MASB Research Paper-Waqf PDF

MASB Research Paper, Waqf
LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA

MALAYSIAN ACCOUNTING STANDARDS BOARD
Research Paper
Waqf
This Research Paper on accounting for waqf is issued by the Malaysian

Accounting Standards Board as part of its Islamic research. It is intended to
encourage discussion on accounting issues for waqf. The Research Paper
provides no prescriptions for the accounting issues identified.
Any enquiries should be addressed to:
The Executive Director

Malaysian Accounting Standards Board
Suite 5.02, Level 5
Wisma UOA Pantai
11, Jalan Pantai Jaya
59200 Kuala Lumpur
Tel: 03-2240 9200

Fax: 03-2240 9300
Email address: masb@masb.org.my

Website address: http://www.masb.org.my
© Malaysian Accounting Standards Board 2014
1
Numbering of Malaysian Financial Reporting Standards

The numbering of a Malaysian Financial Reporting Standard (MFRS)
corresponds to the IFRSs issued by the IASB. For example, MFRS 1 in
Malaysia is equivalent to IFRS 1. MFRS with a 100 prefix corresponds to
its equivalent IASs. Thus MFRS 101 is equivalent to IAS 1.
This Research Paper uses the terms ‘IFRS’ and ‘MFRS’ interchangeably.
Use of Arabic terms
This Research Paper uses the English equivalent for most Arabic terms.
Notable exceptions are the following:
(a) Waqf
The term is retained to differentiate it from an endowment, trust or
foundation that was not established in expressed compliance with
shariah.
Grammatically, waqf and its plural form awqaf are nouns derived
from the transitive verb waqafa which means ‘to stop’, ‘to pause’
or ‘to detain’. This Research Paper uses the term waqf as both the
singular and plural nouns, as an adjective as well as a verb.
(b) Mutawalli
This Research Paper uses the original Arabic term mutawalli to
describe a person appointed to undertake responsibilities similar to
a trustee, administrator and manager. The most common
translation – trustee – may not precisely reflect the rights and
obligations of a mutawalli.
2
The Malaysian Accounting Standards Board (MASB) has approved the

release of this Research Paper to stimulate discussion on possible
improvements to waqf accounting and reporting.
Background
In Malaysia, state enactments provide that waqf fall under the purview of a
state Islamic religious council (SIRC). In recent years, SIRCs seem more
open to developing waqf property commercially. Funding for these
developments primarily come from government agencies. However, a
property in Kuala Lumpur was recently developed on a build-operate-
transfer basis with a public listed company being party to the transaction. In
other countries, waqf are known to raise financing in financial and capital
markets, and it is possible that this approach may be explored in future.
Additionally, with approval from the relevant SIRC, an incorporated

company, a registered society or a registered trustee may also undertake
waqf.
As there is increasing public interest in unlocking the potential of waqf, the

Board thought that it was timely to study its accounting issues. In its study,
the Board looked at accounting considerations for an incorporated
company, a public sector entity and a registered society.
On 17 October 2014, the National Audit Department hosted a Roundtable

discussion on the issues identified by MASB. Comments and views raised
at the Roundtable were duly incorporated into this Research Paper.
This Research Paper does not provide prescriptions for the accounting
issues identified. Rather, it aims to summarise the Board’s understanding of
these issues and its tentative views on possible solutions.
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MASB Standing Committee on Islamic Financial Reporting

This Research Paper was reviewed by MASB’s Standing Committee on
Islamic Financial Reporting. In 2013, MASB established the Standing
Committee to replace Working Group 36 (WG36) as part of its
enhancement of the project on Islamic financial reporting.
The Standing Committee is chaired by the MASB Chairman, and comprises

persons with relevant knowledge and experience in accounting and audit,
Islamic finance and takaful as well as shariah. Members and Observers of
the Standing Committee are as follows:
Members
Dato’ Mohammad Faiz Azmi
Chairman, Malaysian Accounting Standards Board
Dato’ Abdul Rauf Rashid
Country Managing Partner, EY
Encik Ahmad Nasri Abdul Wahab
Partner, KPMG
Encik Nik Shahrizal Sulaiman
Executive Director, PwC
Encik Badlisyah Abdul Ghani
Chief Executive Officer, CIMB Islamic Bank Berhad
Encik Shahril Azuar Jimin
Chief Executive Officer, Maybank Foundation
Dr Md Nurdin Ngadimon
Deputy General Manager and Head, Shariah, Islamic Capital Market,
Securities Commission Malaysia
Dr Mohamad Akram Laldin
Executive Director, International Shari’ah Research Academy
YB Senator Dato’ Dr Asyraf Wajdi Dato’ Dusuki
Yang Dipertua, Yayasan Dakwah Islamiah Malaysia
Encik Wan Mohd Nazri Wan Osman
Director, Islamic Banking and Takaful Department, Bank Negara Malaysia
Encik Mohd Radzuan Ahmad Tajuddin
Deputy General Manager and Head, Development, Islamic Capital Market,
Securities Commission Malaysia
Observers
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Encik Addellan Jusop

Senior Manager, Operation, Association of Islamic Banking institutions
Malaysia
Dato’ Mohd Effendi Abdullah
Member, Islamic Capital Markets Committee, Malaysian Investment
Banking Association
Encik Azli Munani
Chief Executive Officer, Malaysian Takaful Association
Dato’ Syed Mohd Ghazali Wafa Syed Adwam Wafa
Chief Executive Officer, Koperasi Pembiayaan Syariah Angkasa Berhad
Dr Marjan Muhammad
Director, Research Affairs Department, International Shari’ah Research
Academy
Cik Zulfa Abdul Rahman
Manager, Malaysian Institute of Accountants
5
CONTENTS
paragraphs
INTRODUCTION IN1 – IN27
Reasons for issuing the Research Paper IN1 – IN8
Main features of the Research Paper IN9 – IN27
RESEARCH PAPER, WAQF

What is waqf? 1–8
Accounting considerations 9 – 11
Separate and consolidated financial statements 12 – 44
The reporting entity 12 – 15
Separate and consolidated financial statements for an
16 – 19
incorporated company
Separate and consolidated financial statements for a
20 – 41
public sector entity
Tentative views on separate and consolidated financial
42 – 44
statements
Financial reporting framework 45 – 97
Should there be a single framework? 50 – 51
What would be the appropriate framework? 52 – 53
Framework for an incorporated company 54 – 57
Framework for a public sector entity – waqf
58 – 81
administered by a SIRC
Framework for a public sector entity – waqf
82 – 84
administered by an IPTA
Framework for a registered society and a registered
85 – 93
trustee
Tentative views on the financial reporting framework 94 – 97
Real property 98 – 130
Real property held by an incorporated company 99 – 101
6
Real property held by a public sector entity 102 – 120

Does waqf of leasehold property transfer its freehold to
121 – 125
the SIRC?
Tentative views on accounting for real property 126 – 130
Financial assets 131 – 144
Financial assets held by an incorporated company 133 – 138
Financial assets held by a public sector entity 139 – 143
Tentative views on accounting for financial assets 144
Liabilities and provisions 145 - 149
Income recognition 150 – 151
Tentative views on income recognition 151
Government grants and government assistance 152 – 160
Comparison of requirements in MFRS, MPERS and
154 – 155
MPSAS
Presentation of grants related to assets 156 – 158
Tentative views on government grants and government
159 – 160
assistance
Disclosures 161 – 184
Operating segments 162 – 168
Disclosures on real property 169 – 176
Disclosures on government grants and government
177 – 179
assistance
Disclosures recommended by the National Audit
180 – 183
Department
Disclosures for charities and not-for-profit entities 184
Access to financial statements 185 – 204
Access to financial statements of an incorporated
186 – 188
company
Access to financial statements of a public sector entity 189 – 192
Access to financial statements of a registered society 193 – 198
Access to financial statements of a registered trustee 199
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Tentative views on access to financial statements 200 – 204

Determining and enforcing accounting standards 205 – 209
MASB’s limitations 205 – 206
Other authorities 207 – 208
Tentative views on determining and enforcing
209
accounting standards
APPENDICES
A Explanations of terms used
B Overview of waqf B1 – B62
C Financial reporting of waqf under SIRC
administration
8
Introduction
Reasons for issuing the Research Paper
IN1 Of late, there are increasing calls to unlock the potential of waqf in
growing Islamic finance. In his 2013 budget speech, the Minister
of Finance announced support for the development of ‘corporate
waqf’ – a company established as a professional administrator of
waqf assets:
…the Malaysian Wakaf Foundation under the Department
of Awqaf, Zakat and Hajj (JAWHAR) will be responsible to
formulate the Corporate Wakaf Master Plan, taking into
consideration the State Islamic Religious Council legislative
structure. The master plan will be the platform for the
development of Corporate Wakaf in Malaysia.
IN2 If a waqf takes the form of an incorporated company, then its

financial statements would likely be prepared or lodged under a
law administered by the Securities Commission, the Central Bank
or the Registrar of Companies. In accordance with the Financial
Reporting Act 1997, such financial statements shall comply with
MASB approved accounting standards. Hence, the MASB directed
its staff to look into potential financial reporting issues relating to
corporate waqf.
IN3 Most waqf are, nevertheless, expected to continue to be under the

administration of a state Islamic religious council (SIRC) as
provided under the Federal Constitution and in state enactments.
Currently, SIRCs assert varying bases of preparation for their
financial statements and it is unclear whether a plan for state
government agencies to comply with Malaysian Public Sector
Accounting Standards (MPSAS) from 2016 would include SIRCs.
IN4 Additionally, a few public institutions of higher learning (institut

pengajian tinggi awam or IPTA) have been permitted by the
relevant SIRCs to solicit, administer and disburse waqf funds. An
IPTA that is established under the Universities and University
Colleges Act 1971 is a federal statutory body and, as such, may be
subject to a Ministry of Finance directive to adopt MPSAS by
2015.
9
IN5 In a separate development, SIRCs seem more open to developing

waqf property commercially. Funding for these developments
primarily come from government agencies. Recently, however, a
property in Kuala Lumpur was developed on a build-operate-
transfer basis with a public listed company being party to the
transaction. In other countries, waqf are known to raise financing
in financial and capital markets, and it is possible that this
approach may be explored in future.
IN6 Although financial reporting by a public sector entity such as a

SIRC or IPTA is outside the Board’s purview, the Board has
included it in this Research Paper because:
(a) Many SIRCs assert compliance with MASB approved
accounting standards.
The financial statements of many SIRCs assert that they were
prepared in accordance with the principles in MASB approved
(b) Developments in waqf may result in financial statements that
come under the purview of the Financial Reporting Act (FRA)
1997.
Future waqf development may require bank or capital market
financing. If this entails financial statements to be lodged to
the Registrar of Companies, Bank Negara Malaysia or the
Securities Commission, then MFRS may apply.
(c) The public has asked about accounting for waqf.
The Board has received enquiries from the public and from
staff of SIRCs as to the appropriate accounting treatment for
waqf transactions; and
(d) MPSAS are similar to MFRS/IFRS.
The Board thought that it may offer suggestions on how
SIRCs may apply MPSAS to waqf as MPSAS are based on
accrual basis International Public Sector Accounting
Standards (IPSAS), which in turn are based on IFRS.
Given the factors above, the Board thought it appropriate at this
time to openly discuss issues in accounting for waqf to move
discussion forward and work towards arriving at a consensus.
10
IN7 The Board also came to know that there are registered societies
and registered trustees that administer waqf funds. For
completeness, accounting for waqf by a registered society and a
registered trustee was duly noted.
IN8 The purpose of this Research Paper is to elevate the discourse on

the financial reporting of waqf and to provide the Board’s tentative
views on the matters discussed.
Main features of the Research Paper
IN9 This Research Paper presents the Board’s findings and tentative
views on accounting for waqf. The MASB is mindful that other
authorities have jurisdiction over the financial reporting of entities
outside the scope of the Financial Reporting Act 1997. The MASB
shall not exceed its mandate, and this Research Paper shall not
infringe on the rights and obligations of those other authorities.
IN10 The Board’s tentative views are based on a study of financial

statements of a company limited by guarantee and of twelve
SIRCs. The tentative views also take into consideration
requirements in MASB approved accounting standards, MPSAS
and accrual basis IPSAS, standards for not-for-profit entities,
practices in other jurisdictions, and other relevant documents.
JAN Roundtable on Waqf Accounting
IN11 The National Audit Department (Jabatan Audit Negara or JAN)

hosted a Roundtable discussion on the issues identified by MASB.
The Roundtable was held on 17 October 2014 and attended by
representatives of the SIRCs, the state audit departments, the
Accountant General’s Office (Jabatan Akauntan Negara),
JAWHAR, MASB and other interested parties.
IN12 The Board’s tentative views – based on its study and comments
raised at the Roundtable – are summarised in the following
paragraphs.
Separate and consolidated financial statements
IN13 Most states do not have an enactment to require a waqf to present

a full set of separate financial statements. Nevertheless,
11
participants at the Roundtable generally agreed that a specific

waqf is a reporting entity, and should prepare and present separate
financial statements. Moreover, the Board believes that a general
waqf may also be a reporting entity if it undertakes economic
activities that are of interest to the public.
IN14 From an accounting perspective, the financial statements of a waqf

may be consolidated with that of its mutawalli if the mutawalli
controls the waqf. However, the Board noted that some state
enactments require the SIRC to recognise waqf funds (kumpulan
wang wakaf) in the SIRC’s financial statements.
IN15 Where control is not present and consolidation is not required, a

mutawalli may still need to disclose information on the waqf under
its administration if that information is important to users. This is
analogous to a financial institution disclosing assets under
management.
Framework for financial reporting
IN16 The financial reporting framework that applies to a waqf would

depend on its legal form. In Malaysia, waqf are predominantly
assets administered by SIRCs, with a few that are an incorporated
company or a registered society.
IN17 Based on the Board’s findings, the applicable financial reporting

standards for waqf in Malaysia would be as follows:
(a) Waqf administered by a SIRC. Currently, SIRCs report in
accordance with federal and/or state directives on financial
reporting with some applying ‘MASB approved accounting
standards’ or the soon to be withdrawn Private Entity
Reporting Standards (PERS). Participants at the Roundtable
indicated that, moving forward, they would prefer to apply
Malaysian Private Entity Reporting Standards (MPERS) to
the financial statements of both the SIRC and the waqf under
its administration. Nevertheless, other parties believe that
SIRCs, as state statutory bodies, and the waqf they administer
should apply MPSAS instead.
(b) Waqf administered by IPTA. An IPTA that is established
under the Universities and University Colleges Act 1971 is a
federal statutory body. As such, it may be subject to a
12
Ministry of Finance directive to adopt MPSAS by 2015.

(c) Waqf that is an incorporated company. A waqf that prepares
or lodges financial statements in accordance with a law
administered by the Securities Commission, the Central Bank
or the Registrar of Companies would need to comply with
MASB approved accounting standards. For example, a waqf
that is a company limited by guarantee or is seeking capital
market financing must comply with MFRS.
(d) Waqf that takes on other legal forms. A waqf that takes on
another legal form would need to comply with its relevant
framework. For example, a registered society would need to
comply with requirements set by the Registrar of Societies.
IN18 While there are merits to subjecting all waqf to a single financial
reporting framework, a waqf must currently comply with the
financial reporting framework prescribed to it by law.
Accounting for real property
IN19 Waqf assets in Malaysia are primarily real property. If a waqf were
to present financial statements, it would likely classify and
measure real property as follows:
(a) Property, plant and equipment (PPE). PPE would be
measured at cost on initial recognition. Subsequent
measurement would depend on the financial reporting
standards applied:
i. MFRS and MPSAS - Either the cost model or the
revaluation model;
ii. MPERS – At cost, with no provision for revaluation.
(b) Investment property (IP). IP would be measured at cost on
initial recognition. Subsequent measurement would be:
i. MFRS and MPSAS – Either the fair value model or the
cost model.
ii. MPERS – At fair value, if there is no undue cost or
effort to determine fair value; at cost, otherwise.
(c) Heritage asset. Under MPSAS, an entity has the option to
either not recognise a heritage asset, or to depart from the
13
measurement requirements for property, plant and equipment.

Neither MFRS nor MPERS address heritage assets.
IN20 It is also possible for an entity to recognise an asset at nominal

value if it is a non-monetary government grant under the
alternative treatment in MFRS 120 Government Grants and
Government Assistance. Nevertheless, the benchmark treatment is
to account for both the asset and the grant at fair value.
Disclosures
IN21 There is currently a tendency to classify waqf based on the as

either ‘specific waqf’ or ‘general waqf’. For decision-making,
however, it may be more useful to disclose operating segments
based on a waqf’s economic activities. For example, both specific
and general waqf may be used for retail space or as offices to let.
Hence, disclosure of the economic activities undertaken by the
waqf or on the waqf property is more useful than disclosure of
whether the waqf is ‘general’ or ‘specific’.
IN22 Users of the financial statements may wish to know the location,
size and fair value of real property, or how much administration
fees are paid to the mutawalli. Preparers should disclose such
information if it is important to users.
IN23 Some waqf are developed with government grants or government

assistance. These should be accounted for and disclosed in
accordance with the relevant standards.
IN24 Regardless of its legal form, waqf is widely perceived to be

charitable and users may expect disclosures that are suitable for a
charitable entity. A waqf may need to adopt disclosure
requirements found in standards for charities and not-for-profit
entities.
Access to financial statements
IN25 A waqf that is other than an incorporated company is generally not

required to provide its financial statements to the public.
Nevertheless, in the interest of transparency and to inspire public
confidence, a waqf may wish to make its financial statements
available to the public even if it is not required to do so under law.
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Determining and enforcing accounting standards
IN26 There is undoubtedly a need to improve the financial reporting of

waqf. Unfortunately, MASB’s functions are limited to financial
statements within the Financial Reporting Act 1997.
IN27 Nevertheless, the Board hopes the recommendations in this
Research Paper will be useful to the authorities empowered to
determine and enforce accounting standards for waqf outside the
scope of the Act.
15
Research Paper, Waqf

What is waqf?
1 In Islamic jurisprudence, a waqf is the dedication of a specified

asset (mawquf) by a settlor (waqif) into the administration of a
mutawalli through a legal instrument (waqfiyyah) such that the
income or usufruct of that asset benefits a stated beneficiary
(mawquf alaih) or is used for a stated purpose.
2 A waqf is comparable to an endowment, trust or foundation except

that it must comply with Islamic juristic rules, for example:
(a) A waqf is usually perpetual but a secular endowment, trust or
foundation may be finite or may have a provision for winding-
up or termination.
(b) There are limited circumstances for reversion of a waqf asset
but the settlor or founder of an endowment, trust or
foundation can stipulate conditions for reversion.
(c) The activities of a waqf must comply with shariah, which
may not apply to a secular endowment, trust or foundation.
An endowment, trust or foundation that satisfies the juristic rules
may be a waqf in essence, even if it is not in name.
3 A waqf may be founded for a charitable purpose (waqf khairi),

either for a community’s general benefit (waqf am) or for a
specified use (waqf khas). The use may be religious in nature such
as a mosque or cemetery, or non-religious such as housing, an
educational institution or a medical facility.
4 Islamic law allows a settlor to found a waqf to perpetually benefit

present and future family members. However, the common law
rule against perpetuities, introduced by British colonists, has
curtailed such ‘family waqf’ (waqf ahli) in some countries. The
rule states that a beneficiary must have the property left to him
transferred to him within a period of 21 years.1 It effectively limits
a descendent born after that time from being a beneficiary.
1
Black’s Law Dictionary, 2nd ed. [web]. http://thelawdictionary.org/ Accessed 14
April 2014.
16
5 The British also left a legacy of replacing privately appointed

mutawalli with state administrators. For example, the Federal
Constitution of Malaysia gives state governments power over waqf
and state enactments in turn designate the SIRC as sole trustee for
all waqf in a state. Effectively, Malaysian law does not allow a
settlor the liberty of naming a mutawalli of his or her choice.
6 Hadith regarding waqf originally referred to items of real property

such as land, mosques and wells. But socio-economic changes
have made it acceptable for cash, other financial instruments and
other items to be dedicated as waqf assets.
7 With juridical personality established in modern law, the settlor

and/or the mutawalli may be a non-natural person, such as a
corporate entity. The waqf itself may also be incorporated. Hence,
these entities may be required to prepare financial statements in
accordance with a set of financial reporting standards.
8 Additionally, many Islamic scholars (ulama) now espouse views

that allow for commercialisation of waqf property. As a result, a
few entities have raised financing for commercial development of
waqf properties which are then leased to generate income for the
waqf. Scholars are also more willing to allow substitution
(istibdal) of a less valuable asset for one of potentially higher
value in order to maintain or grow the wealth of a waqf. This may
lead to more active management of waqf assets. As such, it is
timely to give due consideration to the financial reporting of waqf.
Accounting considerations
9 There are several aspects of waqf which have led to discussions

regarding its accounting treatment. In particular:
(a) Whether a waqf should prepare and present separate financial
statements, and whether those financial statements should be
consolidated with the financial statements of the mutawalli.
(b) The financial reporting framework for waqf.
(c) The measurement basis or bases for the assets and liabilities
of a waqf.
(d) Disclosures needed by users of a waqf’s financial statements.
17
(e) Access to the financial statements.

(f) Identifying the authority to determine and enforce accounting
standards for waqf.
10 In Malaysia, an entity that is expressly described as waqf usually

takes one of the following legal forms:
 An incorporated company
A waqf may be established as a company, either limited by
guarantee or limited by shares under the Companies Act
1965.
 An entity administered by a public sector entity
Most waqf are administered by a SIRC. A SIRC is
established through state enactment and may be considered
a public sector entity. Additionally, a few IPTAs have been
allowed to administer waqf; an IPTA established under the
Universities and University Colleges Act 1971 is a federal
statutory body.
 A registered society
A few waqf have been established as a registered society
under the Societies Act 1966.
 A registered trustee
A trustee registered under the Trustee (Incorporation) Act
1952 may be allowed to administer waqf. The national
waqf foundation, Yayasan Wakaf Malaysia or YWM, is a
trustee under the Act.
It is theoretically possible to establish waqf in another legal form.
However, the Board’s research did not identify any other than the
four above. Hence, this Research Paper considers the accounting
issues in paragraph 9 in relation to only an incorporated company,
a public sector entity, a registered society and a registered trustee.
11 It is also possible for an entity that is not expressly described as

waqf to fulfil Islamic juristic rules for waqf in essence. The Board
has excluded such entities from the parameters of this Research
Paper for the following reasons:
18
(a) Provisions on waqf in the Federal Constitution and in state

enactments appear to apply to items that are expressly waqf;
and
(b) It is difficult to ascertain whether an entity’s fulfilment of
Islamic juristic rules for waqf was intentional or coincidental.
Separate and consolidated financial statements
The reporting entity
12 The law usually requires financial statements to be submitted by a

legal entity. However, from an accounting perspective, financial
statements are prepared and presented by a ‘reporting entity’. A
reporting entity is not necessarily a legal entity.
13 IASB has yet to finalise the concept of a reporting entity in its

Conceptual Framework for Financial Reporting. Nevertheless, it
is useful to note that IASB’s previous Framework for the
Preparation and Presentation of Financial Statements described a
reporting entity as “an entity for which there are users who rely on
the financial statements as their major source of financial
information about the entity”.
14 More recently, IASB ED/2010/2, Conceptual Framework for

Financial Reporting: The Reporting Entity, described a reporting
entity as:
a circumscribed area of economic activities whose financial
information has the potential to be useful to existing and
potential equity investors, lenders and other creditors who
cannot directly obtain the information they need in making
decisions about providing resources to the entity and in
assessing whether the management and the governing board of
that entity have made efficient and effective use of the resources
provided.
Paragraphs S3 and RE6 of the exposure draft further proposed that
a portion of an entity could be a reporting entity:
A portion of an entity could qualify as a reporting entity if the
economic activities of that portion can be distinguished
objectively from the rest of the entity and financial information
19
about that portion of the entity has the potential to be useful in

making decisions about providing resources to that portion of
the entity.
15 It may be argued that a waqf – even if it is embedded within

another entity – is a reporting entity because its settlors,
beneficiaries and other stakeholders need to use its financial
statements to obtain the financial information they require about
the waqf.
Separate and consolidated financial statements for an incorporated

company
16 For an incorporated company, guidance on separate and

consolidated financial statements is found in MFRS 127, Separate
Financial Statements, and MFRS 10, Consolidated Financial
Statements.
17 Paragraph 4 of MFRS 10 states that an investor that is a parent

shall prepare consolidated financial statements. Paragraph 5
further states that an investor shall determine whether it is a parent
by assessing whether it controls the investee. Even though the
terms ‘investor and ‘investee’ are used, the principle may equally
apply to mutawalli and waqf.
18 Paragraph 7 explains that an investor controls an investee if and

only if the investor has all the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement
with the investee; and
(c) the ability to use its power over the investee to affect the
amount of the investor’s returns.
19 The incorporated company studied held between 61% and 75% of

the shares in several entities. The shares were dedicated as waqf to
be administered by the incorporated company. Contrary to the
normal assumption that such a large shareholding would constitute
control, the company did not prepare consolidated financial
statements. The company’s explanation in the notes to the
financial statements may be translated as follows:
20
Consolidated financial statements are not prepared because it

would not give a true view of the objective of the Company’s
establishment. The waqf of shareholdings in certain companies
are for the purposes in the stated waqf objectives and not for the
purposes within the meaning of a subsidiary company. The
shareholdings are meant to benefit the waqf through dividends
that are to be distributed in accordance with the stated waqf
objectives. The shareholdings do not have the MFRS
characteristics for consolidation purposes:
i. The Company does not control the companies and does
not have the ability to influence their financial and
operational policies;
ii. The Company has appointed [another entity] as Manager
to manage and administer on the Company’s behalf the
shares of the companies and other liquid assets and other
securities at this time and from time to time.
Separate and consolidated financial statements for a public sector

entity
Arguments for separate financial statements for waqf
20 JAWHAR’s manual on accounting management requires a SIRC

to include a separate balance sheet and a separate income
statement for a state’s waqf fund in the appendices to the SIRC’s
financial statements. Furthermore, some state enactments on waqf,
e.g. the Wakaf (Negeri Sembilan) Enactment 2005, require
separate audited financial statements for the state’s waqf fund.
These requirements indicate that the waqf fund may be a separate
reporting entity.
21 With regards to IPTA, section 40 of the Universities and

University Colleges Act 1971 requires property given for specific
purposes to be separately accounted for:
All property, moneys or funds given for any specific purposes
shall be applied and administered in accordance with the
purposes for which they may have been given and shall be
separately accounted for.
It would appear this requirement ought to apply to waqf funds
received from either a SIRC or from the public.
21
22 Some observers opined that each waqf declaration under Islamic

law creates an entity that is a legal person by itself. 2 For example,
paragraph 3/4/2 of AAOIFI’s Shari’a Standard No. 33, Waqf,
explicitly states:
The waqf has a legal personality and financial liability which
make it capable of giving and accepting commitment. The legal
personality of the waqf is quite separate from the personality of
its manager.
23 In Singapore, sections 72 and 73 of Singapore’s Administration of

Muslim Law Act (AMLA) require separate financial statements
for MUIS and for waqf vested in MUIS:
Financial provisions with respect to Majlis
72. The financial provisions set out in the First Schedule shall
apply to the Majlis.
Financial provisions with respect to trust, wakaf, nazar and
mosque
73. The financial provisions set out in the Second Schedule shall
apply to all mosques and all properties, investments and assets
vested in the Majlis subject to any trust, wakaf or nazar which
do not form part of the Fund.
The First and Second Schedules provide the requirements for the
accounts of, respectively, MUIS and for waqf. MUIS includes both
sets of separate financial statements in its annual report.
24 It may even be appropriate to prepare financial statements for each

waqf – not just for the waqf fund in its entirety. This would enable
more granular analyses of the financial position and performance
of each waqf. Such detailed information may be lost when all waqf
are aggregated.
2
MTS Mohammad. (undated). A Proposal for a New Comprehensive Waqf Law in
Malaysia. Universiti Teknologi Malaysia. p. 3. [web] http://waqfacademy.org/wp-
content/uploads/2013/03/Mohammad-Tahir-Sabit-Haji-Mohammad.-Date.-
Proposal-for-new-comprehensive-waqf-law-in-Malaysia.pdf Accessed on 9 May
2014.
22
25 The Board noted that the UK Charities Act 2011 provides

directions as to what is or is not a separate charity. Section 12
reads:
(1) The Commission … may direct that for all or any of the
purposes of this Act an institution established for any
special purposes of or in connection with a charity (being
charitable purposes) is to be treated—
(a) as forming part of that charity, or
(b) as forming a distinct charity.
(2) The Commission may direct that for all or any of the
purposes of this Act two or more charities having the same
charity trustees are to be treated as a single charity.
Although the Act applies to charities, the principle may be
considered in deciding whether two or more waqf constitute a
single entity or multiple entities for financial reporting purposes.
Arguments against separate financial statements for waqf
26 Currently, most SIRCs report selected items related to waqf as part

of their financial statements.3 Some may present them on separate
line items or disclose the related amounts in the notes. Few include
a separate balance sheet and a separate income statement as
recommended in the JAWHAR manual.
27 The Board's perusal of the enactments that established the SIRCs

showed that most do not require the SIRC to prepare separate
financial statements for waqf, and instead imply that the SIRC
should include waqf funds (kumpulan wang wakaf) in the SIRC’s
financial statements.
28 For example, section 64 of the Administration of Islamic Law

(Federal Territories) Act 1993 requires the SIRC to recognise
income from waqf other than waqf khas as part of the SIRC’s
fund:
3
The Board found that, for example, a SIRC would recognize rental income from a
waqf asset but not recognize the waqf asset itself.
23
(1) The income of a wakaf khas, if received by the Majlis, shall

be applied by it in accordance with the lawful provisions of such
wakaf khas.
(2) The income of every other wakaf and of every nazr ‘am shall
be paid to and form part of the Fund.
29 Additionally, it may be argued that the cost of preparing separate

financial statements for each waqf does not commensurate with
the benefit of doing so. For example, a staff of a SIRC claimed
that most waqf are used for a specific religious purpose such as a
mosque, cemetery or religious school. These generate negligible or
nil income. Hence, preparing financial statements for every single
mosque, cemetery or religious school would be costly,
burdensome to preparers, and of little value to users.
30 It may be noted that Singapore Charities Accounting Standard

(CAS) does not require a charity to prepare separate financial
statements for each of its funds. It does, however, require a charity
that has more than one fund under its control to prepare a
columnar ‘statement of financial activities’ to differentiate
unrestricted income funds, restricted income funds and
endowment funds.
Consolidated financial statements
31 Consolidated financial statements are the financial statements of

an economic entity presented as those of a single entity. For
financial reporting purposes, an economic entity is a group of
entities comprising the controlling entity and any controlled
entities. It is also known as an administrative entity, a financial
entity, a consolidated entity or a group.
Arguments for consolidation
32 A SIRC would generally include selected items of waqf, zakat and

baitulmal funds under its administration in its financial statements.
Hence, its financial statements may be described as consolidated
financial statements.4
4
It should be noted that SIRCs tend to use the term ‘consolidated financial
statements’ only to describe financial statements that also include other subsidiaries,
associates or joint ventures.
24
33 For several reasons, it may be appropriate for a SIRC to include

waqf in its consolidated financial statements. For example, waqf
assets in a state must be legally registered in the name of the
SIRC. The rights and obligations of legal ownership coupled with
other provisions in the state enactment may confer the SIRC with
control over waqf.
34 IPSAS 6, Consolidated and Separate Financial Statements, may

also be relevant. It states that control is presumed to exist when at
least one of the power conditions and one of the benefit conditions
in paragraph 39 exists:
Power Conditions
(a) The entity has, directly or indirectly through controlled
entities, ownership of a majority voting interest in the other
entity.
(b) The entity has the power, either granted by or exercised
within existing legislation, to appoint or remove a majority
of the members of the board of directors or equivalent
governing body, and control of the other entity is by that
board or by that body.
(c) The entity has the power to cast, or regulate the casting of, a
majority of the votes that are likely to be cast at a general
meeting of the other entity.
(d) The entity has the power to cast the majority of votes at
meetings of the board of directors or equivalent governing
body, and control of the other entity is by that board or by
that body.
Benefit Conditions
(a) The entity has the power to dissolve the other entity and
obtain a significant level of the residual economic benefits
or bear significant obligations. For example the benefit
condition may be met if an entity had responsibility for the
residual liabilities of another entity.
(b) The entity has the power to extract distributions of assets
from the other entity, and/or may be liable for certain
obligations of the other entity.
25
35 When the conditions listed in paragraph 39 do not exist, the

following factors in paragraph 40 are likely, either individually or
collectively, to be indicative of the existence of control.
Power Indicators
(a) The entity has the ability to veto operating and capital
budgets of the other entity.
(b) The entity has the ability to veto, overrule, or modify
governing body decisions of the other entity.
(c) The entity has the ability to approve the hiring,
reassignment, and removal of key personnel of the other
entity.
(d) The mandate of the other entity is established and limited
by legislation.
(e) The entity holds a golden share (or equivalent) in the other
entity that confers rights to govern the financial and
operating policies of that other entity.
Benefit Indicators
(a) The entity holds direct or indirect title to the net
assets/equity of the other entity, with an ongoing right to
access these.
(b) The entity has a right to a significant level of the net
assets/equity of the other entity in the event of a liquidation,
or in a distribution other than a liquidation.
(c) The entity is able to direct the other entity to cooperate with
it in achieving its objectives.
(d) The entity is exposed to the residual liabilities of the other
entity.
36 Since a state enactment confers a SIRC with near absolute power

over waqf, it may be presumed to meet the power conditions in
paragraph 39 of IPSAS 6. Additionally, the SIRC may have the
right to a management fee from the waqf and may have
responsibility for the liabilities and obligations of the waqf that
meet the benefits condition.
26
37 Incidentally, two SIRCs had wholly-owned private companies to

manage their waqf activities. These private companies prepared
financial statements in accordance with PERS. One SIRC included
its wholly-owned private company as a subsidiary in its
consolidated financial statements. The other SIRC prepared
combined financial statements.
Arguments against consolidation
38 Conversely, it may be argued that a SIRC should not recognize or

consolidate waqf assets and liabilities because it is an agent acting
for the waqf as required by state enactment. Paragraph 36 of
IPSAS 6 does not consider the normal responsibilities of a trustee
to be control:
… Similarly, a trustee whose relationship with a trust does not
extend beyond the normal responsibilities of a trustee would
not be considered to control the trust for the purposes of this
Standard.
39 The SIRC’s power may also be considered regulatory power.
Under paragraph 37 of IPSAS 6, regulatory power does not
constitute control:
Governments and their agencies have the power to regulate the
behavior of many entities by use of their sovereign or legislative
powers. Regulatory and purchase powers do not constitute
control for the purposes of financial reporting. To ensure that
the financial statements of public sector entities include only
those resources that they control and can benefit from, the
meaning of control for the purposes of this Standard does not
extend to:
(a) The power of the legislature to establish the regulatory
framework within which entities operate, and to impose
conditions or sanctions on their operations. Such power
does not constitute control by a public sector entity of the
assets deployed by these entities. For example, a pollution
control authority may have the power to close down the
operations of entities that are not complying with
environmental regulations. However, this power does not
constitute control because the pollution control authority
only has the power to regulate; or
27
(b) Entities that are economically dependent on a public sector

entity. That is, where an entity retains discretion as to
whether it will take funding from, or do business with, a
public sector entity, that entity has the ultimate power to
govern its own financial or operating policies, and
accordingly is not controlled by the public sector entity. For
example, a government department may be able to
influence the financial and operating policies of an entity
that is dependent on it for funding (such as a charity), or a
profit-orientated entity that is economically dependent on
business from it. Accordingly, the government department
has some power as a purchaser but not to govern the
entity’s financial and operating policies.
40 The Board noted that, in Singapore, waqf and some religious funds
are not included in MUIS’ consolidated financial statements.
MUIS explains in its notes:
The financial statements exclude the financial statements of the
wakafs and trusts, mosques and Muslim religious schools, all of
which are vested in the Board under the Administration of
Muslim Law Act. Separate financial statements are issued and
reported upon these wakafs and trusts, mosques and Muslim
religious schools…
Wakafs and trusts
The financial results and financial positions of the wakafs and
trusts are not included in this set of consolidated financial
statements as the Council is of the opinion that the Board is not
able to obtain benefits from the wakafs and trusts. The benefits
obtained are distributed back to the beneficiaries as determined
by the wakafs and trusts.5
41 Nevertheless, the separate financial statements of MUIS Wakaf
Funds and its subsidiary are included in MUIS’ annual report.
Tentative views on separate and consolidated financial statements
42 A waqf must prepare and present separate financial statements if it

constitutes a reporting entity, or if it provides better quality
information to users. Cost versus benefit may be taken into
5
Annual Report 2012. MUIS. p. 31
28
consideration, but avoidance of cost in itself should not be a

reason not to prepare separate financial statements. Participants at
the Roundtable agreed a specific waqf should prepare and present
separate financial statements. The Board noted that a general waqf
may also be a reporting entity if it undertakes economic activities
that are of interest to the public.
43 As for consolidation, a mutawalli would need to assess whether it

has decision-making rights as an agent or as a principal. The
Board noted that a SIRC, as sole trustee, has considerable power
over a waqf but whether that power constitutes control may need
to be determined on a case-by-case basis. Participants at the
Roundtable did not think a SIRC should have to consolidate
specific waqf under their administration as the SIRC is restricted
to the terms of the waqfiyyah.
44 Others believe that even if criteria for consolidation are not met, a
SIRC should still disclose information about the waqf under its
administration. This is analogous to a financial institution
disclosing assets under management.
Financial reporting framework
45 The financial reporting framework that applies to an entity

generally depends on the legal form of the entity. In Malaysia,
most waqf administrators are SIRCs. However, a small number of
registered companies and not-for-profit entities have been allowed
to administer waqf independently.
46 The Federal Constitution of Malaysia gives legislative power over

waqf to state governments.6 In turn, the states pass enactments and
ordinances to place responsibility for administration of waqf on
SIRCs. Nearly all waqf in Malaysia are administered by SIRCs.
47 A SIRC may, however, permit another entity to carry out waqf

activities. For example, a SIRC has allowed a company limited by
guarantee to administer waqf assets. As an incorporated company
that is not a private entity, the waqf would be subject to MASB
approved accounting standards.
6
Federal Constitution of Malaysia, Ninth Schedule, List II – State List, paragraph 1.
29
48 Additionally, it is possible for a waqf to be managed by a

registered society or a trustee. A registered society or a trustee
may be deemed a not-for-profit entity. There are currently no
specific standards for not-for-profit entities in Malaysia. However,
some believe there ought to be, and cite other jurisdictions that
have developed not-for-profit standards.
49 Two main questions arise about the financial reporting framework

for waqf:
(a) Should there be a single framework?
(b) What would be the appropriate framework?
Should there be a single framework?
50 Currently, the legal form of an entity determines the applicable

financial reporting framework. This may compromise
comparability among waqf that are registered companies, those
that are administered by SIRCs, and those that are not-for-profit
entities. Some argue that a single financial reporting framework
would enable stakeholders to meaningfully compare the financial
positions and performances of all waqf in Malaysia.
51 Conversely, however, it can be counter-argued that a financial

reporting framework that is appropriate for a particular legal
structure may not be for another. The legal structure impacts the
activities that a waqf can or cannot undertake. For example, a waqf
that is a registered society may be prohibited from trading in
securities; hence compliance with extensive requirements for
financial instruments may be unnecessary and burdensome.
However, it may be possible for a waqf that is an incorporated
company to generate income through trading if shariah authorities
allow substitution of assets; hence more guidance on financial
instruments may be appropriate.
What would be the appropriate framework?
52 Some have questioned whether it is appropriate to apply financial

reporting standards meant for profit-oriented entities, such as
MFRS and MPERS, to waqf. The main purpose of a waqf is to
provide income or usufruct to its beneficiaries or to fulfil a non-
profit purpose. As waqf is not established to generate profit for its
30
contributors of capital, it may be construed to be a not-for-profit

entity.
53 Furthermore, a waqf that is, or is administered by, a public sector

entity may undertake transactions and events that are alien to an
incorporated company. The financial reporting of a public sector
entity needs to address this difference.
Framework for an incorporated company
54 Under the Financial Reporting Act (FRA) 1997, financial

statements prepared or lodged under a law administered by the
Securities Commission, the Central Bank or the Registrar of
Companies shall comply with MASB approved accounting
standards:
(a) Malaysian Financial Reporting Standards (MFRS)
MFRS is an adoption of IFRS and is applicable to entities
other than private entities7; or
(b) Financial Reporting Standards (FRS)
FRS is the alternative framework for a ‘transitioning entity’
(TE), i.e. an entity subject to MFRS 141 Agriculture and/or IC
7
A private entity is a private company (See Note below), incorporated under the
Companies Act 1965, that –
 is not itself required to prepare or lodge any financial statements under any law
administered by the Securities Commission or the Bank Negara Malaysia; and
 is not a subsidiary or associate of, or jointly controlled by, an entity which is
required to prepare or lodge any financial statements under any law
administered by the Securities Commission or the Bank Negara Malaysia.
Note:
Under Section 15(1) of Companies Act 1965, a company having a share capital may
be incorporated as a private company if its memorandum or articles –
(1) restricts the right to transfer its shares;
(2) limits to not more than fifty the number of its members (counting joint holders
of shares as one person and not counting any person in the employment of the
company or of its subsidiary or any person who while previously in the
employment of the company or of its subsidiary was and thereafter has
continued to be a member of the company);
(3) prohibits any invitation to the public to subscribe for any shares in or
debentures of the company; and
(4) prohibits any invitation to the public to deposit money with the company for
fixed periods or payable at call, whether bearing or not bearing interest.
31
Interpretation 15 Agreements for the Construction of Real

Estate; or
(c) Malaysian Private Entity Reporting Standards (MPERS)
MPERS is an adoption of IFRS for SMEs and replaces
MASB’s Private Entity Reporting Standards (PERS). For
financial statements with annual periods beginning on or after
1 January 2016, a private entity shall comply with either
MPERS in their entirety or with MFRS in their entirety.
55 In addition to legal requirements, subjecting waqf to standards for

profit-oriented entities may be appropriate given that waqf may
carry out income-generating activities to provide benefits or
services to beneficiaries. Some believe that such waqf should be
seen as any other commercial entity with profit-seeking motive
and apply financial reporting standards for profit-oriented entities.
56 There is also a view that waqf has public accountability. The

definition of a ‘publicly-accountable entity’ differs among
jurisdictions, but the term is generally understood to mean a profit-
oriented entity that has responsibilities to a large or diverse group
of stakeholders. Waqf structures based on cash waqf, share waqf
and waqf shares solicit direct contributions from the public. Hence
financial reporting standards for publicly-accountable entities may
be appropriate.
57 Two companies limited by guarantee in Malaysia have been

established to administer waqf assets. One is active and prepares
financial statements in accordance with MFRS as required by the
Financial Reporting Act 1997. At the time of writing, the other
entity has applied to SIRCs to act as mutawalli, and is awaiting
their approvals.
Framework for a public sector entity – waqf administered by SIRCs
58 For waqf that is administered by a public sector entity, another

dedicated financial reporting framework may be more appropriate.
The framework would need to consider that for a public sector
entity, the measure of potential public benefit may be more
important than the measure of financial performance.
32
59 A SIRC acting as mutawalli may have to utilise its own resources

to provide the benefits of a waqf. For example, if a settlor
dedicates a mosque without the resources necessary for the
provision of the mosque’s benefits, it may be incumbent on the
SIRC to meet the costs incurred. Hence, profitability – though
important – may not be the best measure of the value of the waqf.
60 In Malaysia, provisions for the accounting of waqf administered

by a SIRC can be found in legislation and in documents issued by
relevant authorities.
State enactments on the administration of the religion of Islam
61 A SIRC is established through the respective state enactment on

the administration of the religion of Islam. Among others, the state
enactment would provide for the SIRC’s powers over waqf. Some
states have additional enactments specific to waqf:
 Selangor – Wakaf (State of Selangor) Enactment 1999
 Negeri Sembilan – Wakaf (Negeri Sembilan) Enactment
2005
 Malacca – Enakmen Wakaf (Negeri Melaka) 2005
 Johore – Kaedah-kaedah Wakaf (Negeri Johor) 1983
62 With regards to the accounts, most enactments on the

administration of the religion of Islam require the SIRC to comply
with the Statutory Bodies (Accounts and Annual Reports) Act
1980. For example, section 85 of the Administration of the
Religion of Islam (State of Selangor) Enactment 2003 states:
The provisions of the Statutory Bodies (Accounts and Annual
Reports) Act 1980 [Act 240] shall apply to the Majlis and to any
corporation established under this Enactment.
63 Additionally, some enactments have specific requirements for the

preparation of waqf accounts. For example, under section 29(1) of
the Wakaf (Negeri Sembilan) Enactment 2005:
The Advisory Panel shall ―
(a) keep proper accounts and other records in respect of the
administration of the Waqf Fund;
33
(b) cause the preparation of the statement of account of the

Waqf Fund for each financial year;
(c) cause the statement of account of the Waqf Fund to be
audited at the end of each financial year by an auditor to be
appointed by the Council; and
(d) immediately upon receiving the statement of account of the
Waqf Fund audited under paragraph (c), submit the
statement of account to the Council for its approval.
Statutory Bodies (Accounts and Annual Reports) Act 1980
64 As mentioned earlier, most state enactments on the administration

of the religion of Islam require the SIRC to comply with the
Statutory Bodies (Accounts and Annual Reports) Act 1980.
Section 5(1) of the Act requires compliance with generally
accepted accounting principles:
Every statutory body shall keep or shall cause to be kept proper
accounts and other records in respect of its operations in
accordance with generally accepted accounting principles and
shall cause to be prepared a statement of its accounts in respect
of each financial year and shall, within six months after the end
of that financial year …, submit the same to the Auditor General
for audit.
65 Section 11(1) further provides that “the Minister may make rules
for the purpose of carrying out or giving effect to any of the
provisions of this Act”. In particular, section 11 (2)(b) gives the
Minister power to:
prescribe guidelines in respect of generally accepted accounting
principles, accounting policies and other matters of an
accounting or a financial nature relating to the accounts of a
statutory body.
66 A staff of a SIRC explained that its SIRC does comply with

Treasury Instructions. But it has not received any Instruction for
SIRCs to comply with a particular set of financial reporting
standards.
National Audit Department (Jabatan Audit Negara or JAN)
34
67 In 2003, JAN issued guidance on best practices in financial

management called Amalan Terbaik Pengurusan Kewangan Bagi
Majlis Agama Islam Negeri. It took into consideration shariah
principles, Treasury Instructions and, where appropriate,
accounting standards issued by MASB.
68 Among the best practices that relate to the financial reporting of

waqf are as follows:
(a) Any revenue or gain obtained from any waqf asset or sale of
a waqf asset shall be accounted for in the waqf accounts.
[Procedure 325]
(b) A complete set of financial statements of a SIRC shall
include all of the following funds:
i. Baitulmal funds;
ii. Zakat and fitrah funds; and
iii. Waqf funds. [Procedure 381]
Department of Awqaf, Zakat and Hajj (Jabatan Awqaf, Zakat dan Haj or
JAWHAR)
69 JAWHAR is a department within the Prime Minister's

Department. Under the 9th and 10th Malaysia Plans, JAWHAR
was allocated RM256.4 million and RM72.76 million,
respectively, to assist SIRCs in developing waqf.8
70 In 2009, JAWHAR issued a manual on waqf accounting

management called Manual Pengurusan Perakaunan Wakaf
(MPPW). The manual is based on FRS with adjustments that
JAWHAR deem appropriate to the principles of waqf.9 It cites
seven bases of accounting of which four are qualitative
characteristics: accruals, prudence, substance over form and
materiality. The other three bases are requirements for the
financial year to be twelve months ending 31 December, for the
waqf fund to include both general and specific waqf, and for
amounts to be stated in Malaysian Ringgit.
8
JAWHAR. (2012). Pelan Strategik JAWHAR 2012 – 2016. p. 17.
9
JAWHAR. (2009). Manual Pengurusan Perakaunan Wakaf. p. 22.
35
71 The bulk of the manual provides guidance on the treatment and

recommended entries for waqf assets. The model financial
statements require an SIRC to present in its consolidated financial
statements separate line items for general and specific waqf.
72 The manual also requires the SIRC to present in the appendices to

the its financial statements:
(a) a separate statement of financial position for waqf; and
(b) a separate income statement for waqf
with separate line items for general and specific waqf.
Malaysian Public Sector Accounting Standards (MPSAS)
73 The Ministry of Finance issued a circular in March 2013 to

announce the implementation of accruals accounting for the
federal government from 2015, and of the issuance of MPSAS.
74 There are plans to subsequently extend accruals accounting and

MPSAS to state governments from 2016, which may have an
impact on SIRCs’ reporting.
75 MPSAS are adapted from International Public Sector Accounting

Standards (IPSAS). At the time of writing, eleven MPSAS have
been issued:
MPSAS 1 Presentation of Financial Statements
MPSAS 2 Cash Flow Statements
MPSAS 3 Accounting Policies, Changes in Accounting
Estimates and Errors
MPSAS 4 The Effect of Changes in Foreign Exchange Rates
MPSAS 9 Revenue from Exchange Transactions
MPSAS 17 Property, Plant and Equipment
MPSAS 12 Inventories
MPSAS 13 Leases
MPSAS 16 Investment Property
MPSAS 23 Revenue from Non-Exchange Transactions
36
MPSAS 24 Presentation of Budget Information in Financial

Statements
76 MPSAS applies to all public sector entities other than government

business enterprises (GBE). MPSAS 1 defines a GBE as an entity
that has all of the following characteristics:
(a) is an entity with the power to contract in its own name;
(b) has been assigned the financial and operational authority to
carry on a business;
(c) sells goods or services, in the normal course of its business, to
other entities at profit or full cost recovery;
(d) is not reliant on continuing government funding to be a going
concern (other than purchases of outputs at arm’s length); and
(e) is controlled by a public sector entity.
77 The Preface to Malaysian Public Sector Accounting Standards

issued by the Accountant-General’s Department explains that
GBEs apply approved accounting standards issued by MASB.
Comparison with the Islamic Religious Council of Singapore (Majlis

Ugama Islam Singapura or MUIS)
78 Waqf in Singapore vest in MUIS. Section 12 of Singapore’s

Accounting Standards Act 2007 states that statutory bodies are to
comply with accounting standards established by the Accountant-
General:
The accounts and financial statements of every statutory body
specified in the Schedule shall be prepared in compliance with
such accounting standards as are established under this Part and
notified in writing to the statutory body by the Accountant-
General.
MUIS is specifically listed as a statutory body under the Schedule
to the Act.
79 In accordance with the powers accorded by the Accounting

Standards Act, Singapore’s Accountant-General has issued
Statutory Board Financial Reporting Standards (SB-FRS).
37
According to its website, SB-FRS are based on the national

standards, Singapore FRS:
FRS will remain the key guiding framework for the accounting
standards for Statutory Boards [SBs]. However, each FRS will
be individually considered, and where necessary, modifications
will be made or additional guidelines will be issued to address
the unique needs of SBs.
Findings
80 Twelve SIRCs provided the Board with copies of their financial

statements. Our review showed that seven asserted compliance
with ‘MASB approved accounting standards’ without clarifying
which specific set of standards. Two specified compliance with
PERS. The others claimed compliance with generally accepted
accounting principles and with other pronouncements, such as
state enactments and directives or documents by other relevant
authorities.
81 Not all SIRCs applied the guidance issued by JAN or JAWHAR.

For example, few included separate statement of financial position
and income statement for waqf as required in the JAWHAR
manual. A few participants at the Roundtable were uncomfortable
with the manual’s prescribed useful lives for determining
depreciation of waqf assets: they argue that the prescribed useful
lives were too short as waqf assets are meant to be used for as long
as possible. However this could be accommodated by revisiting
the “useful” life period chosen.
Framework for a public sector entity – waqf administered by an IPTA
82 An IPTA established under the Universities and University

Colleges Act 1971 may be a federal statutory body. According to
the interpretation in section 2 of the Statutory Bodies Act
(Accounts and Annual Reports) 1980:
Statutory body means any body corporate, irrespective of the
name by which it is known, that is incorporated pursuant to the
provisions of federal law and is a public authority or an agency
of the Government of Malaysia but does not include a local
authority and a body corporate that is incorporated under the
Companies Act 1965.
38
83 With regards to accounts and audit, section 5(1) of the Act

requires compliance with generally accepted accounting
principles:
Every statutory body shall keep or shall cause to be kept proper
accounts and other records in respect of its operations in
accordance with generally accepted accounting principles and
shall cause to be prepared a statement of its accounts in respect
of each financial year and shall, within six months after the end
of that financial year …, submit the same to the Auditor General
for audit.
84 Section 11(1) further provides that the Minister may make rules
for the purpose of carrying out or giving effect to any of the
provisions of this Act. In particular, section 11 (2)(b) gives the
Minister power to:
prescribe guidelines in respect of generally accepted accounting
principles, accounting policies and other matters of an
accounting or a financial nature relating to the accounts of a
statutory body.
Framework for a registered society and a registered trustee
85 A registered society or a registered trustee may be deemed a not-

for-profit entity as it is an entity whose principal objective is not
the generation of profit for its providers of funds. Nevertheless,
stakeholders still require financial information about a not-for-
profit entity. As such, a not-for-profit entity would need to prepare
and present financial statements for its users in accordance with a
robust framework. However, certain requirements in standards for
profit-oriented entities may be inappropriate to a not-for-profit
entity.
86 The inappropriateness of applying standards for profit-oriented

entities to a not-for-profit entity is noted in paragraphs 5 and 6 of
MFRS 101, Presentation of Financial Statements:
This Standard uses terminology that is suitable for profit-
oriented entities, including public sector business entities. If
entities with not-for-profit activities in the private sector or the
public sector apply this Standard, they may need to amend the
39
descriptions used for particular line items in the financial

statements and for the financial statements themselves.
Similarly, entities that do not have equity as defined in MFRS
132 Financial Instruments: Presentation (e.g. some mutual
funds) and entities whose share capital is not equity (e.g. some
co-operative entities) may need to adapt the financial statement
presentation of members’ or unit holders’ interests.
87 For example, requirements for interim financial reports or

disclosures on financial instruments may be burdensome to the
preparer, and irrelevant to users. Moreover, profit-oriented
standards may emphasis information that is less important, e.g. the
ability of the entity to generate future cash flows, and not the ones
that are more important, e.g. the provision of benefit to the public.
88 To address these concerns, standard-setters in other jurisdictions

have established dedicated financial reporting frameworks for not-
for-profit entities. Among these include:
(a) Charities Statement of Recommended Practice (SORP),
issued by the UK Charities Commission
(b) Not-for-profit entity requirements in Australian Accounting
Standards, issued by the Australian Accounting Standards
Board (AASB)
(c) Accounting Standards Codification® 958 Not-for-Profit
Entities, issued by the US Financial Accounting Standards
Board (US FASB)
(d) Charities Accounting Standard (CAS) issued by the
Singapore Accounting Standards Council (Singapore ASC)
89 Many of these standards eliminate or amend requirements in

profit-oriented standards to cater to the nature of a not-for-profit
entity. For example, Singapore CAS is based on Singapore
Financial Reporting Standards (Singapore FRS) but excludes the
standards listed below:
FRS 29 Financial Reporting in Hyperinflationary Economies
FRS 33 Earnings per Share
FRS 34 Interim Financial Reporting
40
FRS 41 Agriculture
FRS 102 Share-based Payment
FRS 104 Insurance Contracts
FRS 106 Exploration for and Evaluation of Mineral Resources
FRS 107 Financial Instruments: Disclosures
FRS 108 Operating Segments
INT FRS Rights to Interests arising from Decommissioning,
105 Restoration and Environmental Rehabilitation Funds
INT FRS Liabilities arising from Participating in a Specific
106 Market – Waste Electrical and Electronic Equipment
INT FRS Applying the Restatement Approach under FRS 29
107 Financial Reporting in Hyperinflationary Economies
INT FRS Interim Financial Reporting and Impairment
110
90 Conversely, standards for not-for-profit entities may include

requirements not found in standards for profit-oriented entities.
For example, UK SORP requires a charity to prepare a statement
of financial activities (SoFA) that “provides the user with an
analysis of the income and endowment funds received and the
expenditure by the charity on its activities”; there is also additional
content required of larger charities.
91 In Malaysia, there is no specific set of financial reporting

standards for not-for-profit entities. The Societies Act 1966
requires a registered society to forward annual returns to the
Registrar of Societies (ROS), which include “the accounts of the
last financial year of the society, together with a balance sheet
showing the financial position at the close of the last financial
year”.
92 In practice, the ROS requires a society to submit financial

statements in a prescribed format which comprise:
(a) a statement of receipts and payments;
(b) a statement of assets and liabilities; and
41
(c) details of contributions into and out of the country.

The ROS acknowledges that the statements submitted are a
financial summary of the society and not complete financial
reports.10
93 With regards to a registered trustee, section 15 of the Trustees

(Incorporation) Act 1952 requires a trustee to keep accounts and to
render annual returns of accounts. It does not, however, specify
what financial reporting standards the trustee should comply with.
Tentative views on the financial reporting framework
94 Despite any merits of a single financial reporting framework for

waqf, it is not feasible under the current legal framework in
Malaysia.
95 A waqf entity that prepares or lodges financial statements under a

law administered by the Securities Commission, the Central Bank
or the Registrar of Companies shall comply with MASB approved
96 A waqf that is, or is administered by, a public sector entity would

need to comply with federal and/or state directives on financial
reporting. With regards to waqf administered by a SIRC,
participants at the Roundtable indicated they would prefer to apply
MPERS upon the withdrawal of PERS in 2016. Their reasons are:
(a) MPERS is preferable to MPSAS because the former is a
complete set of standards, while the latter has yet to
incorporate all the IPSAS.
(b) MPERS, which is meant for profit-oriented entities, may be
better suited to deal with economic activities undertaken by
some waqf, e.g. hotel business, office rentals.
However, other parties believe that a SIRC, as a state statutory
body, and the waqf under its administration should apply MPSAS
instead.
10
Jabatan Pendaftaran Pertubuhan Malaysia. Cara Menghantar Penyata Tahunan.
[web] http://www.ros.gov.my/index.php/my/ Accessed on 9 May 2014.
42
97 The current financial reporting environment in Malaysia does not

include specific standards for not-for-profit entities. Such an
entity, e.g. a registered society or a registered trustee, would need
to comply with the relevant authority’s requirements. The relevant
authorities may wish to consider standards for not-for-profit
entities in the future.
Real property
98 In Malaysia, waqf predominantly comprise real property. Most

properties are used for religious purposes. But authorities are now
more open about property substitution and about commercial use
of waqf property. This may require a mutawalli to reconsider its
current accounting policies for waqf of real property.
Real property held by an incorporated company
99 The incorporated company studied did not have waqf of real

property. Nevertheless, within a MFRS framework, waqf of real
property that is recognised as an asset may fall within one of the
following standards:
(a) MFRS 116 Property, Plant and Equipment (PPE)
For a tangible item that is held for use in the production or
supply of goods or services, for rental to others, or for
administrative purposes and is expected to be used during
more than one period; or
(b) MFRS 140 Investment Property (IP)
For property (land or a building – or part of a building – or
both) held (by the owner or by the lessee under a finance
lease) to earn rentals or for capital appreciation or both.
100 MFRS 116 requires an entity to initially measure an item of PPE at

cost and subsequently choose either the cost model or the
revaluation model.
101 MFRS 140 requires an entity to initially measure an item of IP at

cost and subsequently choose either the fair value model or the
cost model.
Real property held by a public sector entity

43
102 A waqf property in a state is usually registered in the name of the

SIRC and the SIRC has the powers of a mutawalli as provided
under state enactments. Based on the financial statements provided
by SIRCs, we found that SIRCs’ policies for waqf of real property
generally fell under one of the following:
(a) The SIRC did not recognise waqf of real property as its asset;
or
(b) The SIRC recognised waqf of real property as PPE at either:
i. nominal amount
ii. the amount spent to register the property to the SIRC;
or
iii. cost.
103 In the following paragraphs, we discuss the appropriateness of

these accounting policies in view of requirements in relevant
standards.
No recognition
104 Six of the twelve SIRCs did not recognise any waqf of real
property in their financial statements. Another two did not
recognise waqf of vacant land or ‘existing’ land (i.e. land put
under waqf before modern registration laws). Under the
Conceptual Framework for Financial Reporting, an asset is
recognised when it is probable that the future economic benefits
will flow to the entity and the asset has a cost or value that can be
measured reliably. Hence, it would be appropriate for an SIRC not
to recognise waqf of real property in its financial statements if it is
not an asset to the SIRC.
105 According to staff of the SIRCs, waqf of real property not

recognised in the financial statements were valued in their
management records as follows:
(a) No value. Four SIRCs that did not recognise any waqf
properties and both of the SIRCs that did not recognise waqf
of vacant or existing land recorded ‘no value’ for
44
management purposes. There were allegedly two reasons

why a property may be considered of ‘no value’:
i. The settlor did not provide a valuation at the time of
transfer; or
ii. The property is a mosque, cemetery or religious school.
(b) Revalued amounts. One SIRC disclosed that it carried out
revaluations of waqf property every five years and disclosed
the revalued amounts in the notes.
(c) No information. One SIRC was in the midst of compiling a
list of waqf properties in the state.
Recognition as property, plant and equipment
106 The other six SIRCs recognised at least some waqf of real property
as PPE because either the state enactment or the waqfiyyah gave
the respective SIRCs powers that they deem to constitute control
of waqf. However, measurement of the property may not accord
with either MFRS 16, MPERS or MPSAS 17 Property, Plant and
Equipment. As mentioned earlier, the properties were measured
either at a nominal amount, at the amount spent to register the
property to the SIRC, or at cost:
(a) Two recognised land at a nominal value and buildings at
cost;
(b) Two did not recognise vacant or existing land but recognised
buildings at cost;
(c) One recognised certain property at the amount spent to
register the property to the SIRC; and
(d) One recognised all waqf of real property at cost.
At nominal amount
107 Two SIRCs carried waqf of real property at a nominal value, i.e. at
RM1 or RM10 per title. The staff of one of the affected SIRCs
claimed that it recognised a waqf property as an item of PPE
because the SIRC had control and the property was held for rental
to others. But since the SIRC did not have market valuations for
the properties, it measured at a nominal amount.
45
108 Additionally, it is possible for real property acquired through a

non-monetary government grant to be measured at a nominal
amount. For example, under the alternative treatment in paragraph
23 of MFRS 120, Accounting for Government Grants and
Disclosure of Government Assistance:
A government grant may take the form of a transfer of a non-
monetary asset, such as land or other resources, for the use of
the entity. In these circumstances it is usual to assess the fair
value of the non-monetary asset and to account for both grant
and asset at that fair value. An alternative course that is
sometimes followed is to record both asset and grant at a
nominal amount.
At the amount spent to register the property to the SIRC
109 One SIRC claimed that it measured waqf of real property at cost.
However, in discussion with staff of the SIRC, it appeared that this
‘cost’ is merely capitalisation of administrative fees incurred in
registering the asset to the SIRC. This measurement may not be in
accordance with either MFRS 116 or MPSAS 17 which state:
The cost of an item of PPE is the cash price equivalent at the
recognition date. – Paragraph 23, MFRS 116.
Where an asset is acquired through a non-exchange transaction,
its cost shall be measured at its fair value as at the date of
acquisition. – Paragraph 26, MPSAS 17
Recognition as heritage asset
110 Some observers opine that waqf of real property may be a

‘heritage asset’ within the meaning of MPSAS 17. MPSAS 17
does not require an entity to recognise a heritage asset that would
otherwise meet the definition of, and recognition criteria for, PPE.
If an entity does recognise a heritage asset, it must apply the
disclosure requirements of the standard and may, but is not
required to apply the measurement requirements of the standard.
111 An asset is described as a heritage asset because of its cultural,

environmental or historical significance. The characteristics of a
heritage asset in paragraph 10 of MPSAS 17 are listed below,
46
along with discussions of whether a waqf of real property has

those characteristics:
(a) Their value in cultural, environmental, educational, and
historical terms is unlikely to be fully reflected in a financial
value based purely on a market price.
Does waqf have that characteristic?
Yes ― some waqf properties are of cultural and historical
significance. Examples include two of the oldest mosques in
Malaysia:
i. Kampung Kling Mosque, Malacca
Built in 1748, it is one of the few remaining mosques to
feature a traditional meru roof and a pagoda minaret.
ii. Kampung Laut Old Mosque, Kelantan
Dating from at least the early 18th century, it is the oldest
wooden mosque in Malaysia.
No ― if there is a practical ability or intention to use a waqf
for a commercial purpose. Some waqf properties are highly
valuable because of their advantageous location and the
mutawalli may decide to realise that value through, e.g.
substitution, sale or commercial development of the
property.
(b) Legal and/or statutory obligations may impose prohibitions

or severe restrictions on disposal by sale.
Yes ― firstly, a waqf may not be sold once it is dedicated if
state enactments do not allow it. Irrespective of the absence
of statutory provision for substitution, waqf in itself prohibits
sale of a dedicated asset. Secondly, a waqf property may be
declared a heritage property and restrictions placed on its
disposal or sale, e.g. the Kapitan Kling Mosque and Acheen
Street Mosque are located within the core UNESCO World
Heritage Site in George Town, Pulau Pinang.
No ― if state enactments allow sale or substitution of waqf
asset. For example, section 19 of the Wakaf (State of
47
Selangor) Enactment 1999 confers the following power to

the SIRC:
“The Majlis may istibdal any mawquf in the following
circumstances ―
(a) the mawquf has been acquired by any public
authority in accordance with the provisions of any
written law;
(b) the mawquf does not yield any usufruct or benefit as
intended by waqif; or
(c) if the use of the mawquf does not comply with the
purpose of the wakaf.”
In certain circumstances, the dedicated asset can be sold with
the condition that the consideration received from the sale
must be of a higher value than the existing dedicated asset.
The consideration may be cash or another asset.
(c) They are often irreplaceable and their value may increase
over time, even if their physical condition deteriorates.
Yes ― a waqf asset may be irreplaceable if it is impossible to
replicate its cultural or historical significance. For example,
Kampung Kling Mosque was deemed of such significant
cultural and historical value that the Malacca Department of
Museums and Antiquities chose to restore it instead of
demolishing the structure and erecting a new mosque.
No ― some waqf assets may not be so unique that the assets
are irreplaceable. Like most other assets, the value of a waqf
asset such as an office tower or a bazaar correlates with its
physical condition, i.e. the value decreases as the physical
condition deteriorates over time.
(d) It may be difficult to estimate their useful lives, which in

some cases could be several hundred years.
Yes ― this may be the case for land where a cemetery or a
mosque has been erected on it. Its useful life may be harder
to estimate and may be much longer compared to other types
48
of waqf asset. In addition, the perpetuity of waqf means that

its benefit or its usufruct cannot be withdrawn or revoked,
making the determination of useful life harder.
No ― like other tangible assets, the useful lives of most waqf
assets can be reliably estimated. In its accounting manual,
JAWHAR provides guidance on the useful lives of typical
waqf assets. For example, a building is estimated to have a
useful life of 50 years with annual depreciation rate of 2%.
The useful life of a waqf of leasehold land is generally the
term of the lease.
112 MPSAS 17 does, however, acknowledge that a heritage asset may

have future economic benefits or service potential other than its
heritage value, for example, a historic building being used for
office accommodation. In this case, it may be recognised and
measured on the same basis as other items of property, plant, and
equipment.
113 It is interesting to note that in contrast to MPSAS 17, UK

Financial Reporting Standard (FRS) 30, Heritage Assets, is
stronger in encouraging recognition and measurement of heritage
assets. Paragraph 18 of UK FRS 30 states:
An entity should report heritage assets as tangible fixed assets
and recognise and measure these assets in accordance with [UK]
FRS 15 ‘Tangible fixed assets’, subject to the requirements set
out in paragraphs 19 to 25 below.
The referred paragraphs provide “relaxations” from recognition if
information on their cost or value is not available, and cannot be
obtained at a cost which is commensurate with the benefits to
users of the financial statements. However, the disclosures
required by this standard should be made.
Recognition as investment property
114 It may be necessary classify a waqf of real property as investment

property if it is held to earn rentals or for capital appreciation,
given that a SIRC may be able to develop, sell or substitute a
property for a gain. Depending on the applicable framework,
MPSAS 16, Investment Property, or MPERS Section 16,
Investment Property, may apply.
49
115 Under both MPSAS and MPERS, an investment property shall be

measured initially at its cost. Paragraph 27 of MPSAS further
clarifies that where an investment property is acquired through a
non-exchange transaction, its cost shall be measured at its fair
value as at the date of acquisition.
116 For subsequent measurement, paragraph 39 of MPSAS 16 allows

an entity to choose as its accounting policy either the fair value
model or the cost model. Even if an entity chooses subsequent
measurement at cost, paragraph 90 requires disclosure of the fair
value of investment property subject to the following:
In the exceptional cases described in paragraph 62, when an
entity cannot determine the fair value of the investment property
reliably, the entity shall disclose:
(i) A description of the investment property;
(ii) An explanation of why fair value cannot be determined
reliably; and
(iii) If possible, the range of estimates within which fair value is
highly likely to lie.
117 Under MPERS Section 16.7, there is no choice. Subsequent

measurement must be at fair value, if fair value can be measured
reliably without undue cost or effort. Otherwise, measurement is at
cost less depreciation and impairment.
118 Traditionally, specific waqf was not used in a manner other than
that prescribed by the settlor. For instance, if the settlor prescribed
for his/her waqf to be developed for a mosque, it was usually used
exclusively for that purpose.
119 In recent times, however, specific waqf for mosques have been
developed into commercial property. For example, a waqf on Jalan
Perak in Kuala Lumpur was turned into an office tower, albeit
with some floor space retained as a mosque to comply with the
settlor’s wishes. The building was developed on a build-operate-
transfer basis at an estimated cost of RM151 million. Yet, under
current practices, the value of this property is neither captured in
separate financial statements for the waqf nor disclosed in the
SIRC’s financial statements.
50
120 The ability to use specific waqf for commercial purposes should be
given due consideration in classifying waqf of real property. There
are already several instances of commercial development of
specific waqf and many more may be expected. It should be noted
that both JAWHAR and the national waqf foundation it
established, Yayasan Wakaf Malaysia (YWM), have been
allocated at least RM329.16 million to assist SIRCs in developing
waqf property.
Does waqf of leasehold property transfer its freehold to the SIRC?
121 Although the original waqf by sahabah were waqf of real property
into perpetuity, scholars have ruled that it is permissible to waqf an
item that has a finite life. For example, in 2004 the National Fatwa
Council (Jawatankuasa Fatwa Majlis Kebangsaan Bagi Hal
Ehwal Ugama Islam) ruled that waqf of leasehold property is valid
and acceptable under shariah.
122 The National Fatwa Council further concluded that waqf of a

leasehold property transfers the freehold to the SIRC. The fatwa
may be translated as follows:
Any waqf of leasehold land that is in accordance with stated
procedure and is accepted by the baitulmal to which it was
given, will change its status at the hands of the baitulmal to
freehold in accordance with the clear exception given in Section
4(2) of the National Land Code (Act 56 of 1965). Therefore,
Muslims are encouraged to waqf leasehold asset for this noble
objective and continuing amal jariah.11
123 The ‘exception’ in the pertinent part of section 4(2) of the National
Land Code reads:
Except in so far as it is expressly provided to the contrary,
nothing in this Act shall affect the provisions of… (e) any law
for the time being in force relating to wakaf or bait-ul-mal …
11
Jawatankuasa Fatwa Kebangsaan. (2009). Hukum Wakaf bagi Tanah Bertaraf
Hak Milik Terhad. Himpunan Keputusan Muzakarah Jawatankuasa Fatwa
Kebangsaan: Berhubung dengan Isu-isu Muamalat. JAKIM. [web] http://www.e-
fatwa.gov.my/fatwa-kebangsaan/hukum-wakaf-bagi-tanah-bertaraf-hak-milik-
terhad Accessed 2 May 2014.
51
and, in the absence of express provision to the contrary, if any

provision of this Act is inconsistent with any provision of any
such law, the latter provision shall prevail, and the former
provision shall, to the extent of the inconsistency, be void.
124 Nevertheless, a fatwa is an opinion and is not enforceable unless

passed into legislation. Hence, it is unclear whether waqf of
leasehold property reverts to the government upon expiry – as is
customary in other cases – or transfers the freehold into the
administration of the SIRC.
125 If waqf of a leasehold property transfers the freehold to the SIRC,

it may be that the leasehold property has assumed an indefinite
useful life for the SIRC’s accounting purposes.
Tentative views on accounting for real property
126 In general, a waqf may classify real property as:

(a) property, plant and equipment;
(b) investment property; or
(c) heritage asset
depending on the criteria met in the appropriate framework.
127 Participants at the Roundtable indicated that they would prefer

SIRCs and the waqf under their administration to apply MPERS
with the withdrawal of PERS in 2016. This would mean
compliance with MPERS requirements for real property, primarily
Section 16, Investment Property, and Section 17, Property, Plant
and Equipment.
128 The Board would like to emphasise several aspects of reporting

real property under MPERS:
(a) Cost is the cash price equivalent or fair value at initial
recognition.
‘Cost’ is not merely the amount of administrative fees
incurred in registering the property in the SIRC’s name. A
property has a cash equivalent or fair value even if it was
transferred to the SIRC for no consideration.
52
 Investment property must be at fair value, unless there is

undue cost and effort to do so.
Establishing fair value is important. The National Fatwa
Council allows a specific waqf to be developed for a
commercial purpose. For example, mosque grounds may be
developed to include retail spaces for petty traders or a high-
rise office tower. Therefore, it is desirable to obtain
valuation, even for specific waqf properties such as mosques.
 Property, plant and equipment must be subsequently
measured at cost.
MPERS requires PPE to be carried at cost less depreciation
and impairment. It does not allow the revaluation model for
measurement.
 There is no provision for heritage assets.
MPERS does not have a provision for items of heritage
assets. Nevertheless, MPERS Section 10, Accounting
Policies, Estimates and Errors, allows an entity’s
management to use its judgement in developing and applying
an accounting policy if MPERS does not specifically address
a transaction, other event or condition.
129 Some argue that it is difficult to establish the fair value of real
property because the cost of a professional valuation is
prohibitively expensive. The argument is rebuttable. A
professional valuation is not the only determinant of fair value.
MFRS 13 Fair Value Measurement provides a hierarchy in
determining fair value that categorises inputs to valuation into
three levels in order of priority:
 Level 1 inputs: Quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity
can access at the measurement date.
 Level 2 inputs: Inputs other than quoted prices included
within Level 1 that are observable for the asset or
liability, either directly or indirectly.
 Level 3 inputs: Unobservable inputs for the asset or
liability.
53
130 The Board suggests that SIRCs may wish to enlist the assistance
of the Valuation and Property Services Department (Jabatan
Penilaian dan Perkhidmatan Harta or JPPH) of the Ministry of
Finance. According to its website:
JPPH advises the Federal Government, State Government,
Statutory Body and Local Authority in Malaysia on matters
relating to the valuation of real estate and property services. 12
Nevertheless, even without quoted market prices, a SIRC may use
Level 2 or Level 3 inputs to determine fair value.
Financial assets
131 The second most important type of waqf asset is financial assets.
Most are cash or cash-based funds, or shares in quoted and
unquoted entities.
132 Waqf of shares may be in the form of either a direct dedication of

the shares or a dedication of the dividends on the shares. In the
former, the settlor’s shareholding is reduced by the shares
dedicated. In the latter, the settlor’s shareholding does not change.
Financial assets held by an incorporated company
133 The current MFRS 139 defines a financial asset as a contractual

right to receive cash or other financial assets. It further classifies
financial assets into the following four categories:
(a) financial assets at fair value through profit or loss;
(b) held-to-maturity investments;
(c) loans and receivables; and
(d) available-for-sale financial assets.
134 An entity must recognise a financial asset at its fair value on initial
recognition. After initial recognition, an entity shall measure
12
Valuation and Property Services Department, Ministry of Finance
http://www.jpph.gov.my/V2/index3service.php?versi=1&no_khidmat=2&no_item=
1 Accessed 16 June 2014.
54
financial assets at fair value through profit and loss and available-
for-sale financial assets at their fair values with:
(a) a gain or loss on a financial asset classified as at fair value
through profit or loss shall be recognised in profit or loss.
(b) a gain or loss on an available-for-sale financial asset shall be
recognised in other comprehensive income.
135 The following are not subsequently measured at fair value:
(a) loans and receivables, which shall be measured at amortised
cost using the effective interest method;
(b) held-to-maturity investments, which shall be measured at
amortised cost using the effective interest method; and
(c) investments in equity instruments that do not have a quoted
market price in an active market and whose fair value cannot
be reliably measured, which shall be measured at cost.
136 In future, MFRS 9, Financial Instruments, will eliminate the four

categories of financial assets. A financial asset shall be measured
at fair value unless it is measured at amortised cost. A financial
asset shall be measured at amortised cost if both of the following
conditions are met:
(a) The asset is held within a business model whose objective is
to hold assets in order to collect contractual cash flows.
(b) The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
137 MFRS 139 and MFRS 9, however, do not apply to equity

instruments that give the reporting entity control, significant
influence or joint control over another entity. If one of these three
is present, the entity accounts for a subsidiary, an associate or a
joint venture, respectively. These are dealt with in their respective
138 The assets of the incorporated company in this study comprised

mostly waqf of shares in quoted entities measured at fair value. It
also reported waqf of shares in unquoted entities measured at cost.
Even though the shares in unquoted entities represented
shareholdings of 61% to 75%, the company reported them as
55
equity instruments at cost in accordance with MFRS 139 and not

as subsidiaries under the then-extant MFRS 127, Consolidated and
Separate Financial Statements. The company stated that it did not
have power to govern the financial and operational policies of the
unquoted entities.
Financial assets held by a public sector entity
139 Waqf of financial assets administered by a SIRC mainly comprise

cash, with some investments in equity instruments that are
measured at cost.
140 If waqf were to report under MPERS, the following recognition
and measurement principles for financial instruments would apply:
 Section 11, Basic Financial Instruments; and
 Section 12, Other Financial Instruments Issues.
141 Waqf of shares administered by SIRCs are mostly non-puttable

ordinary shares under Section 11.5 and 11.8. Section 11 requires
an entity to measure financial assets initially at transaction price
and subsequently at amortised cost, while Section 12 requires
financial assets that fall within its scope to be subsequently
measured at fair value with changes in fair value recognised in
profit or loss.
142 As there are plans for state government entities to apply MPSAS,
it may be useful to consider how waqf may treat financial
instruments in future. MPSAS does not currently include standards
on financial instruments. However, it is foreseen that MPSAS will
eventually adopt the full set of IPSAS. IPSAS include the
following standards on financial instruments:
(a) IPSAS 28, Financial Instruments: Presentation
(b) IPSAS 29, Financial Instruments: Recognition and
Measurement; and
(c) IPSAS 30, Financial Instruments: Disclosures
The standards draw primarily from IAS 32, IAS 39 and IFRS 7,
respectively.
56
143 It may also be possible for waqf of shares to constitute investment

in subsidiaries, associates or joint ventures. Under MPERS, this
should be treated in accordance with Section 9 Consolidated and
Separate Financial Statements, Section 14 Investments in
Associates or Section 15 Investments in Joint Ventures.
Tentative views on accounting for financial assets
144 Moving forward, SIRCs and waqf would need to consider the
provisions of MPERS or IPSAS on accounting for financial assets,
depending on the standards complied for the financial statements.
The latter will be relevant if SIRCs are to comply with MPSAS.
Liabilities and provisions
145 In some cases, a settlor may transfer a waqf – for example, a

mosque or cemetery – to a mutawalli without an identifiable
source of funds to maintain the waqf. Regardless, the mutawalli
has an obligation to realise the objectives of the waqf as prescribed
by the settlor. Hence, the mutawalli may need to recognise a
liability or provision for expected outflows of economic resources.
As a corollary, the financial statements of the waqf would need to
reflect that it is dependent on the mutawalli to continue in
operation.
146 Under an MFRS framework, if a mutawalli has a contractual

obligation to deliver cash or another financial asset to another
entity, it would have a financial liability under MFRS 139. MFRS
139 requires a financial liability to be initially measured at fair
value. Subsequently, most financial liabilities are measured at
amortised cost except for a few which need to be carried at fair
value through profit or loss.
147 However, a mutawalli’s obligation may not be a financial liability

under MFRS 139. The mutawalli usually has an obligation to
provide services or benefits for the betterment of ummah, and not
a contractual obligation to deliver cash or another financial asset to
another entity. For example, by maintaining a mosque, a mutawalli
is not delivering cash or financial assets to another entity, but
providing the usufruct of a mosque to the community.
57
148 Therefore, the mutawalli may have a liability that falls under
MFRS 137, Provisions, Contingent Liabilities and Contingent
Assets. MFRS 137 defines a liability as a present obligation of an
entity arising from past events of which the settlement is expected
to result in outflow of economic resources. An entity may need to
make the best estimate of the probable cash outflow to settle an
obligation and recognise that as a liability.
149 Most SIRCs do not recognise a liability or provision for amounts it

is expected to spend on a waqf, e.g. repairs, maintenance and
operational costs. These are recognised as expenses as and when
incurred.
Income recognition
150 A few SIRCs recognise a principal cash contribution as income to

the SIRC. Returns from investing the cash contribution, e.g.
dividends or hibah, would also be recognised as the SIRC’s
income. Staff of a SIRC explained that the SIRC would recognise
both the principal cash contribution and the returns thereon as
income if the settlor did not stipulate how the cash was to be used,
i.e. it is a general waqf, and the SIRC had sole discretion on how
to use the cash.
Tentative views on income recognition
151 When a settlor contributes a principal cash amount to a waqf, the

principal and returns thereon can be used only for the waqf’s
objective, purpose or use. The mutawalli may have sole discretion
on how to use the cash, but the use must nevertheless be wholly
and solely the waqf. The mutawalli may not, for example, use cash
waqf to meet its own operating expenses. In short, the principal
cash contribution and the returns thereon increase the future
economic benefit of the waqf rather than its mutawalli. Hence, it is
the waqf that should recognise income if recognition criteria are
met. For example, the IASB Conceptual Framework for Financial
Reporting states:
Income is recognised in the income statement when an increase
in future economic benefits related to an increase in an asset or a
decrease of a liability has arisen that can be measured reliably.
58
The mutawalli may of course recognise as income any fee or

profit-share to which it is entitled and which meets the criteria for
recognition of income.
Government grants and government assistance
152 MASB approved accounting standards on government grants are

MFRS 120, Accounting for Government Grants and Disclosure of
Government Assistance and MPERS Section 24, Government
Grants.
153 MPSAS does not have an equivalent standard. Instead, the matter
of government grants and government assistance may be dealt
under MPSAS 23, Revenue from Non-Exchange Transactions
(Taxes and Transfers).
Comparison of requirements in MFRS, MPERS and MPSAS
154 There are differences between MFRS and MPSAS in accounting

for government grants. For example, under paragraphs 44 and 45
of MPSAS 23, an unconditional grant may be recognised in full as
revenue when received, with no deferral:
An inflow of resources from a non-exchange transaction
recognized as an asset shall be recognized as revenue, except to
the extent that a liability is also recognized in respect of the
same inflow.
As an entity satisfies a present obligation recognized as a
liability in respect of an inflow of resources from a non-
exchange transaction recognized as an asset, it shall reduce the
carrying amount of the liability recognized and recognize an
amount of revenue equal to that reduction.
This requirement is somewhat similar to paragraph 24.4 of
MPERS Section 24:
An entity shall recognise government grants as follows:
(a) A grant that does not impose specified future performance
conditions on the recipient is recognised in income when
the grant proceeds are receivable.
59
155 In contrast, under paragraph 12 of MFRS 120, such a grant would

likely be deferred and recognised in revenue over a period that
matches the related costs:
Government grants shall be recognised in profit or loss on a
systematic basis over the periods in which the entity recognises
as expenses the related costs for which the grants are intended to
compensate.
Presentation of grants related to assets
156 It appears that several SIRCs have received some form of grant or
assistance from JAWHAR and/or YWM to build commercial
assets, e.g. hotels and retail spaces, on waqf land. However, the
Board is unable to ascertain the amount and terms and conditions
of the grant or assistance, or the progress of the assets constructed.
157 With regards to grants related to assets, paragraph 24 of MFRS

120 states:
Government grants related to assets, including non-monetary
grants at fair value, shall be presented in the statement of
financial position either by setting up the grant as deferred
income or by deducting the grant in arriving at the carrying
amount of the asset.
158 For a non-monetary grant such as land or other resources,
paragraph 23 allows an entity to record both asset and grant at a
nominal amount, as an alternative treatment to measurement at fair
value.
Tentative views on government grants and government assistance
159 Few SIRCs that received a grant from JAWHAR and/or YWM
recognised an asset and a grant. Even those that did provided little
information – for example, a SIRC included in its note to PPE a
statement which may be translated:
Included in the SIRC’s buildings is a grant of waqf hotel(s) from
JAWHAR totalling RM18,800,000.
It is unclear whether the hotel(s) is a completed building or a
work-in-progress, or whether the amount represents cost or fair
value. There were no further notes on the grant.
60
160 The Board suggests that preparers recognise government grants

and government assistance and provide disclosures as required by
the relevant standard.
Disclosures
161 There is information on waqf that may be appropriate to disclose

in the notes. However, it is impossible for the Board to anticipate
an exhaustive list of information that users would require. Hence,
the suggested disclosures in this section are merely examples that
preparers may wish to consider including in their financial
statements.
Operating segments
162 MPERS and MPSAS issued to date do not address presentation of

segment information. However, guidance may be found in MFRS
8, Operating Segments, or IPSAS 18, Segment Reporting. It
should be noted that IPSAS 18 is based on the now-withdrawn
IAS 14, Segment Reporting.
163 The core principle in MFRS 8, Operating Segments, is that an

entity shall disclose information to enable users to evaluate the
nature and financial effects of the business activities in which it
engages and the economic environments in which it operates.
164 The objective of IPSAS 18 is to establish principles for reporting

financial information by segments. The disclosure of this
information will:
(a) Help users of the financial statements to better understand the
entity’s past performance, and to identify the resources
allocated to support the major activities of the entity; and
(b) Enhance the transparency of financial reporting and enable the
entity to better discharge its accountability obligations.
165 MFRS 8 defines an operating segment as a component of an entity

that engages in business activities from which it may earn
revenues and incur expenses. IPSAS 18’s definition, however,
may be suitable for segment reporting by a waqf. It defines an
operating segment as:
61
A distinguishable activity or group of activities of an entity for

which it is appropriate to separately report financial information
for the purpose of
(a) evaluating the entity’s past performance in achieving its
objectives, and
(b) making decisions about the future allocation of resources.
166 Currently, most SIRCs classify waqf as either ‘specific waqf’ or

‘general waqf’ as these are the classifications mentioned in state
enactments. In the former, the settlor has stipulated that the waqf is
to be used for a specific purpose, e.g. a mosque, a school, etc. In
the latter, the use is not specified. Charity accounting standards in
some jurisdictions similarly require a charity to make a distinction
between a ‘restricted fund’ and an ‘unrestricted fund’.
167 Drawing upon the objective and definition in IPSAS 18, it may be
more useful in segmental reporting to classify waqf based on its
activities, rather than on its settlor’s intentions. That is to say, waqf
may instead be classified as either income generating or non-
income generating, with further sub-classifications as necessary.
This classification may help financial planners, accountants and
others to adopt the appropriate approach to a waqf based on its
income generating capacity.13
168 As noted in earlier sections, even a specific waqf may be

commercially developed provided that some part of the asset is
retained to fulfil the settlor’s original intentions. The income-
generating asset may be further sub-classified into the type of
operations, e.g. office, hotel, retail space.
Disclosures on real property
169 With regards to real property, preparers may wish to consider the
following disclosures:
(a) Details of real property administered
(b) Fair value information; and
(c) Administrative fees.
13
MTS Mohammad, ibid. p. 2.
62
Details of real property administered
170 Academic writings on waqf bemoan that details of the real

property, such as their location and size, are not included in the
financial statements. They posit that this information is relevant to
assess the reasonableness of the carrying amounts of real property
and to assess the SIRCs’ efficiency in managing the assets.
171 It is noted that state enactments require SIRCs to publish the list of
waqf assets in the state Gazette. For example, Section 68 of the
Administration Of Islamic Law (Federal Territories) Act 1993
states:
As soon as possible after the 31st December in every year the
Majlis shall prepare, issue and publish in the Gazette a list of all
properties, investments and assets vested in the Majlis subject to
any trust, wakaf or nazr, and not forming part of the Fund.
172 Since the information is already prepared, it may easily be
included in the financial statements without much cost and may
more easily reach the stakeholder at large.
Fair value information
173 SIRCs that include waqf in their financial statements usually

disclose amounts attributable to waqf. For example, the amount of
waqf land may be disclosed in the notes on PPE. However, as
discussed earlier, these disclosures rarely include information on
fair value.
174 This may be because most SIRCs classify real property as PPE.
Under paragraph 79 of MFRS 116, when the cost model is used,
an entity is encouraged, but not required, to disclose the fair value
of PPE when this is materially different from the carrying amount.
175 Nevertheless, given that a SIRC’s primary responsibility towards

waqf is managing its real property; it may be presumed that fair
value information is a key source in management decision-making
and therefore of importance to users.
Administrative fees
63
176 Some mutawalli charge a fee for administering waqf property. The
policy of charging administrative fees and the amount of fees paid
is not always evident from the financial statements. Preparers may
wish to present rental income and administrative fees separately
and disclose the fee policy in the notes.
Disclosures on government grants and government assistance
177 Disclosures on government grants and government assistance in

MASB approved accounting standards are as follows:
(a) Paragraph 39 of MFRS 120 provides that the following
matters shall be disclosed:
(a) the accounting policy adopted for government grants,
including the methods of presentation adopted in the
financial statements;
(b) the nature and extent of government grants recognised in
the financial statements and an indication of other forms
of government assistance from which the entity has
directly benefited; and
(c) unfulfilled conditions and other contingencies attaching
to government assistance that has been recognised.
 MPERS section 24.6 requires that an entity shall disclose the
following about government grants:
(a) the nature and amounts of government grants recognised
in the financial statements.
(b) unfulfilled conditions and other contingencies attaching
to government grants that have not been recognised in
income.
(c) an indication of other forms of government assistance
from which the entity has directly benefited.
178 Within an MPSAS framework, paragraph 107 of MPSAS 23 may

apply, in which case, an entity shall disclose in the notes to the
general purpose financial statements:
(a) The accounting policies adopted for the recognition of
revenue from non-exchange transactions;
64
(b) For major classes of revenue from non-exchange transactions,

the basis on which the fair value of inflowing resources was
measured;
(c) For major classes of taxation revenue that the entity cannot
measure reliably during the period in which the taxable event
occurs, information about the nature of the tax; and
(d) The nature and type of major classes of bequests, gifts, and
donations, showing separately major classes of goods in-kind
received.
179 Preparers may wish to consider the above disclosures with regards
to grants and assistance given by government agencies to waqf.
Disclosures recommended by the National Audit Department
180 Other than the requirements in accounting standards, preparers of

waqf financial statements may also consider disclosure
requirements in other pronouncements.
181 In 2003, the National Audit Department developed a set of

accounting best practices for Islamic religious councils called
Amalan Terbaik Pengurusan Kewangan Bagi Majlis Agama Islam
Negeri.
182 The guidelines require a SIRC to present details on waqf

properties in the notes to SIRCs’ financial statements. Details to
be included include:
(a) type of waqf
(b) date of registration
(c) quantity of waqf assets
(d) assets’ reference number
(e) estimated assets’ market value
183 Additionally, the guidelines also require a SIRC to present a

separate income statement of waqf, as well as to consolidate waqf
with the SIRCs’ results.
Disclosures for charities and not-for-profit entities

65
184 Regardless of the legal form a waqf takes, it is generally perceived

to be a charity or a not-for-profit entity. Users of waqf financial
statements may require additional information not usually found in
for-profit financial statements, or non-profit measures of a waqf’s
efficiency. These include the ratios of fund raising costs to funds
raised, net surpluses from fundraising to total funds raised, total
costs of services provided to total costs, and total cost of services
to gross income received. Hence, a waqf may better serve users’
needs by applying disclosure requirements found in standards for
charities and not-for-profit entities.
Access to financial statements
185 The term ‘transparency’ encompasses a wide range of qualities. It

may imply accountability, willingness to communicate and the
absence of secrecy. The determination of whether an entity is
transparent may be subjective and may depend on an assessment
of multiple factors. In this section, we focus on ease of public
access to financial statements as a measure of transparency.
Access to financial statements of an incorporated company
186 Section 165 of the Companies Act 1965 requires a company

having a share capital to lodge with the Registrar of Companies
annual returns as prescribed by the Eighth Schedule. The Eighth
Schedule states that the return must include a copy of the last
balance sheet and of the last profit and loss account which have
respectively been audited by the company’s auditors.
187 The Act further provides that any person may inspect any
document filed or lodged with the Registrar. Section 11(2) reads:
Any person may, on payment of the prescribed fee —
(a) inspect any document filed or lodged with the Registrar not
being a document that has been destroyed or otherwise
disposed of under subsection (11);
(b) require a certificate of the incorporation of any company or
any other certificate issued under this Act; or
(c) require a copy or extract from any document that he is
entitled to inspect pursuant to paragraph (a) or any
66
certificate referred to in paragraph (b) to be given or given

and certified by the Registrar.
188 Therefore, it is relatively easy for the public to access information

on waqf administered by an incorporated company.
Access to financial statements of a public sector entity
189 Government transparency is based on the concept that the

proceedings of a government are subject to public scrutiny.
Demands for transparency have led governments in more
developed countries to implement policies that allow public access
to information about the government and its activities.
190 For example, the US Freedom of Information Act (FOIA) enacted

in 1966 provides that any person has a right, enforceable in court,
to obtain access to federal agency records, except to the extent that
such records (or portions of them) are protected from public
disclosure by one of nine exemptions or by one of three special
law enforcement record exclusions. A FOIA request can be made
for any agency record.14
191 The UK government is encouraging an even more proactive

approach to open data. In 2010, Prime Minister David Cameron
instructed all government departments “to become more
transparent and open, by releasing data on finance, resources and
procurement in an open, regular and re-usable format”. He
established the Public Sector Transparency Board to set data
standards, encourage the release of more government data, and
provide guidance through a set of shared public data principles.
The initiative is financially supported by the Release of Data Fund
to speed up open data.15
192 In Malaysia, there is arguably lesser access to government data.

Firstly, with regards to waqf, the state enactments which
14
What is FOIA? United States Department of Justice. [web]
http://www.foia.gov/about.html Accessed 7 May 2014.
15
Improving the Transparency and Accountability of Government and its Services.
UK Government. [web] https://www.gov.uk/government/policies/improving-the-
transparency-and-accountability-of-government-and-its-services Accessed on 7
May 2014.
67
established the SIRCs do not require them to publish financial

statements or to provide copies when requested by the public.
Secondly, there appears to be unwillingness on the part of the civil
service to release government information – observers opine that
this may be due to apprehension about potential breach of law,
notably, the Official Secrets Act 1972.
Access to financial statements of a registered society
193 Entities that receive and utilize funds for public benefit may be
deemed to have a responsibility to its benefactors and contributors,
its beneficiaries, the government and other stakeholders. Hence, in
some countries, legislation may require a not-for-profit entity to
prepare financial statements and to make them available to a wide
range of users.
194 For example, the UK Charities Act 2011 ensures that the public
can access a charity’s documents. Sections 170 and 171 of the Act
state:
170 Public inspection of annual reports etc. kept by Commission

Any document kept by the Commission in pursuance of
section 165(1) (preservation of annual reports etc.) must be
open to public inspection at all reasonable times—
(a) during the period for which it is so kept, or
(b) if the Commission so determines, during such lesser
period as it may specify.
171 Supply by charity trustees of copy of most recent annual
report
(1) This section applies if an annual report has been
prepared in respect of any financial year of a charity in
pursuance of section 162(1) or 168(3).
(2) If the charity trustees of a charity—
(a) are requested in writing by any person to provide
that person with a copy of its most recent annual
report, and
68
(b) are paid by that person such reasonable fee (if any)
as they may require in respect of the costs of
complying with the request,
they must comply with the request within the period of
2 months beginning with the date on which it is made.
195 Section 173 of the UK Charities Act 2011 provides that failure to
supply documents is an offence. It further prescribes fines upon
summary conviction.
196 Conversely, in Malaysia, members of the public are restricted by

the Societies Act 1966 from accessing the accounts of a registered
society. The Board is aware of at least two registered societies that
solicit and administer waqf funds. Unfortunately, we were unable
to obtain copies of their financial statements. Section 10(2) of the
Societies Act 1966 states:
No person, other than a person whom the Registrar or Assistant
Registrar is satisfied to be a member of a society, shall inspect
or obtain from the Registrar or Assistant Registrar the accounts
of such society or a copy thereof.
197 The Societies Act 1966 does provide for the right to a supply of
copies of a registered society's annual returns. However, the
registered society is only required to supply annual returns to a
member, a subscriber or 'a person having an interest in its funds'.
Section 29 reads:
Every registered society shall supply free of charge to every
member or subscriber or person having an interest in its funds
on his application either—
(a) a copy of the last annual return of the society; or
(b) a balance sheet or other document duly audited containing
the same particulars as to the receipt and expenditure, funds
and effects of the society as are contained in the annual
return.
198 The Societies Act does not elaborate who would qualify as 'a
person having an interest in its funds'. Given MASB staff’s
unsuccessful attempt, it may be that the term is limited to a person
with a direct financial stake and may exclude persons expressing
69
general curiosity about the society. Contrast this with the

requirement in the UK Charities Act for a charity to make its
annual reports available to 'any person'.
Access to financial statements of a registered trustee
199 The Trustee (Incorporation) Act 1952 allows relatively more open
access to the financial statements of a trustee. ‘All persons’ may
inspect the accounts, and ‘any person’ may require a copy of the
accounts. Section 15(3) reads:
The accounts prescribed under subsection (2) shall be certified
under the hand of one or more of the said trustees or of the said
trustee and shall be audited by the auditor of the said body or
association, if any, and the said trustees shall within fourteen
days after the day appointed for making out the said accounts
deliver or transmit a copy thereof to the Minister and every such
copy shall be open to inspection of all persons at all reasonable
hours, subject to such regulations as the Minister may see fit to
make, and any person may require a copy of every such account,
or of any part thereof, on paying therefor such fee as the
Minister may prescribe.
Tentative views on access to financial statements
200 Since Independence, Malaysians have become more educated and

affluent. Despite the increase in wealth, the institution of waqf has
not prospered correspondingly. While there are many reasons for
this, anecdotal evidence suggests that lack of transparency may be
a contributing factor.
201 A prevalent belief among Muslims is that a donor must presume a

recipient is acting bona fide and should not question what the
recipient does with the donation. But a more educated population
would demand better information in making their gifting
decisions. Potential benefactors may be more aware of the concept
of ‘strategic philanthropy’ which draws a distinction between
‘expressive giving’ and ‘instrumental giving’. 16
16
Frumkin, Peter (2006) Strategic Giving: The Art and Science of Philanthropy.
University of Chicago Press.
70
202 In expressive giving, the donor gives out of a sense of spirituality,

moral obligation or sympathy, and his or her involvement in a
cause ends there. In instrumental giving, the donor continues to
monitor and to be actively involved in the cause beyond the act of
gifting. The donor’s continued involvement does not mean he or
she doubts the recipient’s sincerity, but wants to ensure that his or
her gift is instrumental in delivering results and in meeting set
objectives.
203 Many state zakat agencies regularly provide financial and other
information on the zakat agency’s activities to their contributors –
a few even post them on their websites. In comparison, the public
has limited access to financial and non-financial information about
SIRCs’ waqf activities.
204 More potential benefactors may be persuaded to contribute to waqf

if they are provided with high quality financial and non-financial
information that evidences that institution’s ability to optimise the
assets entrusted to it and to meet the set objectives. The Board
suggests that authorities may wish to consider improving
transparency in the development of waqf.
Determining and enforcing accounting standards
MASB’s limitations
205 Undoubtedly, there is a need to improve the financial reporting of

waqf in Malaysia. Unfortunately, the functions of the Board are
limited to the Financial Reporting Act 1997. As stated in Section
7(1) of the Act:
There is established a body by the name of the “Malaysian
Accounting Standards Board” as the standard-setting body of
the Foundation whose functions shall be the determination and
issuance of accounting standards for the preparation of
financial statements, which are required to be prepared or
lodged under any law administered by the Securities
Commission, the Central Bank or the Registrar of Companies.
206 Hence, the Board has no authority to determine the financial

reporting of waqf that do not lodge financial statements with the
Securities Commission, the Central Bank or the Registrar of
71
Companies. It would be exceeding its powers under the Act by

doing so.
Other authorities
207 The Board noted that other authorities may be in a better position
to address financial reporting for waqf. For example:
(a) JAWHAR – As the federal body overseeing waqf activities
in the country, JAWHAR may be able to persuade the
respective states on matters of financial reporting. The Board
noted that JAWHAR had in the past issued a manual on waqf
accounting that was generally well-accepted by the SIRCs.
(b) The Accountant General – The Accountant General is
mandated to determine the accounting standards for federal
government bodies, agencies and statutory bodies, and holds
considerable influence over accounting by state entities.
(c) The National Audit Department – All SIRCs are audited by
state audit departments which report to the National Audit
Department. SIRCs have indicated that they do apply state
auditors’ recommendations in their financial reporting.
(d) The Conference of Rulers (Majlis Raja-Raja) – Nine of the
fourteen SIRCs are reportable to their respective Sultan on
matters of the religion of Islam, which includes waqf. Hence,
a decision of the Conference of Rulers may be binding in
these nine states.
208 The Board has listed the above authorities as possible candidates to
champion the cause of waqf accounting. It is not the Board’s
intention to insinuate that the responsibility should fall on any of
them.
Tentative views on determining and enforcing accounting standards
209 The Board hopes the recommendations in this Research Paper will
be useful to the authorities empowered to determine and enforce
accounting standards for waqf outside the scope of the Act.
72
Appendix A
Explanations of terms used

The following explanations are intended to serve as a guide and may not
necessarily capture the complexities of the terms. The translations are
literal renditions that may not necessarily convey the nuances behind the
Arabic terms.
awqaf Plural of waqf.

baitulmal An institution that acts as a treasury in a
(lit. house of wealth) Muslim state or for a Muslim community.
fatwa A juristic opinion.
hadith A saying of Prophet Muhammad (peace be
upon him).
hibah A gift.
ibdal Sale of a waqf asset which leads to
discontinuance of the waqf.
istibdal Substitution of an asset for another asset.
mawquf An asset that is dedicated to a waqf.
mawquf alaih A beneficiary of a waqf.
mutawalli A person appointed to undertake
responsibilities similar to a trustee,
administrator and manager.
sahabah (plural) 1. Muslims who met Prophet Muhammad
(peace be upon him), embraced the religion of
Islam and remained Muslims until their death
(in Islamic jurisprudence); 2. Companions (in
colloquial usage).
ulama (plural) Muslim scholars.
ummah A community or a nation.

waqf The dedication of an asset into perpetuity, in
accordance with Islamic law, for a religious or
73
charitable purpose or for named beneficiaries.

waqif A person who dedicates an asset to a waqf; a
settlor.
waqfiyyah A legal instrument to establish a waqf.
zakat An obligatory contribution assessed based on
certain assets owned by a Muslim that satisfy
certain conditions and is to be distributed to
specified categories of beneficiaries.
74
Appendix B
An overview of waqf
In early Islamic history
B1 Waqf is not specifically mentioned in the Quran, but was

established in Islamic jurisprudence through sunnah and hadith.
The earliest waqf during the lifetime of Prophet Muhammad
(peace be upon him) were religious waqf such as the original Al-
Quba’ Mosque in Medina. It was built at the time of the hijrah in
622.
B2 Philanthropic waqf emerged based on incidences during the

Prophet’s lifetime. As drinking water in Madinah was scarce and
sold at high prices, Uthman (may Allah be pleased with him), a
sahabah and the third caliph, bought a well so that the ummah
could access free water. A narration about the incident reads:
Uthman said that the Prophet (may Allah bless him and
grant him peace) said ‘Who will buy the well of Ruma,
letting his own bucket in it have exactly the same status as
the bucket of any other Muslim?’ Uthman bought it.17
B3 Another hadith concerns a date farm acquired by Umar (may

Allah be pleased with him), also a sahabah and the second caliph.
Among the various narrations of the incident are these two:
Ibn Umar reported: Umar acquired land at Khaybar. He
came to Allah’s Prophet (peace be upon him) and sought
his advice regarding it. He said, “Allah’s Messenger, I
have acquired land in Khaybar. I have never acquired
property more valuable than this. What do you command
me to do with it?” Thereupon, Allah’s Prophet said, “If
you like, you may keep the corpus intact and give its
fruits as sadaqah.” So Umar gave its fruits as sadaqah,
17
Sahih Bukhari, in Chapter 45: The Book of Sharecropping (Musaqa) and Water,
Part II: On Water and People who think It Permitted to Give Water as Sadaqa, as a
Gift and as a Legacy, whether Divided Out or Not. Translation by Aisha Bewley.
75
declaring that the property must not be sold or inherited or

given away.18
Muhammad bin Ahmad bin Asad al-Harawi –

Muhammad b. al-Husayn Abu Ja’far al-Hurrani – Yunus
bin Muhammad – Hammad bin Zayd – Ayyub – Nafi –
Ibn Umar – Umar: Verily he [Umar] acquired land in
Khaybar that was known as Thamgh. He asked the
Prophet, and he said to him: “Sequester its principal and
give its fruits as alms”.19
B4 Others followed Umar’s example and provided waqf out of their

properties. Some put in a condition that the income from their
waqf must first benefit their children and descendants, and any
remainder thereafter given to other beneficiaries. This practice
marked the introduction of family waqf (waqf ahli).
B5 As Islam spread, so did the institution of waqf. Well-known waqf

around the world include:
 Al-Zaytuna Mosque in Tunis, founded around 701-703
 Al-Azhar University, a centre of Islamic learning in Cairo,
founded around 970-972
 The Jerusalem Islamic Waqf, which administers Islamic
edifices on the Temple Mount, founded in 1167; and
 The Süleymaniye complex, an area encompassing the
Süleyman Mosque and several other buildings in Istanbul,
founded in 1550.
B6 In traditional Islamic society, waqf was an important source of

public utilities and services. Some historians estimate that more
than one-third of agricultural land and about one-half of urban
areas in Syria, Turkey, Egypt, Morocco, Algeria, Iraq and
18
Sahih Muslim, No. 4006, Volume 13: The Book of Bequests (Kitab al-Wasiyya),
Chapter 5: Waqf.
19
Al-Daraqutni, Sunan, 4:186, No. 8, as quoted in Hennigan, Peter C. (2004). The
Birth of a Legal Institution: The Formation of the Waqf in Third-century A.H.
Hanafi Legal Discourse, Studies in Islamic Law and Society, Volume 18,
Koninklijke Brill NV. Leiden. p. 155.
76
Palestine were waqf properties.20 In Turkey, three-quarters of its

land was thought to be waqf.21
B7 Waqf may also have been influential outside Muslim lands. There
is a theory that waqf contributed to the development of trust in
English law.22 An early trust document, the statutes for the
establishment of Merton College at Oxford University in 1264,
shares many similarities with waqfiyya for a waqf. It is believed
that the founder was influenced by accounts of waqf in the holy
lands from returning crusaders.23 24
Juristic rules
B8 In many ways, waqf is similar to an endowment, trust or

foundation except that it must comply with Islamic juristic rules.
Some scholars say that a secular endowment, trust or foundation
that satisfies the juristic rules may be waqf in essence, even if it is
not one in name.
Essential elements
B9 Over time, Islamic jurisprudence developed a corpus of legal

rulings regarding waqf. Among others, these include the essential
elements of a valid waqf:
 The settlor (waqif)
20
Kahf, Monzer. (2003). The Role of Waqf in Improving the Ummah Welfare, paper
presented at the International Seminar on Waqf as a Private Legal Body, Islamic
University of North Sumatra, Medan, Indonesia. Jan 6-7.
21
Jurist. (1914). Waqf. The Muslim World. 4:2 (April). pp. 173–187.
22
Competing theories are that English trust law developed from either the Roman
fideicommissum or the Salic salmannus. Both were devices for a property owner to
transfer administration to a third party in the interest of another person or a
designated purpose. A common use of both was to ensure that a property owner’s
female dependents would benefit from his estate, since both Roman and Salic laws
restricted women from inheriting property.
23
Gaudiosi, Monica M. (1988). The Influence of the Islamic law of Waqf on the
Development of the Trust in England: The Case of Merton College. University of
Pennsylvania Law Journal. 136:4 (April). pp. 1231-1261.
24
Verbit, Gilbert P. (2002). The Origins of the Trust. Xlibris Corporation.
77
The settlor should have legal capacity to make waqf. This

generally means possessing the qualities for entering into a
legal contract.
A commonly held view is that waqf is a dedication of assets to
Allah. But this does not exclude a non-Muslim from being a
waqif. In fact, one of the earliest waqf settlors during the
Prophet's time was a Jewish rabbi named Mukhayriq.
 The dedicated asset (mawquf)
Traditionally, real property such as land and buildings were
dedicated into perpetuity. Some Islamic scholars allow
dedication of assets with a finite life, such as leasehold
property. Scholars may also permit dedication of other
tangible, moveable items such as livestock, books, jewellery
and weaponry.
Some writings posit that intangible assets such as royalties,
patents and copyrights may be considered for dedication to
waqf.
 The beneficiary or purpose (mawquf alaih)
The objectives of a waqf are determined by the settlor.
Nevertheless, the objectives must comply with shariah. Non-
Muslims may be beneficiaries to waqf.25
 Legal instrument to affect a waqf (waqfiyya)
Waqf is usually created through a legal device such as a
written or verbal declaration, or through a will.
Waqf may also arise if a property has been used for a religious
purpose since time immemorial. Evidence of express
dedication may not be necessary in this case.
Mutawalli
B10 A settlor would traditionally name a mutawalli in the legal

instrument establishing the waqf. But some scholars believe the
appointment of a mutawalli is not a necessary condition for a valid
25
Abu Bakar Abdul Majeed. (2012). The Waqf Way to Charity. IKIM. [web]
http://www.ikim.gov.my/index.php/ms/new-strait-times/6857-the-waqf-way-to-
infinite-charity Accessed 14 May 2014.
78
declaration. In many countries, the state is mandatorily the

mutawalli.
B11 A mutawalli is a person charged with the responsibility of

administering and managing the dedicated asset. The settlor may
provide an allowance or income for the mutawalli. If this is not
provided, the state may award recompense.
B12 In general, there is no prohibition on a non-Muslim being

mutawalli. An exception may be if the position includes religious
duties such as being an imam or khatib.
Substitution (istibdal) and sale (ibdal)
B13 A dedicated asset may at some point deteriorate or lose its

function or value. When this happens, some scholars allow
substitution (istibdal) or, less commonly, sale (ibdal) of the
dedicated asset for something which is more valuable. For
example, waqf of a mosque that has become dilapidated may
undergo istibdal, by exchanging the property with another higher
value or by receiving cash consideration which is more than the
current value of the dedicated asset.
B14 Rules regarding substitution and sale of asset vary among

jurisdictions. Nevertheless, they are usually concerned with
ensuring that the principle is not misused or abused. In Malaysia,
for example, the Wakaf (State of Selangor) Enactment 1999
confers power to the state Islamic religious council to substitute
assets only as follows:
Section 19. Powers of Majlis to Istibdal
The Majlis may istibdal any mawquf in the following
circumstances-
(a) the mawquf has been acquired by any public authority in
accordance with the provisions of any written law;
(b) the mawquf does not yield any usufruct or benefit as
intended by the waqif; or
(c) if the use of the mawquf does not comply with the purpose
of the wakaf.
79
Under colonial rule
B15 In the 19th and 20th centuries, much of the areas populated by
Muslims came under European control – whether directly
governed by a European power, or through European influence
over Muslim rulers. The introduction of European-style
government and administration caused changes to Muslim society
and economy, including to the institution of waqf.
State administrators
B16 In many places, colonial governments introduced laws to transfer

waqf from privately-appointed mutawalli to state administrators.
Purportedly, waqf would be better managed by an educated civil
servant rather than by the imam, village head or family member
appointed by the settlor. Opponents, however, allege ulterior
motives: there are accusations that the colonialists wanted control
of Muslim-administered properties or were trying to erode Muslim
practices.
B17 The effect of these laws is that a settlor is no longer free to name
the mutawalli if he or she dedicates an asset to waqf. By default,
the state would be mutawalli.
The rule against perpetuities
B18 Since the time of the sahabah, it was common for a settlor to
establish a family waqf into perpetuity to provide income for his or
her present and future heirs, with some portion of income for
charity. In Islamic thought, the family waqf is charitable in nature.
Colonial governments upset this practice by imposing the common
law rule against perpetuities to waqf.
B19 The rule states that a beneficiary of a grant of an estate must have
the property left to him transferred to him within a period of
twenty-one years. The original intention was to avoid
unreasonable restraints on alienation, i.e. tying up a property long
beyond the life of an heir such that the heir cannot enforce his
80
interest.26 The rule against perpetuities primarily applies to private

trusts rather than to charitable trusts.
B20 Colonial courts, however, questioned the charitable nature and the
validity of family waqf. In several cases, the courts ruled that a gift
of a perpetual succession of interests constituted the
“aggrandisement of the family of the donors” and was “not
validated by the use of the term waqf” nor by the insertion of a
“remote trust for the poor”.27
In Malaysia
Pre-Independence
B21 Traditionally, waqf in the Malay states comprised land dedicated

for religious use, such as a mosque, cemetery or religious school.
The waqf would have been managed by a trusted family member
or a respected community leader named by the settlor.
B22 Some believe that it was Indian Muslim traders who introduced
non-religious waqf and income-generating waqf to the Malay
states. For example, in 1801, Cauder Mohudeen Merican (1759 –
1834) established a waqf in Penang which included shop-lots and
residential units. The lease rentals were, and are, used to support
community activities.
B23 Under British administration (circa 1786–1957), laws were

introduced to transfer the administration and governance of waqf
from personally appointed mutawalli to official trustees. The laws
include:
 the Mahommaden and Hindu Endowments Ordinance;
 the Selangor Administration of Muslim Law Enactment 1952;
 the Pahang Administration of the Religion of Islam
Enactment 1956;
26
The Duke of Norfolk’s Case (1682), 3 Chan. Cas. 1, 22 Eng. Rep. 931.
http://www.uniset.ca/other/css/22ER931.html Accessed 15 May 2014.
27
Khajeh Solehman Quadir vs Nawab Sir Salimullah Bahadur (1922).
http://indiankanoon.org/doc/1111640/ Accessed 15 May 2014.
81
 the Terengganu Administration of Islamic Law Enactment

1955;
 the Kelantan Majlis Ugama Islam dan Adat Istiadat Melayu
Enactment 1938; and
 the Johore Wakaf Prohibition Enactment 1911.28
Post-Independence
B24 The Federation of Malaya obtained independence from the British

in 1957. In 1963, Sabah and Sarawak joined the federation to form
modern Malaysia. Yet, the British legacy of institutionalised
management persisted.
B25 The Federal Constitution of Malaysia reinforced state control of

waqf property. The Ninth Schedule of the Constitution lists items
which fall under federal and state legislation, and it clearly
includes under the State List:
“Wakafs and the definition and regulation of charitable and
religious trusts, the appointment of trustees and the
incorporation of persons in respect of Islamic religious and
charitable endowments, institutions, trusts, charities and
charitable institutions operating wholly within the State”.
B26 All the states and federal territories in Malaysia have passed
enactments that provide for the respective state Islamic religious
council (SIRC) to be the sole trustee for all waqf assets, in
accordance with the legislative power provided by the
Constitution.29
Federal government initiatives
28
Sharifah Zubaidah Syed Abdul Kader, Nuarrual Hilal Md Dahlan, Current Legal
Issues Concerning Awqaf in Malaysia, Islamic Economics and Finance Pedia, at
http://www.iefpedia.com/english/?p=4443 Web. Accessed 12 September 2013
29
Mohd Hanefah, Hajah Mustafa, Prof. Dr. Abdullah Jalil, Asharaf Mohd Ramli,
Hisham Sabri, Norhaziah Nawai and Syahidawati Shahwan. Financing the
Development of Waqaf property: The Experience of Malaysia and Singapore. Tech.
N.p.:n.p.,n.d. Print. Fakulti Ekonomi dan Muamalat, Universiti Sains Islam
Malaysia.
82
B27 Within the federal government, the Prime Minister’s Department

established the Department of Zakat, Waqf and Hajj (Jabatan
Zakat, Waqaf dan Haji or JAWHAR) in 2004. Its objectives are
to:
1. Empower and develop socio-economic development of the
ummah in the fields of awqaf, zakat, mal and hajj / umrah
through close collaboration with related national and state
religious agencies.
2. Enhance the good governance institutions of awqaf, zakat,
mal and hajj / umrah.
3. Increase the awareness and understanding of the concept of
awqaf, zakat, mal and hajj / umrah.
4. Nourish and cultivate the legacy of awqaf practices among
the Malaysian people.30
However, JAWHAR does not have authority to manage waqf
assets.31
B28 JAWHAR was allocated RM256.4 million and RM72.76 million,

respectively, under the 9th and 10th Malaysia Plans to develop
sixteen waqf properties and four non-physical projects. JAWHAR,
in turn, established a national waqf foundation, Yayasan Waqaf
Malaysia (YWM) in 2008 under the Trustees (Incorporation) Act
1952 to work with SIRCs to develop and promote waqf.32
Avoidance of state administration
B29 A settlor may prefer to entrust his or her assets to specific persons
or professional managers, rather than to state religious officers.
One avenue of avoiding mandatory administration by a SIRC is to
30
http://www.jawhar.gov.my/index.php/en/department-profile/about-jawhar
31
“Mengenai JAWHAR.” Mengenai JAWHAR. Jabatan Perdana Menteri, n.d.
[http://www.jawhar.gov.my/index.php/ms/mengenai-jawhar] Web. Accessed 8
January 2013.
32
Raja Muhd Alias, Tunku Alina. (2011). Unleashing the Potential of the Waqaf as
an Economic Institution in Malaysia: Policy, Legal and Economic Reforms.
[Thesis]. International Centre for Education in Islamic Finance.
83
found an endowment or foundation under secular law and to avoid

expressed use of the word ‘waqf’ in describing the structure.
B30 Examples of secular foundations established by prominent

Malaysian Muslims include:
 Al-Bukhary Foundation
 Yayasan Halim Saad
 Yayasan Haji Zainuddin
 Yayasan Pok Rafeah
 Tun Mahathir Foundation
 Syed Kechik Foundation; and
 the Ubaidi Foundation.33
B31 It is said that the International Islamic University of Malaysia

(IIUM) registered the IIUM Endowment Fund – a fund for needy
students – as an endowment instead of waqf to prevent state
interference. It was further alleged that the reason for avoiding
administration by the SIRC is because “the management and
accounting practices of religious organizations have not been
positive”. 34
Exceptions to state administration
B32 A SIRC may grant permission for another entity to manage waqf.
The most notable case is Majlis Agama Islam Johor (MAIJ)
allowing Waqaf An-Nur Corporation Berhad (WANCorp) to
manage its own assets. WANCorp is a waqf registered as a
company limited by shares. It was founded by Johor Corporation
Berhad through an initial endowment of listed shares.
33
Raja Muhd Alias, Tunku Alina. op. cit.
34
Maliah Sulaiman. (2009). Trust Me! A Case Study of the International Islamic
University of Malaysia’s Waqf Fund. Review of Islamic Economics, Vol 13, No. 1.
p. 71-72.
84
B33 Another company, Iqra Foundation, has applied to the SIRCs of

the Federal Territories, Selangor and Perak for permission to
administer waqf.
B34 Several IPTAs have been granted license by the relevant SIRCs to
collect, administer and distribute waqf funds. An example is the
Knowledge Waqf Fund administered by Universiti Putra Malaysia
(UPM).
B35 At least two registered societies are known to independently

administer waqf funds. They are Yayasan Waqaf Pendidikan Anak
Yatim Atau Miskin Malaysia (YAWATIM), and Islamic Aid
Malaysia which administers an education fund called Al-Waqf Lil
Hayah.
B36 In addition, YWM is a registered trustee established by JAWHAR

that is not answerable to any SIRC.
Non-property waqf
B37 As Malaysia developed into a middle-income nation, its Malay

Muslim population moved from primarily agricultural occupations
to salaried employment. The result is that Malaysian Muslim
wealth is no longer marked by land ownership, but by cash and
other financial instruments.
B38 To adapt waqf to the new economy, SIRCs accept several forms of
waqf. Among these are:
(a) Real property
A settlor dedicates real property such as land and buildings.
Real property dedicated to waqf is usually freehold because of
its perpetual nature. However, some jurisdictions allow
dedication of leasehold property.
(b) Cash
A settlor dedicates cash to a waqf fund which is applied to its
stated purposes.
(c) Share-based waqf
85
A settlor purchases ‘shares’ in a waqf fund. Proceeds from

share issuance and profits are applied to the stated purposes of
the waqf fund.
Share-based waqf is essentially a variation of cash waqf. The
‘shares’ do not usually grant the holder with rights associated
with equity holding.
(d) Financial assets
A settlor dedicates a financial asset and the dividends and
other income from the financial asset are applied to the stated
purpose of the waqf. The dedicated financial asset is usually
shares since equity does not mature.
(e) Gold
A settlor may dedicate gold to a SIRC as waqf. The SIRC will
then convert the gold into cash. Alternatively, a person who
holds a gold account may waive his or her profit from the gold
account as waqf.
Financing development
B39 Historical records show that waqf was once an economically

dynamic institution. It was able to generate sufficient income to
support the community in its locality. Indeed, some historians
claim that public goods and services in the Ottoman Empire were
mainly provided by waqf rather than by the government.
B40 In contrast, waqf in Malaysia are overly concentrated on religious

purposes such as mosques, cemeteries and religious schools. These
do not have an identifiable source of income, and their dependence
on government funds to support their activities may make them a
liability rather than an asset. Even waqf not in religious use
remain largely idle and non-income generating.
Government grants and government assistance
B41 It is now acknowledged that waqf has the potential to contribute to

socio-economic well-being. Since the mid-2000s, the federal
government has endeavoured to assist SIRCs to develop waqf
under their administrations.
86
B42 JAWHAR was allocated a total of RM329.16 million under the 9 th

and 10th Malaysia Plans to develop sixteen waqf properties and
four non-physical projects. Completed projects at the time of
writing are as follows:
JAWHAR’s completed projects Contract

Cost
1 Orphanage –Derga, Kota Setar, Kedah 2,080,000
2 Waqf complex – Section 8, Kajang, Selangor 160,000
3 Retail units – Ulu Kinta, Tambun, Perak 1,600,000
4 Orphanage – Machang, Kelantan 1,500,000
5 Equipment purchase – Kuching, Sarawak 10,000,000
6 Converts centre – Seremban 4,500,000
7 Haemodialysis centre – Batu Pahat, Johor 8,000,000
8 Women’s shelter – Johor Bahru, Johor 7,600,000
9 Religious school complex – Pulau Pinang 41,000,000
10 Retail units – Mukim Utan Aji, Perlis 4,242,730
11 Pantai Puteri Hotel – Tanjung Kling, Melaka 25,600,000
12 Klana Beach Resort – Port Dickson 18,000,000
13 The Regency Seri Warisan – Taiping, Perak 19,000,000
14 Hotel Grand Puteri – Kuala Terengganu N/A
Source: Pelan Strategik JAWHAR 2012-2016; and Senarai Hotel Wakaf at
http://www.jawhar.gov.my/index.php/ms/senarai-hotel-wakaf
B43 Another RM40 million was allocated to YWM for its Projek Kecil
Berimpak Besar. This amount was mainly used to build bazaars
and stalls within mosque compounds that would generate modest
rental income for the mosque and provide economic opportunities
to local traders.
B44 Nevertheless, the cost of fully developing waqf in Malaysia is

estimated to be around RM80 billion. Waqf institutions cannot
solely rely on government funds to meet this expenditure.
JAWHAR and the SIRCs would need to build strategic
87
partnerships with government-linked companies, the corporate and

private sectors and banking institutions.35
Build-operate-transfer
B45 In January 1987, Ahmad Dowjee Dadabhoy passed away without

issue and left 1.2 hectares of his land on Jalan Perak, Kuala
Lumpur as waqf. The property came under the administration of
Majlis Agama Islam Wilayah Persekutuan (MAIWP).
B46 Twenty years later, in 2007, MAIWP would become party to a

landmark in Malaysian waqf development. MAIWP, Bank Islam
Berhad and the hajj pilgrimage fund, Lembaga Tabung Haji,
entered into a build-operate-transfer (BOT) arrangement to
construct a 34-storey office tower on the Jalan Perak property. The
tower was officially opened in 2011.
B47 The consortium built a 34-storey office tower at a cost of RM151

million. Upon completion, a subsidiary of Lembaga Tabung Haji,
TH Properties Sdn Bhd, would operate the tower and collect
rentals from the tenant, Bank Islam Berhad, over a 25 year
tenancy. At the end of the period, the building would be
transferred to MAIWP.
B48 The advantage of the BOT to MAIWP is that it did not have to
incur debt and was not burdened with finance costs to develop the
land. As for Lembaga Tabung Haji, it had an assured contractual
cash flow over 25 years from the tenancy agreement with Bank
Islam Berhad.
Sukuk
B49 Sukuk enables a larger pool of investors to share in the risk of a

project. A notable waqf project financed through sukuk is Zamzam
Tower in Makkah. Majils Ugama Islam Singapura (MUIS) has
repeatedly used sukuk to develop waqf in Singapore, with one of
the largest being the Bencoolen Street project.
35
RM256.4 juta Bangunkan 17 Projek Wakaf di Malaysia: Jamil Khir. Berita
Harian. 5 March 2012.
http://www.bharian.com.my/bharian/articles/RM256_4jutabangunkan17projekwaka
fdiMalaysia_JamilKhir/m/mArticle Accessed 15 May 2014.
88
Zamzam Tower, Makkah
B50 The Zamzam Tower sukuk, called either sukuk intifa’a or sukuk
ijarah mawsufa, was innovative in many ways. It was one of the
first to feature the following elements:
 The property was built on waqf land.
 The project was on a build-operate-transfer basis.
 The sukuk sold to investors represented usufruct (or right to
use) of an asset that did not yet exist.
 The sukuk holder’s right represented a time-share in the
property.
B51 It worked in the following way:

 The administrator of the King Abdul Aziz waqf granted the
developer, Munshaat Real Estate Projects Co. (Kuwait), the
right to use the asset (33 floors of the 48-floor tower) over
25 hijri years.
 The developer then split the right to use the asset into
smaller components, i.e. the right to a specific unit of the
tower at specific times in each of the 25 hijri years.
 The rights were then sold to investors and sukuk were
issued to evidence ownership of the rights. A sukuk holder
may exercise the right to utilise the unit, to rent it or to sell
it.
B52 A project by the same developer in Madinah, Dar Al-Qiblah, used

a similar model. An excerpt of the sukuk certificate reads:
That [blank] is entitled to benefit from Unit No. [blank],
Category [blank] at Dar Al-Qiblah for a period of [blank]
night(s) as from [blank] till [blank] of every Hijri year and for
[blank] period as from the year [blank] upon his request and
desire.36
36
Jamil AK Jaroudi, Sokouk Al-Intifa’a, Presentation at the Middle East Business
Forum on 25 April 2007.
89
Bencoolen Street, Singapore
B53 The properties on Bencoolen Street were waqf by Syed Omar bin
Ali Aljuneid upon his death in 1852. It comprised a mosque and
shop-lots which generated a modest income to pay for the
mosque’s activities. Development would serve the dual purpose of
rejuvenating the old mosque as well as realising the potential value
of the shop-lots. The completed mixed development project
comprised a new mosque, a 3-storey commercial building and 84
units of serviced apartments in a 12-storey block.
B54 In 2002, Majlis Ugama Islam Singapura (MUIS) issued a 5-year

SGD35 million sukuk musharakah to institutional investors to
raise capital for the project. The capital contributors comprised
MUIS, the Bencoolen Waqf Fund and WAREES Pte Ltd, a
subsidiary of MUIS, in the following ratios:
Contributor SGD % Contribution

MUIS 35,000,000 88.1% Sukuk proceeds.
Bencoolen 4,719,000 11.9% Land, SGD4,200,000
Waqf Fund Equity SGD519,000
WAREES 1 - Management services
B55 WAREES leased the serviced apartments for 10 years to The

Ascott Limited, operator of the Somerset chain of serviced
apartments, in return for guaranteed rentals of SGD1.3 million in
the first year and SGD1.8 million from the second to the tenth year
as well as a share of profit. After paying sukuk holders returns of
SGD1,060,500 per annum and a bullet principal repayment at
maturity, MUIS and WAREES would share in the remainder in
the ratio of 70:30.37
Istibdal and ibdal
B56 Substitution (istibdal) or sale (ibdal) of waqf property may cause

disquiet to Muslims who believe they are disrespectful of the
settlor’s wishes, or are fearful of misuse or abuse. Nevertheless, it
37
Fazlur Rahman Kamsani, Waqf Rejuvenation and Islamic Financing: Singapore’s
Experience, Presentation at Islamic Real Estate Forum London on 28-30 June 2004.
90
is sometimes impractical to retain a property if it fails to fulfil the

objectives of the waqf. Hence, there are jurisdictions that allow
substitution or sale of waqf property under certain circumstances.
An example is MUIS’ sale of waqf property on Duku Road,
Singapore.
B57 In 1990, MUIS launched its plans to revitalise waqf in Singapore.

Its first project was to develop a site on Duku Road that was waqf
by Sheikh Ahmad bin Bakar Bin Abdullah Jabbar in 1947. Under
the project, four three-storey residential units would be built, and
two of the units would be sold to finance construction costs. The
remaining two units were then leased out.
B58 Although the arrangement decreased the size of waqf land, it

increased the waqf’s annual income from SGD68 to SGD36,000 in
2005.38 Moreover, the net asset value of the waqf increased from
SGD14,281 to SGD2,800,000 in 2006.39
Accounting
Waqf accounting in the Ottoman Empire
B59 Some of the earliest known methods of waqf accounting come

from Ottoman records. An example is the Sultan Süleyman Waqf.
Before 1826, the waqf employed clerks to keep accounts which
were inspected by a qadi every few years. The accounts were
simple lists of incomes and expenditures. There was no standard
way of bookkeeping and no requirement for supporting documents
as waqf employees were presumed to be honest. Post 1826, the
Ottomans established the Ministry of the Imperial Estates in
Mortmain (Evkaf-ı Humayun Nezareti or EHN). The Ministry
introduced reforms to waqf accounting that may be considered
early forms of accounting standards and auditing. Among the
reforms:
38
Shamsiah Abdul Karim. (n.d.) Contemporary Waqf Administration and
Development in Singapore: Challenges and Prospects. MUIS. p. 3.
39
Ahmad Nizam Abas. Legal Update: Waqf (Wakaf) in Islamic Asset Management
– Singapore Perspective. Straits Law. 14 August 2013.
http://www.straitslaw.com.sg/legal-update/waqf-wakaf-islamic-asset-management-
%E2%80%93-singapore-perspective Accessed 19 May 2014.
91
 Regulations on the size and type of paper for accounting

records;
 Specifications on the calligraphy style, notation, etc. to be
used for accounts;
 Requirement to number the pages of the books, record in
chronological order, record by type of income and
expenditure;
 Appointment of officers to prepare accounts by the Ministry;
 Inspection of accounts by proxies of the Director of the
Ministry.40
Contemporary waqf accounting
B60 In the modern world, accounting for waqf needs to reflect the
increasing complexity of transactions and users’ demand for more
sophisticated information. The push for development makes it all
the more important that a waqf reports in accordance with a robust
financial reporting framework. A waqf would need to prepare and
present financial statements that satisfy the needs of capital
providers and other users.
B61 Globally, accounting requirements for waqf differ. In Singapore,

MUIS as a statutory body is required to comply with Statutory
Board Financial Reporting Standards (SB-FRS) based on the
national standards, Singapore FRS. Turkey requires its
‘foundations’ to keep and maintain accounting records in
accordance with rules and procedures designated by its Directorate
General of Foundations.41 In Saudi Arabia, a waqf that is
established as a non-profit organisation is required to comply with
not-for-profit standards issued by the Saudi Organization for
Certified Public Accountants (SOCPA), but most waqf are not
required to prepare financial statements. In Malaysia, accounting
40
Hilmi Erdoğan Yayla, (2011). Operating Regimes of the Government:
Accounting and Accountability Changes in the Sultan Süleyman Waqf of the
Ottoman Empire (The 1826 Experience), Accounting History. Vol. 16(1). p 5-34.
41
Turkish Republic Prime Ministry, Directorate General of Foundations,
Foundations Law No 5737, Chapter Four: Accounting and Audit of Foundations,
Article 31 http://www.vgm.gov.tr/icerikdetay.aspx?Id=168 Accessed 16 June 2014.
92
for waqf depends on the legal form of the waqf, as discussed in the
Research Paper.
Accounting requirements for charities and not-for-profit

entities
B62 Regardless of its legal form, waqf is generally viewed as a

charitable entity. Hence, users of waqf financial statements may
appreciate the inclusion of disclosures required by standards for
charities and not-for-profit entities. For example, the requirements
in other documents such as UK SORP and the Charities (Accounts
and Reports) Regulation may be useful reference. UK SORP
requires a charity to prepare a statement of financial activities
(SoFA) that “provides the user with an analysis of the income and
endowment funds received and the expenditure by the charity on
its activities”; there is also additional content required of larger
charities.
93
Appendix C
Financial reporting of waqf under SIRC administration
SIRC 1
Date of financial statements 31 December 2012 (Audited)

Legal form of waqf
What is the legal form of waqf A unit within SIRC.
administered by the SIRC?
Separate financial statements
Are separate financial No.
statements prepared for waqf?
Inclusion in SIRC’s financial
statements
Yes. Items related to waqf were
Are items that relate to waqf included in SIRC 1’s separate
included in the SIRC’s own financial statements.
separate financial statements?
Statement of financial position – No
If so, how are they presented? separate presentation of waqf assets or
liabilities. Separate line item presented
for waqf fund called ‘Trust Fund’.
Income statement – No separate
presentation of waqf income and
expenses.
Notes – No disclosure of assets and
liabilities attributed to waqf, except for
sub-classification of ‘Trust Fund’ into
general waqf and specific waqf.
Financial reporting
framework
Unknown.
What standards are used as the
“The financial statements of the
basis for preparation of the
subsidiaries were prepared based on
financial statements?
Private Entity Reporting Standards
(PERS) and the Companies Act 1965
94
in Malaysia. All significant

accounting policies presented below
are consistent and in accordance with
practiced principles.”
Real property
How are waqf property Newly acquired land and buildings –
recognised and measured? at fair value, based on valuation
provided by the State Valuation and
Property Services Department.
Older lots of land – at nominal value
of RM10 per title.
There was no separate presentation of
waqf property. They were included
within SIRC 1’s properties.
The notes on subsequent events listed
the locations and construction costs of
projects funded by the federal
government grants, as well as the
locations and values of properties not
yet recognised as at the financial year
end.
Financial assets
How are waqf financial assets Cash and bank balances – at cost.
recognised and measured?
waqf cash and bank balances. They
were included within SIRC 1’s cash
and bank balances.
Recognition of cash waqf
How are cash waqf recognised SIRC 1 did not report any cash waqf
and measured? in its financial statements.
Recognition of income
How is income on waqf assets Income on general waqf – recognised
recognised and measured? in the baitulmal fund in accordance
with the state enactment.
Income on specific waqf – Staff of
95
SIRC 1 claimed that a 15%

management fee was recognised as
SIRC 1’s income. The remaining 85%
was recognised in the waqf fund.
However, as no separate financial
statements were prepared for waqf, all
income were presented in SIRC 1’s
Government grants and
government assistance
SIRC 1 recognised an item of ‘state
How does the SIRC account for government assistance’ as income. It
government grants and made no further disclosure about the
government assistance? What item.
disclosures does it make?
The notes on general reserves
disclosed that it comprised two
components:
(i) Capital reserves – revaluation
reserves on land and buildings.
(ii) Waqf capital – grants from a
federal government agency to
develop income-generating
buildings on waqf land. The
reserves were amortised annually
on a straight line basis.
Other observations SIRC 1 prepared combined financial
statements for itself and its
subsidiaries.
96
SIRC 2

Legal form of waqf

statements
Yes, but SIRC 2 did not recognise
Are items that relate to waqf waqf property.
included in the SIRC’s own
Statement of financial position –
Separate line items presented for bank
If so, how are they presented? balances, an amount managed by
another state statutory body and a
current liability for specific waqf. No
separate presentation of waqf fund.
Income statement – Separate line
items presented for waqf income and
expense.
Notes – Disclosures presented for
waqf assets and liabilities.
Financial reporting
framework
“The financial statements of the SIRC
What standards are used as the were prepared in accordance with
basis for preparation of the accounting standards approved by the
financial statements? Malaysian Accounting Standards
Board (MASB) and generally
accepted accounting principles in
Malaysia. The financial statements
were prepared on an accruals basis
and in accordance with historical cost
convention, except as stated in the
summary of significant accounting
97
policies.”
Real property
How are waqf property Not recognised, and not disclosed.
Third party sources revealed that
SIRC 2 did administer waqf property,
but these were not reported in the
SIRC 2 recognised a current liability
for sales proceeds from istibdal of
three lots of waqf land. The amount
will be reversed if and when the waqf
land is replaced.
Financial assets
How are waqf financial assets Advance to state statutory body,
recognised and measured? Specific Waqf Monies, cash in transit,
Mudarabah investment, cash at bank –
at cost.
How are cash waqf recognised General cash waqf – recognised as
and measured? SIRC 2’s income.
Specific cash waqf – recognised as a
current liability called ‘Specific
Waqf’. The notes provided details of
each specific waqf fund.
How is income on waqf assets Income on general waqf – recognised
recognised and measured? as SIRC 2’s income. The notes
disclosed income attributable to waqf,
zakat and baitulmal.
Income on specific waqf – recognised
as a current liability called ‘specific
waqf’.
The note on significant accounting
policies stated that income from a
waqf source was owned by the waqf
98
fund in accordance with the state waqf

enactment. The enactment defined
income as income from general waqf,
specific waqf and cash waqf.
None presented in the financial
How does the SIRC account for statements or disclosed in the notes.
government grants and
government assistance? What
SIRC 2 received a building funded by
government grant but this is not
disclosed in SIRC 2’s financial
statements.
Other observations The state established a statutory body
to manage waqf. The notes disclosed
that an advance and Specific Waqf
Monies were managed by the statutory
body.
99
SIRC 3

Legal form of waqf

statements
Are items that relate to waqf waqf of real property.
separate presentation of waqf assets,
If so, how are they presented? liabilities or fund.
Income statement – Separate income
statements were presented for zakat
and general baitulmal funds. The
zakat fund comprised:
 zakat fitrah
 zakat harta
 business zakat
 agricultural zakat
 other miscellaneous income.
A statement in changes of funds was
presented for the baitulmal funds. The
baitulmal funds comprised:
 zakat (other than in the zakat fund)
 wakaf
 amanah
 general sources.
Notes – Disclosure of cash and
baitulmal funds attributed to waqf,
Financial reporting
100
framework “The accounts were prepared based on

historical cost convention modified for
What standards are used as the
the revaluation of assets and complies
with the requirements of syarak while
taking into consideration accounting
policies implicit in the Administration
of the Religion of Islam (State)
Enactment 2004, finance and
accounting regulations and generally
accepted standards for government
organisations and departments that
usually refer to accounting and
financial reporting standards prepared
by the Malaysian Accounting
Standards Board (MASB).”
Real property
How are waqf property Not recognised, and not disclosed.
SIRC 3 did administer waqf of real
property, but these were not reported
Financial assets
How are waqf financial assets Cash at hand and in bank – at cost.
How are cash waqf recognised SIRC 3 did not report cash waqf in its
and measured? financial statements.
How is income on waqf assets There was no presentation or
recognised and measured? disclosure of the component baitulmal
income.
SIRC 3 received a grant from the state
How does the SIRC account for government for a building. The notes
government grants and stated that the grant was treated as
government assistance? What deferred income and amortised on a
101
disclosures does it make? scale rate based on the asset

depreciation rate as disclosed in the
notes to the financial statements.
SIRC 3 received grants for a hotel and
retail shop-lots through a federal
government agency, but these were
not disclosed in SIRC 3’s financial
statements.
Other observations -
102
SIRC 4

Legal form of waqf
statements
Are items that relate to waqf waqf property.
separate presentation of waqf assets,
If so, how are they presented? liabilities or fund.
presentation of waqf income or
expenses.
Notes – Disclosure of current liability
for sale proceeds from istibdal that
would be used to replace the sold
property, and amount of retained
earnings attributed to the waqf fund.
Financial reporting
framework
What standards are used as the Group and of [SIRC 4] were prepared
basis for preparation of the under historical cost convention in
financial statements? accordance with Private Entity
Reporting Standards (PERS) issued by
Malaysian Accounting Standards
Board (MASB) and generally
accepted accounting principles in
Malaysia except for matters stated in
Note 3(p)(iii) to the financial
statements in order to comply with
103
shariah principles.”
“Note 3(p)(iii): Recognition of profit
on savings, dividend on investment
and hibah
Profit from short-term savings,
dividend on investment and hibah are
recognised on cash basis. They are
accounted for in the income statement
when received.”
Real property
How are waqf real property Not recognised.
SIRC 4’s annual report disclosed total
area of waqf land, but not their value.
The annual report further disclosed
that SIRC 4 received waqf of a
building during the year, but this was
not reported in the financial
statements.
Financial assets
How are waqf financial assets Cash and bank balances – at cost.
waqf cash and bank balances. They
were included within SIRC 1’s cash
and bank balances.
How are cash waqf recognised SIRC 4 did not report any cash waqf
and measured? in its financial statements.
How is income on waqf assets There was no disclosure about income
recognised and measured? from waqf assets, except for a note on
significant accounting policies that
SIRC 4 was the sole trustee for all
waqf (general and specific).
104
SIRC 4’s annual report mentioned that

its rental income included rental from
waqf assets, but did not specify the
attributed amount.
Other observations Third party sources revealed that a
waqf property was developed in a
build-operate-transfer arrangement.
This was not recognised or disclosed
105
SIRC 5

Legal form of waqf
Are separate financial No, but a separate statement of
statements prepared for waqf? financial position and income
statement for waqf were included in
the appendices.
statements
If so, how are they presented? separate presentation of waqf assets,
liabilities or fund.
presentation of waqf income or
expenses.
Notes – No separate disclosure of
waqf assets. Disclosure of a current
liability called ‘Waqf Fund Trust
Account’.
Other – Separate statement of
financial position and income
statement for waqf were included in
the appendices.
Financial reporting
framework
“The financial statements were
What standards are used as the prepared in accordance with historical
basis for preparation of the cost convention and in accordance
financial statements? with approved accounting standards in
Malaysia.”
106
“The accounts were prepared taking

into consideration accounting bases
implicit in financial and accounting
enactments and regulations, generally
accepted standards for government
organisations and departments that
refer to Malaysian Accounting
Standards Board unless it conflicts
with syarak.”
Real property
How are waqf property Staff of SIRC 5 claimed that:
recognised and measured? (i) Purchased land and buildings
were measured at fair value on
initial recognition, and
subsequently measured at cost.
The fair value was the purchase
price.
(ii) Land and buildings from waqif
were measured at a nominal value
of RM1 per title.
Financial assets
How are waqf financial assets Mudarabah investment, cash at hand
recognised and measured? and in bank – at cost.
How are cash waqf recognised Cash waqf was recognised as a current
and measured? liability called ‘Waqf Fund Trust
Account’.
How is income on waqf assets Returns such as hibah, profit from
recognised and measured? fixed deposits, etc. were recognised as
waqf income in the waqf income
statement, which formed part of the
SIRC 5’s income.
107
government grants and Third party sources revealed that

government assistance? What SIRC 5 received a building funded by
disclosures does it make? a federal government grant but this is
statements.
108
SIRC 6

Legal form of waqf
statements
If so, how are they presented? separate presentation of waqf assets
and liabilities. Separate line item
presented for waqf fund.
expenses.
Notes – No disclosure of PPE
attributed to waqf. Separate
presentation for other waqf assets and
liabilities.
Financial reporting
framework
What standards are used as the Group and of [the SIRC] were
basis for preparation of the prepared in accordance to the
financial statements? requirements of the Companies Act
1965 and the Statutory Bodies Act
1980 as modified by the Financial
Procedure Act, Best Practices for
Financial Management of SIRCs and
accounting standards approved by the
109
Board (MASB).”
Real property
How are waqf property New land and buildings – at cost less
recognised and measured? accumulated depreciation.
Existing land – not recognised.
The notes on significant accounting
policies disclosed that two specific
waqf of mosques were not
depreciated.
Financial assets
How are waqf financial assets Trade and other debtors, cash and cash
recognised and measured? equivalents – at cost.
How are cash waqf recognised Cash waqf was recognised as waqf
and measured? income, which formed part of the
SIRC 6’s total income.
How is income on waqf assets Returns (rental, hibah, etc.) were
recognised and measured? recognised as waqf income, which
formed part of SIRC 6’s total income.
The notes disclosed that a hotel
How does the SIRC account for received through a federal government
government grants and grant was recognised as PPE. No other
government assistance? What information about the government
disclosures does it make? grant was disclosed.
Other observations
110
SIRC 7

Legal form of waqf
Are separate financial No, but an income statement for the
statements prepared for waqf? state waqf shares trust fund was
included in the financial statements.
statements
Are items that relate to waqf waqf of real property.
separate presentation for waqf assets,
If so, how are they presented? liabilities or funds.
Income statement – Separate income
statement prepared for waqf and for
other sources.
Notes – Disclosure of cash and
investments attributable to waqf, to the
state waqf shares trust fund and to
other funds.
Financial reporting
framework
“The accounts were prepared in
What standards are used as the accordance with historical cost
basis for preparation of the convention.”
Real property
How are waqf property Not recognised.
111
Financial assets
How are waqf financial assets At cost.
How are cash waqf recognised Cash waqf were recognised as waqf
How is income on waqf assets Profit from investment and hibah were
formed part of SIRC 7’s total income.
The notes disclosed a federal
How does the SIRC account for government grant received for the
government grants and construction of SIRC 7’s office. The
government assistance? What grant was recognised as a current
disclosures does it make? liability.
Other observations
112
SIRC 8
Date of financial statements 31 December 2012(Audited)

Legal form of waqf
Are separate financial No, but a statement of financial
statements prepared for waqf? position and an income statement for
waqf were included in the notes. The
statement of financial position for
waqf did not include waqf property.
statements
Are items that relate to waqf waqf property in its financial
included in the SIRC’s own statements.
and liabilities. Separate line items
presented for funds attributed to waqf.
presentation of waqf income and
expenses.
Notes – The notes included a
statement of financial position and
income statement for waqf. The
statement of financial position for
waqf did not include waqf property.
Financial reporting
framework
“The financial statements of [SIRC 8]
What standards are used as the were prepared in accordance with
basis for preparation of the historical cost convention and
financial statements? conform to Private Entity Reporting
Standards (PERS) except where it
conflicts with syarak.”
113
Real property
How are waqf real property Not recognised.
Staff of SIRC 8 claimed that waqf
land was valued every five years in
order for the value to be included in
the Gazette. However, the values were
not accounted for in the financial
statements.
Financial assets
How are waqf financial assets Mudarabah investment, receivables,
recognised and measured? deposits, and cash at hand and in bank
– at cost.
How is income on waqf assets Profit from investment, sales, rentals
recognised and measured? and hibah were recognised as waqf
income, which formed part of SIRC
8’s total income.
The notes stated that:
How does the SIRC account for (i) Grants from the state government
government grants and for administrative expenses were
government assistance? What recognised as income.
disclosures does it make? (ii) A shop-lot received from the state
government was recognised in
property, plant and equipment at
cost.
Other observations The statement of financial position for
waqf presented the various waqf funds
in separate line items.
114
SIRC 9
Date of financial statements 31 December 2010 (Unaudited)

Legal form of waqf
statements
No, staff of SIRC 9 claimed that it did
Are items that relate to waqf not recognise waqf property in its
If so, how are they presented?
Financial reporting
framework
Unknown. SIRC 9 did not provide
What standards are used as the notes to its financial statements.
Real property
Financial assets
How are waqf financial assets Unknown.
How are cash waqf recognised Unknown.
and measured?
115
How is income on waqf assets Unknown.
Unknown.
How does the SIRC account for
Other observations The financial statements were
incomplete: there was no cash flow
statement, statement of changes in
equity or accompanying notes.
116
SIRC 10

Legal form of waqf
What is the legal form of waqf A unit within SIRC
Are separate financial No, but a separate income statement
statements prepared for waqf? for waqf was included in the financial
statements.
statements
Are items that relate to waqf waqf property in its financial
included in the SIRC’s own statements.
and liabilities, but the waqf fund was
separately presented.
Income statement – A separate income
statement for waqf was presented.
Notes – Disclosure of amounts of
waqf assets, liabilities, income and
expenses were included.
Financial reporting
framework
“The accounts were prepared with due
What standards are used as the consideration to accounting bases
basis for preparation of the implicit in enactments on finance and
financial statements? accounting regulations, generally
accepted accounting standards for
government organisations and
departments in reference to the
Board and International Accounting
Standards”.
Real property
117

recognised and measured? Nevertheless, SIRC 10 included in its
financial statements a listing of waqf
property with details of the location,
type of waqf, date acquired, size of
property and the lot number.
The list included a note that the value
of waqf property was not stated
because they cannot be sold.
Financial assets
How are cash waqf recognised Cash waqf were recognised as waqf
and measured? income in the waqf income statement.
How is income on waqf assets Returns (rental income, profit from
recognised and measured? investment, hibah etc.) were
recognised as waqf income.
SIRC 10 did not present a combined
income statement; it presented
separate income statements for its
baitulmal, zakat and waqf funds.
government assistance The list of waqf property included a
How does the SIRC account for list of property developed with
government grants and government grants. However, the
government assistance? What amounts of government grants were
disclosures does it make? not disclosed.
An allocation from Yayasan Wakaf
Malaysia amounting to RM22,068
was recognised as income during the
year.
118
SIRC 11

Legal form of waqf
Are separate financial No, but a separate income statement
statements prepared for waqf? for waqf was included in the notes.
statements
expenses.
Notes – Disclosures of amounts of
waqf assets, liabilities, income and
expenses were included.
Financial reporting
framework
“The accounts have been prepared in
What standards are used as the accordance with historical cost
basis for preparation of the convention, taking into consideration
financial statements? accounting principles implicit in the
[State] Council of Islamic Religion
and Malay Custom Enactment,
finance and accounting regulations,
generally accepted accounting
standards for government
organisations and departments which
refer to the Malaysian Accounting
Standards Board and International
119
Accounting Standards, unless there is

a conflict with syarak.”
Real property
How are waqf property Land (i.e. vacant and occupied land,
recognised and measured? mosques and cemeteries) – at fair
value on initial recognition,
subsequently measured at revalued
amounts. There is no disclosure of
frequency of revaluation.
Buildings – at cost on initial
recognition, subsequently measured at
cost less accumulated depreciation
Staff of SIRC 11 claimed that fair
value is determined as follows:
(i) For accounting purposes, SIRC 11
performed internal valuations.
(ii) For other purposes - for example,
istibdal, valuation would be
performed by the State Valuation
and Property Services
Department.
Financial assets
How are cash waqf recognised SIRC 11 recognised cash waqf as
and measured? current liabilities under ‘Trust
Balances’. Staff of SIRC 11 claimed
that management maintained a
detailed breakdown of cash waqf
based on the settlor’s specified use.
How is income on waqf assets Rental income was recognised as waqf
recognised and measured? income, which formed part of SIRC
11’s total income.
120

SIRC 11 received a government grant
of RM1,500,000 for the building of an
orphanage on waqf land, but this was
statements.
Other observations For the year ending 31 December
2011, waqf land was revalued from
RM790,861 to RM78,100,200.
121
SIRC 12

Legal form of waqf
Are separate financial No, but a separate statement of
statements prepared for waqf? receipts and payments for waqf was
included in the financial statements.
statements
expenses.
Notes – There were no disclosures on
waqf assets or liabilities.
Other – Separate statement of receipts
and payments for waqf was included
Financial reporting
framework
“The accounts were prepared based on
What standards are used as the historical cost convention and in
basis for preparation of the accordance with approved accounting
financial statements? standards in Malaysia.”
Real property
How are waqf property According to staff of SIRC 12:
recognised and measured? Buildings – at cost less accumulated
122
depreciation
Vacant land – not recognised.
The note on building-in-construction
stated that the amount represented
capital expenditure from SIRC 12’s
own fund to develop property
belonging to SIRC 12 and to waqf.
Financial assets
How are waqf financial assets Cash and cash equivalents – at cost.
and measured? income, which formed part of SIRC
12’s total income.
How is income on waqf assets Returns (lease and rentals) were
formed part of SIRC 12’s total
income.
government assistance Staff of SIRC 12 claimed that
government grants were recognised as
How does the SIRC account for
income. There were no disclosures
about the nature of government grants.
disclosures does it make? Third party sources revealed that
SIRC 12 received a grant from a
federal government agency for the
building of a hotel on waqf land, but
this was not disclosed in SIRC 12’s
Other observations SIRC 12 has a wholly-owned
subsidiary that manages and develops
waqf property. The subsidiary is an
incorporated company that reports in
accordance with PERS.
123

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MASB Research Paper, Waqf

LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA

This Research Paper on accounting for waqf is issued by the Malaysian

Any enquiries should be addressed to:

The Executive Director

Tel: 03-2240 9200

Email address: masb@masb.org.my

© Malaysian Accounting Standards Board 2014

Numbering of Malaysian Financial Reporting Standards

Use of Arabic terms

MASB Research Paper, Waqf

The Malaysian Accounting Standards Board (MASB) has approved the

Additionally, with approval from the relevant SIRC, an incorporated

As there is increasing public interest in unlocking the potential of waqf, the

On 17 October 2014, the National Audit Department hosted a Roundtable

MASB Standing Committee on Islamic Financial Reporting

The Standing Committee is chaired by the MASB Chairman, and comprises

Encik Addellan Jusop

RESEARCH PAPER, WAQF

Real property held by a public sector entity 102 – 120

Tentative views on access to financial statements 200 – 204

IN2 If a waqf takes the form of an incorporated company, then its

IN3 Most waqf are, nevertheless, expected to continue to be under the

IN4 Additionally, a few public institutions of higher learning (institut

IN5 In a separate development, SIRCs seem more open to developing

IN6 Although financial reporting by a public sector entity such as a

IN8 The purpose of this Research Paper is to elevate the discourse on

Main features of the Research Paper

IN10 The Board’s tentative views are based on a study of financial

JAN Roundtable on Waqf Accounting

IN11 The National Audit Department (Jabatan Audit Negara or JAN)

Separate and consolidated financial statements

IN13 Most states do not have an enactment to require a waqf to present

participants at the Roundtable generally agreed that a specific

IN14 From an accounting perspective, the financial statements of a waqf

IN15 Where control is not present and consolidation is not required, a

Framework for financial reporting

IN16 The financial reporting framework that applies to a waqf would

IN17 Based on the Board’s findings, the applicable financial reporting

Ministry of Finance directive to adopt MPSAS by 2015.

Accounting for real property

measurement requirements for property, plant and equipment.

IN20 It is also possible for an entity to recognise an asset at nominal

IN21 There is currently a tendency to classify waqf based on the as

IN23 Some waqf are developed with government grants or government

IN24 Regardless of its legal form, waqf is widely perceived to be

Access to financial statements

IN25 A waqf that is other than an incorporated company is generally not

Determining and enforcing accounting standards

IN26 There is undoubtedly a need to improve the financial reporting of

Research Paper, Waqf

1 In Islamic jurisprudence, a waqf is the dedication of a specified

2 A waqf is comparable to an endowment, trust or foundation except

3 A waqf may be founded for a charitable purpose (waqf khairi),

4 Islamic law allows a settlor to found a waqf to perpetually benefit

5 The British also left a legacy of replacing privately appointed

6 Hadith regarding waqf originally referred to items of real property

7 With juridical personality established in modern law, the settlor

8 Additionally, many Islamic scholars (ulama) now espouse views

9 There are several aspects of waqf which have led to discussions

(e) Access to the financial statements.

10 In Malaysia, an entity that is expressly described as waqf usually

11 It is also possible for an entity that is not expressly described as