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I. INTRODUCTION
Issues in the reporting of Islamic financial instruments have been discussed since early 2000. Among these issues is the debate about whether the accounting standards promulgated by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) or the International Financial Reporting Standards (IFRS) should be adopted for reporting Islamic financial transactions. Abdel Karim (2001) explained the need to implement the AAOIFI accounting standards as these standards specifically cater for the unique characteristics of the contracts that govern the operations of Islamic banks. The IFRS, on the other hand, do not have any specific reporting standards for the unique contracts adopted by Islamic banks but report the transactions based on the accounting principle of substance over form. This principle has also been reviewed by the SharÊÑah Advisory Council (SAC) of Bank Negara Malaysia (BNM), which does not perceive the concept as contradicting the principles of SharÊÑah per se (Shafii et al., 2013). While it recognises the importance of both substance and form, in cases of conflict between the two, the SAC of BNM advocated the primacy of substance over form (Shafii et al., 2013). However, the review undertaken by the SAC of BNM is limited to examining the substance-over-form concept only in terms of basic principles of the SharÊÑah.
This study specifically examines the different options on the reporting of Profit Sharing Investment Accounts (PSIA) that are based on the muÌÉrabah contract in Islamic banks' financial statements. It is noted that the muÌÉrabah contract is important for structuring PSIA in Malaysia. However, the newly enacted law- the Islamic Financial Services Act (IFSA) 2013-has changed the definition of the investment account, no longer classifying it under the deposit category. This has raised the question as to whether investment accounts should be recognised as an on- or off-balance sheet item to reflect their faithful presentation in financial statements. If the investment account is considered an on-balance sheet item, the question is whether it should be categorised as a liability or quasiequity on the basis of the unique nature of the muÌÉrabah contract. This article briefly examines these arising accounting issues for muÌÉrabah-based PSIA.
II. THE TREND OF PSIA IN THE MALAYSIAN ISLAMIC BANKING INDUSTRY
PSIA are widely used as the main source of funds...