Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the fifth meeting of its Accounting Board (AAB) in the current term on 18th and 19th of March 2017 at it’s head office, in Manama, the Kingdom of Bahrain.
The exposure draft of the accounting standard on “impairment and credit losses” was approved in principle, whereby the working group and the secretariat were directed by the Board to issue the exposure draft after ensuring the improvements identified by the Board.
The standard aims at setting out the accounting rules and principles for impairment and credit losses, covering current and expected losses, in line with global best practices, taking into account the ever-changing requirements and the genuine requirements of the Islamic finance industry across the globe. It also sets out classification of assets and exposures in view of the credit risk and other risks involved. The idea is to apply the forward looking approach in line with other standard setters for the assets and instruments that are financial instruments from Shari’ah perspective and to define other globally acceptable impairment and write down and provisioning approaches for other assets and exposures, without compromising on Shari’ah.
The standard along with the expected outcome of simultaneous project for development of standard for reserves will supersede the earlier FAS 11 “Provisions and Reserves”.The exposure draft, will be shortly available on the AAOIFI website. Public hearings will be held soon to get the industry feedback on the exposure draft.
The Board also discussed/approved the formation of accounting and governance standards committee of the Shari’ah Board. The committe will perform reviews of all of the accounting, auditing, governance and ethics standards issued by the technical boards to ensure they are not in conflict with Shari’ah standards. The AAOIFI Shari’ah Board in its meeting held on 9-12 March 2017 approved the formation of the committee.
The Board also discussed a proposal submitted by AAOIFI’s General Secretariat to issue a package of Waqf standards including Shari’ah, accounting and governance standards. The Waqf project specification regarding accounting were discussed and approved by the Board, where the members deliebrated on the idea itself, cooperation, finanical and technical support from a nonprofit organization as well as approved the suggested names for the working group of the project.
The next AAB meeting is proposed to be held on the 20th and 21th of May 2017, in Bahrain.