Deck 4: Financial Accounting of Islamic Banking Products

Question 1

For every debit, there must be a corresponding credit of larger amount and for every credit, there must be a corresponding debit of less amount.

Answer 1

False

Question 2

International Accounting Standards IAS. are the standards issued after 2001.

Answer 2

False

Question 3

The general definition of financial accounting remains unacceptable within the Islamic finance framework.

Answer 3

False

Question 4

Being focused on accountability and Sharī'ah compliance framework, the Islamic accounting standards have neglected the important objective of financial accounting: to provide useful information to the users of such reports.

Question 5

Financial accounting is directed at the needs of the internal as well as the external decision makers.

Question 6

International Financial Reporting Standards IFRS. which has replaced the International Accounting Standards IAS. is more relevant to multinational corporations with subsidiaries spread across different countries.

Question 7

Unlike the conventional banks which aim at mobilising deposits and advancing loans on interest, the Islamic banks focus on investment financing and social services.

Question 8

The Islamic finance industry requires its own set of accounting and financial reporting standards.

Question 9

What differentiates between financial accounting in both traditional and Islamic frameworks is the non-compliance of the former with Sharī'ah rules and regulations.

Question 10

The American Accounting Association defines accounting to be "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of that information".

Question 11

The significance of financial accounting in both traditional and Islamic frameworks is to enable the stakeholders to make informed decisions among various options in the conduct of business transactions.

Question 12

Accounting is a process whereby business operations and activities are measured, and the measurements are processed into information that is made available to decision-makers.

Question 13

The internal decision-makers include the company management and creditors while the external decision-makers are mainly investors and board of directors.

Question 14

The IFRS are specifically meant for conventional and Islamic forms of business.

Question 15

Credit is an increase in assets, revenue and capital and a decrease in liabilities and expenses.

Question 16

The concept of inheritance mawarith. in Islam typifies the duty of mankind towards his God.

Question 17

Muslim accountants share with their non-Muslim counterparts the same responsibilities in carrying out their duties.

Question 18

International Financial Reporting Standards IFRS. are a set of accounting standards developed by an independent, non-for-profit organisation called the International Financial Reporting Committee IFRC..

Question 19

Debit is the increase in asset and expenses while there is a decrease in liability, revenue and capital.

Question 20

Muslim accountants are expected to understand the fundamental religious principles underlying their chosen profession in addition to understanding the theoretical and practical aspects of their profession.

Question 21

The accounting equation states that assets = liabilities + owner's equity.

Question 22

Auditing is the branch of accounting that determines the authenticity, validity and reliability of the financial information recorded or disclosed during a financial period.

Question 23

To have a balanced account, total credits must exceed total debits.

Question 24

Financial statements analysis is also called Horizontal analysis

Question 25

The cash flow accounting method is based on the occurrence of a transaction regardless of the fact whether there is exchange of cash or not.

Question 26

The most popular method of communicating financial information to consumers or users is through the use of financial reports.

Question 27

External auditing is when the business engages the services of an outside company, usually a law firm, to conduct the auditing.

Question 28

There are 25 AAOIFI standards that are relevant to Islamic accounting.

Question 29

Islamic banks and financial institutions are not required to publish comparative financial statements.

Question 30

Islamic accounting emphasises the importance of the religio-spiritual element in financial transactions while neglecting the element of profitability.

Question 31

It is a modern practice to combine both internal auditing and external auditing for a particular financial year.

Question 32

One of the objectives of financial accounting standards for Islamic banks and financial institutions as identified by AAOIFI is to assist the Islamic banks, in the absence of accepted accounting standards, in making choices among alternative accounting treatments

Question 33

The end product of all financial transactions is the financial statement

Question 34

While the first Statement of Financial Accounting SFA No. 1. in the AAOIFI Standards is on the objectives of financial accounting, SFA No. 2 focuses on the instruments of financial accounting for Islamic banks and financial institutions.

Question 35

A balance sheet can be defined as the summary of the assets, liabilities, and ownership equities of a company listed as of the end of a specific financial year.

Question 36

The Accounting and Auditing Organization for Islamic Financial Institutions AAOIFI. which was established in 1990 issued the first accounting auditing, governance and Sharī'ah standards in 1993.

Question 37

The accrual method of accounting is based on the occurrence of a transaction given that there is exchange of cash.

Question 38

While some Muslim countries have required Islamic financial institutions in their respective jurisdictions to abide by the AAOIFI reporting standards, others allow such Islamic financial institutions to adopt the standards voluntarily.

Question 39

The information generated in cost and management accounting is useful in planning, controlling and the measurement of performance.

Question 40

The cash flow statement also known as the Statement of Financial Position. is a summary of financial balances of a corporate entity

Question 41

For corporations, the statement of retained earnings is called the statement of partners' equity.

Question 42

The statement of retained earnings is a financial statement that explains the changes in the retained earnings of a company over a period of time being reported.

Question 43

It is the responsibility of the management of the business entity to choose the period of time that the income statement covers.

Question 44

The cash flow statement is a financial statement that indicates how changes in the balance sheet accounts and income statements affect the profitability of the business.

Question 45

The period of time covered by the income statement is defined to be one fiscal year for all business entities as per the following example:
Income Statement for the Fiscal Year Ended January 31, 2012 The period of January 1, 2011 through January 31, 2012..

Question 46

Which one of the following items is not a purpose of Islamic accounting?

A) reporting accurate income determination
B) promoting efficiency and leadership
C) maximizing returns on invested capital
D) adapting to positive social change through corporate social responsibilities

Question 47

The cash flow statement may also be called the statement of cash flow or the funds flow statement.

Question 48

The income statement may also be called statement of cash flow or funds flow statement. is a financial statement that measures the financial performance of a company over a specific period of time indicating how the revenue is transformed into net income.

Question 49

The concept that indicates that life of the Islamic bank should be broken into reporting periods to prepare financial reports that provide interested parties with information or directions by which they can evaluate the performance of the accounting unit is known as:

A) product life cycle
B) periodicity
C) quarterly reporting
D) first in first out

Question 50

Which one of the following statements is correct regarding the basic principle of the double entry system?

A) for every debit there must be a corresponding credit of larger amount and for every credit, there must be a corresponding debit of less amount
B) for every debit there must be a corresponding credit of less amount and for every credit, there must be a corresponding debit of larger amount
C) for every debit there must be a corresponding credit of equal amount and for every credit, there must be a corresponding debit of less amount
D) for every debit, there must be a corresponding credit of equal amount and for every credit, there must be a corresponding debit of equal amount

Question 51

Para 58 of FAS 1 - states that capital contribution by owners during the accounting period is a specific disclosure required in the statement of changes in owners' equity.

Question 52

FAS 1, para 54 provides that the statement of income should differentiate between cash flows from operations, cash flows from investing activities and cash flows from financing activates

Question 53

The American Accounting Association defines accounting to be:

A) the process of measuring, analyzing, processing, interpreting result of operation, reporting and presenting financial Position
B) the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of that information
C) the process of recognizing, recording, classifying and summarizing business transaction
D) all of the above

Question 54

Internal decision makers include:

A) the management of the company
B) the investors and customers
C) the creditors
D) all of the above

Question 55

Financial accounting deals with the provision of relevant information to interested parties stakeholders. such as:

A) investors and banks
B) future partners and prospective buyers
C) regulatory bodies and government agencies
D) all of the above

Question 56

The purpose of the cash flow statement is the identification of the sources and uses of cash during the financial year in question

Question 57

General and administrative expenses must be disclosed in the statement of financial position according to para 44.

Question 58

The owners' equity and retained earnings may be calculated using the following formulae: Owners' equity = Assets - Liability

Question 59

Which of the following main issues are included in the definition of accounting?

A) recognizing, recording, classifying, and summarizing business transactions
B) measuring, analyzing, processing, and interpreting operating results
C) reporting and presenting the financial position
D) all of the above

Question 60

The information generated in cost and management accounting:

A) provides relevant information to help mangers make informed decisions in the management of the business
B) provides basic information to help customers make informed decisions regarding their investments
C) provides important information to help accountants choose the most appropriate reporting method
D) all of the above

Question 61

Which of the following is a specific disclosure required in the statement of changes in owners' equity according to para 58 of FAS 1?

A) net income loss. for the period
B) transfers to legal and discretionary reserves during the period
C) capital contribution by owners during the period
D) distribution to owners during the period

Question 62

According to the AAOIFI, FAS 1 paragraph 2, financial statements of an entity of Islamic banks consists of:

A) a statement of financial position balance sheet.
B) an income statement
C) a statement of cash flows
D) all of the above

Question 63

Describe the types of information that should be included when such information is directed at Islamic financial institutions' external users.

Question 64

AAOIFI proposed set of financial statements for Islamic banks include:

A) financial statements that reflect the Islamic bank's function as an investor and its rights and obligations
B) a financial statement reflecting changes in restricted investments managed by the Islamic bank for the benefit of others whether based on a Mudaraba contract or an agency contract.
C) financial statements reflecting the Islamic bank's role as a fiduciary of funds made available for social services when such services are provided through separate funds
D) all of the above

Question 65

Define 'cash flow statement' and describe its purpose.

Question 66

Which of the following liabilities must be disclosed according to FAS 1 para 41?

A) deposits of other banks
B) declared but undisturbed profits
C) zakah, salam payables and taxes payable
D) all of the above

Question 67

Discuss briefly the objectives of financial accounting standards for Islamic banks and financial institutions as identified by the AAOIFI.

Question 68

The Islamic bank's share in income loss. from investments must be disclosed in the:

A) cash flow statement
B) income statement
C) statement of retained earnings
D) statement of changes in owners' equity

Question 69

Name at least six items that the financial statements of an Islamic bank should include according to AAOIFI FAS 1.

Question 70

What should be disclosed in a 'cash flow statement'?

Question 71

Differentiate between the cash flow and the accrual methods of accounting.

Question 72

What is IFRS? List its principle objectives.

Question 73

According to per para 44, the following items must be disclosed in the statement of financial position EXCEPT:

A) authorized, subscribed and paid-in capital
B) other changes in owners' equity during the period
C) profit and losses from investment
D) any restrictions imposed on the distribution of retained earnings to owners

Question 74

What is Islamic financial accounting?

Question 75

The Income Statement may also be referred to as:

A) The Profit and Loss Statement
B) Statement of Operations
C) Statement of Income
D) All of the above

Question 76

What are the five different aspects that the structure of IFRS includes?

Question 77

The following items. must be disclosed in the income statement according to FAS 1 para 50:

A) current accounts, savings accounts, and other accounts
B) deposits of other banks' revenues
C) expenses and losses from investments
D) gains from investments

Question 78

Explain the second branch of accounting financial accounting. in terms of its target audience and main objective.

Question 79

_______ is the formal record of the financial activities transactions. of a business entity.

A) bookkeeping
B) Statement of profit and loss
C) Financial statement
D) comparative Financial statement

Question 80

List the main purposes of Islamic accounting.