3. Profiles of Islamic financial reporting in Malaysia in general – compliance to MFRS and AAOIFI

The study was conducted on six types of financial statements that are proposed by AAOIFI, namely (1) the profit or loss, (2) the statement of financial position, (3) the statement of changes in equity, (4) the statement of cash flows, (5) the statement of changes in limited investment, and (6) a statement of sources and uses of charity fund.

Preliminary results from the study of the financial statements of all Islamic banking in Malaysia found that all Islamic banking in Malaysia prepare their financial statements in accordance with MFRS and not AAOIFI. It is clearly stated in the notes to the financial statements.

However, further research found that on average, the profit or loss of Islamic banking in Malaysia is compliant kepda AAOIFI guidelines at the level of 45.6%. It also had the highest compliance level of 77.8% while the lowest compliance level of 27.8% by certain banks.

Statement of financial position recorded a 70.3% level of compliance to the statement presentation guidelines as proposed by AAOIFI with the highest at 75% while the lowest compliance level of 35%. In addition, compliance with AAOIFI guidelines for the statement of changes in equity is at the level of 95%, while compliance with the guidelines of the cash flow statement is at the level of 100%.

Statements (3) to (6) have been complied with certain percentage level. But the last two statements (7 and 8), namely the statement of changes in restricted investments and a statement of sources and uses of charity funds were not reported as financial statements by Islamic banking in Malaysia. It is not a requirement that must be met based on the requirements of MFRS. Otherwise both will be reported only in the notes to the financial statements.

What is interesting about this study is that Islamic banking in Malaysia are 100% compliant to standards provided by MFRS. However, Islamic banks also use AAOIFI standards as a guide in providing and presenting their financial statements. There are a lot of similarities, especially in the presentation of statements of financial position at an average rate of 70.3%, the statement of changes in equity at an average rate of 95% and cash flow statement at the rate of 100%. It also shows that the MFRS adopted by Islamic banks in Malaysia are not different with AAOIFI in total. This is a good development.

Table 3.1: The overall level of conformity of AAOIFI in general.

No.	Financial statement	Conformity
1.	Statement on adoption of AAOIFI	Nil
2.	Statement on adoption of MFRS	100%
3.	Statement of financial position	70.3%
4.	Statement of profit or loss	45.6%
5.	Statement of changes in equity	95%
6.	Statement of cash flow	100%
7.	Statement of sources and uses of charity fund	47.1% (8/17 notes)
8.	Statement of restricted investment	17.6% (3/17 notes)