Taufiq Affandi, muhammad (2019) Proft Equalization Reserve and Investment Risk Reserve: Issues and its Application. Proft Equalization Reserve and Investment Risk Reserve: Issues and its Application, 5 (2). pp. 295-315. ISSN ISSN 2460-1896 (Print) ISSN 2541-5573 (Online)

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Abstract

The Islamic Financial Institution (IFI) is a unique fnancial institution which has special characteristics, maqāsid, worldview, risk, and opportunity. One of the methods used to mitigate the unique risk of Islamic banks is the Proft Equalization Reserve (PER) and Investment Risk Reserve (IRR). However, there are some issues related to PER and IRR. Some issues have been identifed in the Islamic Financial Services Board (IFSB) guidance note, including proft smoothing and other issues yet to be discussed. This paper tries to observe issues related to PER and IRR and their application in some Islamic banks using content analysis method on their annual reports and/or fnancial statements. The paper concludes that PER and IRR will bring bigger issues and risks to Islamic banks. This leads the writer to suggest that the regulator reconsider its permissibility. In addition, the paper also fnds that the concept of PER and IRR has low acceptance among Islamic banks. Keywords: Proft Equalization Reserve (PER), Investment Risk Reserve (IRR), Risk Management, Islamic Banking.

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