As a Chartered Accountant I have to make sure that I take courses to maintain a certain number of professional development (PD) hours every year. Working in a capacity as an accountant doesn’t count – it has to be courses or other training to keep you up to date. An easier task back in Canada where they hold courses specifically for PD purposes, around here it’s not as easy to do.
Luckily I found something both relevant and that meets the PD requirements, I’m currently studying to get my Certified Islamic Professional Accountant designation (CIPA). It entails studying the various differences between conventional accounting standards and the Islamic accounting standards used by Islamic Finance entities.
And what is Islamic Finance you ask? Well, it’s essentially financial transactions that are in compliance with Islamic Law. The Qur’an and related Islamic texts have prohibitions against certain things, the chief one being charging interest (usury), so Islamic Financial Institutions have to have different ways of financing transactions. So an Islamic bank can’t charge interest on a mortgage or loan. Think about that for a second. How does the bank profit? I won’t go into the details, but rest assured they find ways to turn a profit on loans. Islamic Financial Institutions also have to make sure they invest ethically and in accordance with Islamic rules, i.e. no investing in alcohol manufacturers, casinos, pork farms etc. Some even go so far as to not invest in institutions that earn interest on their investments, considering that to be little better than earning interest yourself. This does limit the investment opportunities for Islamic Financial entities but the market is steadily growing and more and more options are becoming available. I believe there are even some Islamic-acceptable investments being offered in the US and UK now.
There are some critics of certain types of transactions, charging that they are little more than semantic changes to get around the rules regarding interest. Say you want a $10,000 loan for a car. An Islamic Bank might agree to buy the car then loan it to you in exchange for regular monthly payments which over three years totals $13,000. The bank says that this isn't an interest loan, critics argue that this is little different then loaning the money at interest and having you buy the car yourself. Anyway, that's for Islamic scholars to sort out.
So I have to study all of these various methods of contracts and financing in Islamic Financing and how they are accounted for under Islamic Accounting standards. Not exactly the most thrilling thing that I could be doing, but if I’m going to be in the region for any length of time it would be a valuable designation to have. Just don’t ask me to finance a mudaraba contract, okay?
10 comments:
I have heard that Muslim investment portfolios tend to do rather well. As for interest, the Catholic Church had laws against usury but the Reformation and the rise of capital friendly Protestantism allowed for it.
I had heard about that, essentially moneychangers in the Middle Ages were just getting around the usury laws through wording of the contracts - the same critiques now made by some people of certain types of Islamic contracts. In the end I think the Catholic Church gave up pursuing it, especially after the Reformation.
As for how well Islamic funds do, always take it on a case-by-case basis.
Hi,
Noticed that a fellow Westerner has also taken this test (AAOIFI - CIPA), care to give some advice? Was it pretty tough? I live in the states and come from a finance/portfolio management background. Plan to take the exam this september (2011).
Thanks!
Hi NJ. Advice on the CIPA test? I assume you're already a qualified accountant and you're studying the book now. The book only discusses the difference between Islamic accounting and conventional accounting on the assumption you already know the conventional rules.
You will need to know journal entries. I seem to recall that one of the questions asked for the journal entries for three years on a transaction (maybe murabaha, can't quite remember)
The test was multiple choice so they will ask questions on fiqh, the rankings of different sources for judgment (qur'an, Sunnah etc) and the various Islamic products. Because it was multiple choice I didn't have to know every single piece of disclosure for an Islamic bank, or prepare financial statements.
I did find the test more challenging than I thought it would be, but that might have been because initially we were told you didn't have to bring a calculator, which to me meant no journal entries, only to be told to days before the exam that you would need a calculator so suddenly I had to do last-minute cramming on journal entries. I initially thought I'd failed it but thankfully I passed.
Double-check if the test is still multiple choice, I'd hate for you to study on the assumption it's multiple choice only to find out it's a written test.
Good luck!
Hi Glen,
Thanks a bunch for the tips. Everything is still multiple choice. They gave us 21 sample questions to study from, there were journal entry questions in the sample for each of the types as well (mudaraba, musharaka, murabaha, istisna'a, sale/lease buy-back)...even though i have no accountancy background, i found those sample questions to be not so difficult. What about questions from the Shariah book? I apologize for asking too many questions but it's great to get some feedback from you, especially since you come from the west and i can relate to that.
There's two separate books now? I recall only studying from one book for the exam.
Aside from the main textbook, an overview of the sharia standards would help but given that the test is multiple choice I don't know if you need to go into greater death. Like I said, there was only one book when I studied for it.
Hey,
Im an accounting major graduating soon. Im interested in getting this certification. From reading the thread, im guessing it was hard huh? Did you have to study it all by yourself or did you do the classes? What do you recommend? Can you tell me about the book so I can start reading up on it early? How has the certification helped you so far?
The book is a study manual that they send to you when you sign up. Since 2007 it has gone through updates (apparantly it's two books now) so I'm not sure of everything it covers.
I self-studied instead of taking the classes, and while I did find it a challenge it was not as difficult or as lengthy as attaining the first accounting designation (they already assume you know the fundamentals of accounting so you're learning the differences between conventional and Islamic).
It's been handy in my job as a financial regulator because some of the companies I deal with are Islamic so knowledge of Islamic accounting is a plus when dealing with an Islamic financial institution.
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