A financial item that reflects the residual interest in the assets of the institution (e.g., an Islamic bank) after deducting all its liabilities and other amounts or balances related to investment accountholders (equity of investment accountholders, IAHs)- i.e., quasi-equity.
Owners’ equity = assets – (liabilities + quasi-equity)
Under Islamic accounting, the item “quasi-equity” is unique as it reflects a special type equity related to a major category of stakeholders. It combines the features of both liabilities and equity. The equity characteristics imply that in case of loss resulting from negligence, misconduct or breach to contractual terms and conditions, the fund recipient is under no obligation to return the funds to the fund providers (here the fund providers are only entitled to a residual interest in the underlying assets). The debt characteristics mean that the capital is associated with a maturity date or a put option of redemption allowing the fund recipient to redeem.
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