Rapid growth of Islamic finance is increasing pressure for the industry to enter the accounting mainstream, by seeking guidance from the International Accounting Standards Board (IASB), the global body which sets the tone for book-keeping in conventional finance.It would be a controversial move - by basing itself on religious principles, Islamic finance seeks to set itself apart from conventional finance. But some experts think the industry is becoming so big that it can no longer sit comfortably outside a trend towards harmonizing accounting rules across the world.Introducing guidelinesThe solution, some experts say, is to have the IASB introduce standalone guidelines under its IFRS framework that are tailor-made for Islamic finance. These guidelines would ensure a uniform approach across the industry while blending with the IASB's standards for conventional finance.Bodies such as the Asian-Oceanian Standard Setters Group (AOSSG), a regional organization which creates accounting guidelines, are calling on the IASB to put the drafting of Islamic finance standards on its agenda. The AOSSG has set up a working group to liaise with the IASB.More than three-quarters of 24 financial standards-setting bodies that responded to a survey by the AOSSG at the start of this year said there should not be separate Islamic accounting standards issued by other bodies outside the IFRS framework, because they could be incompatible with the global move towards convergence around IFRS, according to the AOSSG.Involving the IASB in Islamic finance may not be easy, however. While the IASB has said Islamic accounting may move onto its agenda as it begins to identify its project priorities in coming months, the body is preoccupied with a range of regulatory initiatives around the world, so it is unclear if Islamic finance will become a priority anytime soon.Also, the whole idea of having global reporting standards is that there is one set of rules which are not industry-specific. Adding standards specifically for Islamic finance could undermine the uniformity of IFRS standards and spur demands for other exceptions to be made.For example, the problem of how Islamic banks classify their leases to customers might be solved if the IASB agreed to describe them as operating, not financial, leases. But the IASB might not be willing to do this for fear of violating a basic accounting principle and disadvantaging conventional banks.In an interview with Reuters, Alan Teixeira, senior technical director at the IASB, said his body would consider the issue of Islamic finance. But he declined to say whether, when and how it might get involved in standard-setting."The ideal situation is to have one set of words that everybody can use," Teixeira said. "The biggest challenge will be to see whether or not we can write the right words that don't conflict with sharia law but fundamentally get the same level of transparency and good level of reporting."Teixeira said the IASB was thinking of setting up a working group to educate its board about sharia law so that it could make informed decisions."It might be that we can address any concerns by having guidance about how to apply or interpret certain aspects without necessarily changing an IFRS," he said.Regulator involvement could bring rivalryAnother potential problem is that any IASB involvement in Islamic finance could bring it into rivalry with other organizations.The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) already sets standards for the industry; Khaled Al Fakih, newly appointed secretary general of AAOIFI, has said it is conducting a strategic review of all its standards to make sure they are fresh, complete and relevant. Results of the review are expected this year.AAOIFI does not carry as much weight with regulators around the world as the IASB does, and many financial firms may prefer to deal with a single organization for both conventional and Islamic accounting, rather than contending with two separate bodies. So the IASB might ultimately win any contest for influence in Islamic finance - but the tussle would not be pleasant, and it could further confuse investors."The challenge AAOIFI has is in persuading various regulators to adopt its standards and that's going to be difficult in the current environment," said Hijazi."There is so much regulatory and governance change in the pipeline, it will be very difficult for the regulators to now call on financial institutions to produce an additional set of accounting or financial statements.""The whole thing about financial reporting around the world today is the global move towards a single comparable set of high-quality financial reporting standards..." said Samer Hijazi, financial services audit director at accounting giant KPMG, who monitors the development of Islamic finance.Islamic financial assets hit $1.3 trillion globally in 2011, a 150 percent increase over the past five years as the industry expanded into new countries beyond core markets in the Middle East and Malaysia, financial lobby group TheCityUK estimated last week.At present the industry remains governed by a patchwork of national regulators, Islamic standard-setting bodies and scholars interpreting Islamic law - a recipe for different rules and practices. This is creating confusion among investors, especially as major Western banks begin to enter the market.Most of the countries in which Islamic banks operate already use the IASB's International Financial Reporting Standards (IFRS). But these standards have been developed for conventional finance, not Islamic transactions, in which interest and pure monetary speculation are banned and trades must be underpinned by physical assets.So there is the potential for conflict between Islamic finance and conventional accounting rules. For example, in order to earn returns but not contravene the ban on interest, Islamic banks buy an asset such as a house on behalf of a customer and lease it out until the customer is able to acquire ownership.Under current IFRS standards, accountants say, this would probably be treated as a financial lease, requiring the bank to record the lease as an interest-earning loan - in apparent contravention of sharia law."IFRS is all about substance over form whereas sharia law is very much about compliance with legal form," said Andrew Hawkins, director at PricewaterhouseCoopers.