment.When assessing a modified time value of money element, the objective is to determine how different the contractual (undiscounted) cash flows could be from the (undiscounted) cash flows that would arise if the time value of money element was not modified (the benchmark cash flows). * *_________________________________________* *sender : Maan Barazy* *Economist - Visionary entrepreneur - Certified Shari'a Adviser and Auditor (CSAA- AAOIFI Certified) - **MA Islamic Comparative Jurisprudence - **BS International Economics **Managing Partner And CEO of Data and Investment Consult-Lebanon - * *check our websites: datainvestconsult.com <http://datainvestconsult.com>; **smelebanon.net- socialratings.net <http://socialratings.net/>** ; middleeastrisk.com <http://middleeastrisk.com> - islamicmarkets.net <http://islamicmarkets.net>; islamicfinancearabia.com <http://islamicfinancearabia.com> - arabbankingwires.com <http://arabbankingwires.com> - lebanondatamonitor.com <http://lebanondatamonitor.com> - ebusinesslebanon.net <http://ebusinesslebanon.net> - shariaafinance.com <http://shariaafinance.com> - capitalissuesonline.com <http://capitalissuesonline.com> - - alwikala.com <http://alwikala.com>* *contactus; email : market...@ebusinesslebanon.net <market...@ebusinesslebanon.net> **maanbar...@gmail.com <maanbar...@gmail.com>;**maanbar...@datainvestconsult.com* <maanbar...@datainvestconsult.com> · *Twitter : **twitter.com/maanbarazy <http://twitter.com/maanbarazy>* · *Linkedin**: **http://www.linkedin.com/in/maanbarazy* <http://www.linkedin.com/in/maanbarazy> · *Facebook**: facebook.com/maanbarazy <http://facebook.com/maanbarazy>* · *Accademia.edu : **http://independent.academia.edu/maanbarazy <http://independent.academia.edu/maanbarazy>* · *Slideshare: **http://www.slideshare.net/maanbarazy* <http://www.slideshare.net/maanbarazy> -- -- You received this message because you are subscribed to the Google Groups "Kantakji Group" group. 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