This chapter provides the discussion on accounting issues for musharakah mutanaqisah (MM) home financing in the case of Malaysia. Though the MM mode of financing has addressed the 'ambiguities and risk issues in conventional mortgage financing and the controversy that surrounds other financing packages like al Bai Bithaman Ajil and Bay al Inah (Mydin-Meera & Abdul-Razak, 2009), there are some practical issues in operating this mode of financing, as Islamic banks operate this type of contract more closely to conventional practice, thereby lacking the spirit of the contract itself ...

This book presents contemporary issues in financial reporting of Islamic financial institutions. Two key areas are covered namely, accounting for Islamic financial transactions and shariah governance. The main motivation to publish this book is to share our understanding on the unique nature of Islamic finance industry and the approach taken in accounting and reporting of Islamic financial transactions. Also, the book illustrate the importance of shariah governance in ensuring end-to-end shariah compliance. This book is to provide a practical guidance to researchers, industry practitioners and the other stakeholders.

This study aims to examine the determinants of sukuk credit ratings of issuing firms in Malaysia, and the rating changes from lower to higher rating and vice versa. A total of 328 sukuk issuances and 1,110 sukuk rating announcements from 2009 to 2014 were analysed using generalized ordered logit regressions approach. Firm financial characteristics, corporate governance attributes, macroeconomic factors and sukuk structures (debt or equity based) were among the important determinants used to explain the different sukuk credit ratings. The results indicate a positive association of sukuk credit rating with issuing firm's financial information, governance attributes and the sukuk structure whilst the macroeconomic factors did not explain the changes in the sukuk credit rating. Specifically, firm size, profitability and leverage characteristics had significant positive effect on sukuk credit rating for listed firms whilst only firm's profitability had a positive effect on sukuk credit rating by unlisted firms. With regard to governance, the board structure which includes board size, board independence and CEO/Chairman non-duality is associated with positive sukuk credit rating for listed firms. Only financial report audited by big four auditors is associated with positive sukuk credit rating for unlisted firms. Equity-based sukuk are associated with positive sukuk credit rating for listed firms while for unlisted firms only the ijarah sukuk had a positive sukuk credit rating.

The Islamic finance industry has shown an extraordinary accomplishment in the last decade. A major contributor to this success can be attributed to a significant increase in sukuk issuance: from US$ 1.172 million in 2001 to US$ 138 billion in 2013. Malaysia is the world's largest sukuk market with about US$ 430.579 billion of the total US$ 551.357 billion of domestic sukuk in the financial world, a whopping 78.09% of the total global domestic sukuk market. This significant development has necessitated the need for an effective credit rating mechanism for the Sukuk issuance. Credit rating has become an important instrument to assesses the creditworthiness of an issuer, most often based on the history of the issuer's borrowing and repayment, its underlying assets, its outstanding liabilities and its overall business performance (Arundina, Azmi Omar, & Kartiwi, 2015).

This research investigates the determinants of Malaysian Sukuk’ credit rating by studying firm financial characteristic, corporate governance attributes, macroeconomic factors, and Sukuk structures. The sukuk structures determinants examine during the pre- and post-Shariah governance reform period (SG2010) to ascertain the effectiveness of the governance reform. Lastly, this research investigates the wealth effects of change in Sukuk ratings (upgrading or downgrading). Both listed and unlisted firms are analysed, with total 328 sukuk issuances and 1110 sukuk rating announcements from 2009 to 2014. Ordered logit regression and generalized ordered logit regression are used to explain the impact of different determinants on sukuk credit rating. Event study methodology was applied to ascertain the wealth effect of 16 sukuk upgrade and 20 sukuk downgrade announcements. The results on determinants of sukuk credit ratings indicate that a positive sukuk credit rating is associated with financial information, governance attributes, and sukuk structure whilst the macroeconomic factors did not influence sukuk credit ratings. More precisely, firm size, profitability, and leverage had significant positive effect on sukuk credit rating for listed firms whilst only firm profitability had a positive effect on sukuk credit rating for unlisted firms.

Documented evidence on conventional bond markets shows negative market reaction to bond credit rating downgrade and no reaction to credit rating upgrade. Despite the fact that sukuk issuances make up more than 58.8% of the value of outstanding bonds in the country and Malaysia issues at least half of the world's sukuk and is widely recognized as a leader in the sukuk space, there is no documented evidence on the stock market reaction to sukuk credit rating changes. This study analyzed the wealth effect of sukuk credit rating changes in Malaysia using 16 sukuk upgrades and 20 sukuk downgrades for the period 2000-2014. The evidence shows negative market reaction to downgrades and positive significant reaction to sukuk rating upgrade. This symmetrical market reaction to sukuk credit rating changes implies the market was indifferent between bonds and sukuk from the credit rating perspective. This finding supports the notion that the credit rating agencies are Shariah-neutral when rating these capital market instruments.