Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 15th meeting of the its Accounting Board (AAB) on 15 and 16 September 2019, at AAOIFI head-office in the Kingdom of Bahrain.
The Board considered three top priority Financial Accounting Standards (FAS) projects falling in its current term which will end in November 2019 – that is, FAS on “First time adoption of AAOIFI Financial Accounting Standards”, FAS on “Financial reporting for Waqf”, and revised FAS on “Zakah” (working group conclusions).
The Board deliberated on the exposure draft of FAS on “First time adoption of AAOIFI Financial Accounting Standards”, which will supersede a guidance note that was issued earlier on the same. The Islamic financial industry has grown exponentially since then, and the Board sensed the need to address new developments and requirements by a full-fledge standard in order to better assist the institutions which contemplate adoption of AAOIFI FAS.
The objective of this standard is to enable institutions to carry out adoption of AAOIFI accounting standards for the first time, and to prepare accounting records and financial statements based on the AAOIFI FASs. The new standard will replace the previous guidance note issued by the Board and should be read together and in line with AAOIFI Shari’ah Standard No. 6 “Conversion of a Conventional Bank to an Islamic Bank”. The exposure draft will be immediately issued after having incorporated all the Board comments on the latest draft.
Mr. Hamad Al-Oqab, Chairman, AAOIFI Accounting Board, stated commenting on the approval of the exposure draft on first time adoption of AAOIFI FASs that: “this standard is being issued according to the AAOIFI FASs development strategy that hinges on providing a comprehensive guidance in a clear and understandable manner. The Board in its constant endeavour seeks to enable the preparers of financial statements to produce information that is comparable with the previous periods as well as with that of conventional institutions.” He further added that “the new standard is expected to facilitate a smooth transition from conventional accounting frameworks to AAOIFI’s framework. AAOIFI and its Boards are always keen to be as close as possible to stakeholders and would save no efforts towards betterment of FAS, taking into consideration the ground realities in terms of application or potential application of these standards and pronouncements”.
The Board was also presented with the exposure draft on “Financial reporting for Waqf”. The AAOIFI Waqf project initiated in 2016 was in response to the growth of activities and evolution of different forms of Waqf institutions. Waqf institutions are entrusted with an appreciable amount of fiduciary responsibilities, which particularly prompts control of possibilities of corruption (financial or otherwise). These efforts resulted in the development of two standards on Waqf – the Shari’ah standard on ‘Waqf’ (developed and issued by AAOIFI Shari’ah Board) and governance standard on ‘Waqf Governance’ (currently as an exposure draft, developed and issued by AAOIFI Governance and Ethics Board). The Board takes special care in supporting the reporting requirements of Waqf in a more effective and efficient manner. This FAS marks the culmination of the AAOIFI comprehensive Waqf project.
The exposure draft on Waqf aims to introduce the main objectives as well as the concepts underlying financial reporting and the general presentation and disclosures in the financial statements of Waqfs. The standard establishes the principles of financial reporting for Waqf institutions, which are established and operating in line with Shari’ah principles and rules. The standard shall be applicable on all types of Waqf entities and other entities constituted on the concept of Waqf, and operating in line with Shari’ah principles and rules, irrespective of their legal status, including virtual Waqf entities. The comments and views of the Board will be incorporated and presented to the working group in its upcoming meeting. The final version of the exposure draft will be presented at the next Board meeting for approval and issuance.
The Board meeting, furthermore, reviewed the comments and views of the working group on the revision of FAS on Zakah. The main conclusions of the Board will be presented to the Zakah working group and the final version of the exposure draft on the revised FAS on Zakah would be on the agenda of the Board in its next meeting.
Next meeting of the Board is scheduled to take place on 31 October-1 November 2019 in the Kingdom of Bahrain.