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Islamic Finance, Mainstream Accounting Practices Need to Merge

Islamic financial laws and mainstream accounting practices

As Islamic financial firms grow and enter the larger global market, they may need to adopt more mainstream accounting standards to keep up with the rest of the world.

While a significant portion of Middle Eastern countries conform to the International Financial Reporting Standards set by the International Accounting Standards Board, there is still a large segment of the Islamic financial world that conforms to monetary practice based on Sharia law, according to Reuters. And unlike the IFRS, there is no set standard within that practice. Instead, much of Islamic finance is governed by a variety of regulators and Islamic scholars who each interpret Islamic law in their own way.

With Reuters reporting Islamic financial assets of more than $1.3 trillion globally in 2011, U.S. and foreign companies can't afford to overlook the clout of those markets. For their part, Islamic firms looking to grow must expand into other global markets.

In order to reconcile the parties' disparate viewpoints, the IASB should draft a set of guidelines that allow for certain particularities of Sharia-based practice, while simultaneously bringing Islamic finance into the global mainstream, according to experts cited by the news source. A separate Reuters report stated the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions has already taken steps to update accounting standards for real estate.