The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has been closely monitoring the current economic situation and is aware that Islamic Financial Institutions (IFIs) may require guidance to deal with the challenge of objectively and faithfully presenting their financial statements.
IFIs are different from conventional financial institutions in many aspects. They have multiple stakeholders who share the profit or loss of the institution, and all transactions are based on trade, giving assets on rent, or partnership. The nature of the Islamic finance transactions is in contrast to conventional finance transactions, and the accounting treatments may get confounded when complex and unusual events arise. It is important to assess the true nature of the Islamic finance transactions, and apply accounting treatments accordingly.
The AAOIFI Accounting Board (AAB) is cognizant of such issues and had formed a COVID-19 response taskforce with a mandate to monitor and provide guidance in the application of FASs as soon financial implications of the pandemic started appearing.
After due deliberations AAB has issued a statement “Accounting implications of the impact of COVID-19 pandemic” to provide clarifications and interpretations on accounting treatments in line with the relevant FASs arising in these challenging times.
The due deliberation process included multiple meetings of the taskforce, consultation with multiple key stakeholders (leading IFIs, audit firms and regulators from various jurisdictions), in writing and through a focused workshop and review by the AAOIFI Committee of the Shari’ah Board for Review of Accounting and Governance Standards to ensure conformity with Shari’ah. AAOIFI expressly acknowledges and appreciates the support of the industry and participants who attended these sessions and / or provided their written comments.
The Chairman of the AAB, Mr. Hamad Al Oqab stated that “The AAB is confident that the FASs are robust and flexible enough to address the challenges posed by the prevalent uncertainty in the environment. However, it is important for the IFIs to faithfully represent financial information to all stakeholders and provide confidence to the industry, worldwide.” He added that “the scope of this statement is to only provide clarifications and interpretations of AAOIFI FASs and the Framework in respect of certain significant issues identified by the taskforce that may be effected as a direct result of the COVID-19 pandemic”.
On this occasion the secretary general of AAOIFI, Mr. Omar Mustafa Ansari reiterated that the impact of COVID 19 is widespread, and it effects all aspect of the global financial system. IFIs must pay attention to their unique features, characteristics and risk exposures and consider the effect the outbreak may have on their financial reporting practices and related financial statement disclosure. He confirmed that this statement is meant to guide the IFIs in this process and address specific issues that are unique to the IFIs.
The statement can be accessed BY CLICKING HERE