Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the international standard-setting organization for Islamic finance, recently held the third meeting of its Accounting Board (AAB) on 24th – 25th September 2016, in its current term of office, at AAOIFI premises, in the Kingdom of Bahrain.
The Board reviewed updates and follow-up on its work plan for 2016 including projects on several financial accounting standards that were assigned to respective working groups earlier this year.
Furthermore, the Board discussed a number of issues, including:
- Review of the financial accounting standard (FAS) on Murabahah, which has reached the stage of final exposure draft. In this regard, the board disccused the draft along with the remarks and comments submitted by the chairman of the respective working group. Also, The Board contemplated the need to merge FAS 2 and 20 into a comprehensive standard on Murabaha and Deferred Payment Sales as well as the need to develop a separate standard on Tawarruq and Commodity Murabahah.. The Board finalized all amendments to be made to the exposure draft, including the set of definitions to be included, the terminologies that require amendment and the disclosures and break-downs that need to be added to the final version of the Standard.
- The structure of the Sukuk standard along with highlighting the most important areas for consideration. Also, the Board discussed the need that experts are engaged to expedite the finalization of the Sukuk standard by year-end, in addition to the need to incorporate expert opinions and insights collected at the Sukuk Workshop on 26-27 October 2016 which has been held in collaboration with King Fahd Univesity for Petrolum and Minearals, Dhahran, Kingdom of Saudi Arabia.
- The Board also went through the methodology for the key questions to be addressed in its project on provisions, reserves, and impairment expected losses (taking into consideration the requirements of IFRS 9). The findings of the first meeting of the respective working group were also discussed by the Board. Furthermore, the Board approved the timeline of submission of consultation notes and exposure draft. A meeting to discuss the progress of the project was also suggested to be held shortly.
- The Board stressed again the need for the General Secretariat and the respective workings groups to expdite the projects that were assigned to them, including financial accounting standards on Sukuk, Wakala, Waad and Khayar, and Zakah. In this regard, the Board also emphasized on the importance of finilzation of the exposure drafts of new standards by the working groups so that the Board can review these drafts by the end of 2016.
- The AAB advised AAOIFI’s General Secretariat and the technical team that the draft standards are expected to be formulated through a technical methodoloy that takes into account relevant international standards and contemplate convergence wherever possible, without compromising Shari’ah rules and precepts and Islamic finance principles in connection with the requirements of AAOIFI’s framework.
AAOIFI will hold a meeting in November at which the FAS on Murabaha will be reviewed and adopted. The next AAB meeting will be held at the end of December 2016 in Jeddah, Kingdom of Saudi Arabia.