An evaluation of the use of short term and long term Islamic financial instruments and their impact on the financial statements of an organization
“The improved knowledge of the different financial instruments in general and the Islamic Financial instruments in particular along with the discussion of the findings and presentation in a financial statement and the guidance of a highly qualified mentor are the main factors for creating a successful RAP”
The Islamic financial system is based on the Islamic Law (Shariah Law) and is guided by the Islamic economics. The Islamic financial system has two basic principles: the sharing of profit and loss, and prohibition of the collection and payment of interest. Due to the unethical means of collecting money by the corporate culture, it is important to use the Islamic financial instruments within a financial system.
In recent years the Islamic financial instruments have gained popularity in the Muslim world, but have also attracted more attention and gained wider acceptance throughout the world. In his address to the World Islamic Economic Forum (WIEF) in London on October 29th, 2013, the British Prime Minister David Cameron declared the introduction of the Islamic Index for the British Stock Exchange (first of its kind) and the plans for Britain to become the first non-Muslim country in the world to issue Islamic bonds (Source: Business Recorder). On this recent development, we can estimate the importance of the different financial instruments throughout the world.
The student needs to consider an important aspect of this topic, that is his knowledge and understanding of the different financial instruments that the student has learned during the different ACCA qualifications and the fair understanding of the Islamic financial instruments. The student needs to investigate the pros and cons of the use of Islamic financial instruments and its impact on the general financial statement of the selected company. Even if the ACCA students do not possess significant knowledge on the various Islamic financial instruments, the knowledge on the other financial instruments can help them understand the Islamic financial instruments as the majority of the principals are the same is many of these, except the two basic principles of Islamic Law that were outlined above. The internet is a great source of information pertaining the different Islamic financial instruments and under the guidance of a highly qualified mentor, the student can successfully pass the RAP.
- Evaluation of the different Islamic financial instruments.
- Evaluating the different short and long-term Islamic financial instruments that are in use in the selected company.
- Discussing the overall impact of the different short and long-term financial instruments in the selected company.
- Discussing the efficiency of the management of the selected company in meeting the basic principles of accounting with respect to the use of different short and long-term financial instruments.
- Providing quantitative and qualitative analysis to properly support the mentioned aspects.
- Keeping a good balance during the explanation and analysis of the various aspects required by this topic.
Key Success Factors
- Adequate knowledge of the different financial instruments and their impact on the financial statements of a company.
- Good knowledge of the different short and long-term Islamic financial instruments.
- An adequate discussion of the different aspects of the short and long-term Islamic financial instruments.
- Adequate assessment of the different short and long-term Islamic financial instruments in relation to their influence on the financial statement of the selected company.
- Adequate application of the selected goals and objectives that were decided in the beginning of the RAP in the proper sections of the RAP.
- Adequate answers to the research questions set up at the beginning of the RAP in their appropriate sections.
- The use of good research methodology to get good results on the selected goals and objectives that were set up at the beginning of the RAP.
- Keeping the logical flow of the discussion by considering all the requirements of the topic.
- Provide logical conclusions to the work at the end of the Research Report by considering all the requirements of the topic.
Major benefits of choosing this topic
- The student can implement their theoretical knowledge in practical situations.
- The student will become aware of the adequate implementation of the Islamic financial instruments.
- The student will become familiar with the necessary steps related to the recognizing and valuating of the financial instruments.
- The different techniques acquired while preparing this topic will be of great help in the professional career of the student.
Major possible limitations faced by the student under this topic
- The student may face unavailability by the management of the selected organization and not be granted access to the required information due to reasons like unavailability of authorized personnel or confidentiality reasons.
- The student may face lack of information from secondary sources of information due to improper research approach, or lack of ideas for improving the project.
- The student may face confusion by the possible variation in the actual information from the primary sources and the information gathered through the secondary sources and the student’s research work.
Suitable organisation under this topic
A most suitable company for this topic is a company for which the student will have access to the management of the company and the management will be willing to provide the necessary information required for completion of this topic. The selecting of the company is of major importance as the student needs to have a good understanding of the general operations of the company along with knowledge of the sector in which the company operates. On the knowledge of the company and sector, the student can connect all the important aspects of the general operations of the selected company with the prescribed requirements of the topic and prepare a quality RAP and get good grades.
When making a decision for a company for their RAP, the student will need to follow these aspects:
- The personal interest of the student in relation to the general business of the selected company;
- Access to primary sources of information (major importance in topic 5);
- Access to reliable secondary sources of information;
- Familiarity with the general operations of the selected company (major importance in topic 5);
- Familiarity with the sector associated to the selected organization;
- Accessibility to important officials within the selected company (major importance in topic 5);
- A general idea of the requirements of this topic and their proper application in the selected company at the beginning of the RAP.
Suggested approach for this topic
For the necessities of topic 5, the student will need to make a proper plan to complete all tasks in a timely manner. The student will need to have an adequate understanding of the main requirements of the topic and make an analytical assessment of the requirements by outlining a proper strategy. At the beginning of the preparation for the RAP, the student will need to make an evaluation of the necessary processes that need to be followed in order to meet the prescribed requirements of the topic,
The student will have to make a table of contents of their RAP under topic 5 in a logical manner and it has to cover all the tasks that the student needs to adhere to. The prepared table of contents will help the student to stay on the proper track from the beginning of the project, and the student can estimate the necessary time for completing the various tasks required for the proper completion of the RAP.
After setting the table of contents for the RAP under topic 5, the student will have to start gathering information in a logical manner. All the gathered information needs to be analytically evaluated with proper consultations with the Project Mentor. The feedback from the Project Mentor is very important to the student, and the student mustn’t hesitate in regularly sharing the thoughts with their Project Mentor and getting sufficient guidance on this topic.
There is not a uniquely prescribed approach for topic 5 and only a general approach is described here. The detailed approach for topic 5 depends on the student’s perception of the prescribed requirements of the topic and the available information for the selected company. No matter the chosen approach, the student needs to get the continued guidance from their Project Mentor along every step of the preparation of the RAP so that all the requirements of the topic are met and a good RAP is prepared.
Availability of Information
The student needs to prepare their RAP based on the provided information directly from the management of the selected company as a primary source of information along with the various other relevant secondary sources of information like online sources, newspapers, journals, books, etc. The availability of information from the primary source is of major importance for topic 5, as this topic cannot be completed without the obtaining of specific information on the selected company. The student needs to confirm that they have access to extensive information from the management of the selected company and there are no confidentiality clauses related to this information.
The student needs to cautiously consider choosing topic 5 for their RAP, as the prescribed requirements of topic 5 are only met if the student has access to enough relevant information on the selected company. If there are any issues in acquiring the required information during the preparation of the RAP, the student should consider choosing a different topic, as the improper information can lead to low-quality RAP and low grades or even failing the RAP.
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