Implementation, accounting and reporting of tawarruq according to AAOIFI and IFRS

The first applications of Islamic finance system started in 1963. Studies on the implementation of the instruments issued for this system increased considerably worldwide after 1980. Many interest-free products have been developed based on these needs of those who demand to carry out financing transactions in an interest-free manner. Some of these products were also partially applied in the early Islamic period. Today, these products have been developed and applied in Turkey as well as in many countries. This institutions serving under the name of Islamic Banking in many Islamic countries, carries out their operations under the name of participation banking in Turkey. One of the methods used by participation banks, tawarruq means "finding cash" in practice. Participation banks use tawarruq method when their customers need cash. Similarly, customers use tawarruq to configure the financing debts they have previously used and become unable to pay. The tawarruq model is a very new product in Turkey and is used by three of the five participating banks operating in Turkey. In our study, interviews were conducted with the accounting departments of different participation banks. The interview mainly sought answers about how tawarruq transactions were reported according to AAOIFI accounting standards and IFRS standards and what the difference in records was. During interview the study included the opinions of experts from the accounting departments of the three participation banks operating in Turkey and performing tawarruq transactions. The study concluded with records on accounting and reporting of tawarruq transactions.