AAOIFI Accounting Board Approves Amendment to FAS 25 (Investment in Sukuk, Shares and Similar Instruments)

The AAOIFI Accounting Board (AAB) passed the following resolution in its 8th meeting held on 11-12 Rabi’ II 1439H, corresponding to 29-30 December 2017:

“In the Financial Accounting Standard No. 25, “Investment in Sukuk, Shares and Similar Instruments” following amendments are hereby approved:

  1. In paragraph 2/2, after the first bullet point the word “and” shall be deleted;
  2. In paragraph 2/2, after the first bullet point another bullet point shall be inserted to be read as “investment at fair value through equity”;
  3. In paragraph 3/12, after the words “Dividends from investments”, the phrase “and return on Sukuk and similar instruments accounted for at fair value through equity” shall be inserted; and
  4. In paragraph 4/1, after the words “into or out of the fair value”, the phrase “through income statement, and fair value through equity” shall be inserted.

The above amendments shall be applied retrospectively, unless impracticable, by an IFI corresponding with the adoption of FAS 30. Application of the above amendments and effects thereof shall be disclosed in the financial statements in the period of first application.

Mr. Hamad A.Al Oqab, Chairman of AAB explained that the objective of the above amendment is to allow the accounting for debt-type instruments under the third category of “investment at fair value through equity” in line with the global best practices. We have noted different comments from the industry that IFRS 9 allows this third category, and Islamic banks feel deprived because this is not allowed by AAOIFI FAS 25 currently. Therefore, Islamic banks particularly investment banks are at a comparative disadvantage. While FAS 25 is being revised, it is understood that this treatment will be allowed, it was considered important to allow the same for the current year with immediate effect.