The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 13th meeting of its Accounting Board (AAB) on 22 and 23 March 2019 in the Kingdom of Bahrain.
The Board was presented with the final report of the AAOIFI FAS review and revision project. The project – launched in June 2018, was designed to implement a review and revision process for all existing FASs and the dedicated working group to provide recommendations thereon. In its final phase a report was presented which included all final conclusions and recommendations to the Board. The recommendations took into account the online survey – launched in October 2018, and industry expert comments presented at the roundtable event hosted by Al Baraka Bahrain on 19 December 2018.
The Board agreed with the recommendations and concluded that certain FAS after the recommendations of the working group would be revised and / or combined with other FAS as deemed appropriate. In this regard new working groups were formed with members from the Board with other experts in the industry would also be requested to be a part of these working groups. The Board reiterated that the scope of the working groups would include taking into account all core principles and new requirements from recently issued globally accepted accounting standards, all the while keeping in line with AAOIFI Shari’ah standards as Shari’ah is paramount in all FAS.
The scope of the working group will include assessing the suitability of combining standards under one FAS. Such as FAS 3 and FAS 4 (Mudaraba / Musharaka); FAS 7 and FAS 10 (Salam / Istisna’a). Additionally, a possible combined FAS 23 and FAS 24 (Consolidation / Investments in associates) to be in line with globally accepted accounting principles on accounting for consolidation / business combinations and accounting for subsidiaries, associates and joint ventures.
Other FAS such as FAS 14 “Investment funds” and FAS 26 “Investment in real Estate” are to be revised due to its significance. Additionally, the Board also agreed with the recommendation that the guidance note on the first-time adoption of AAOIFI FAS to be improved and issued as a standard. The Board also added that certain aspects previously not covered in FAS such as accounting for hyperinflation will be considered as well. Finally, the Board recommended that all FAS shall identify any perceived gaps and provisions will be made into the new standards or added into the revised standards that would be withdrawn.
The work plan and summary of FAS under revision can be accessed on the AAOIFI website BY CLICKING HERE
On this occasion Mr. Hamad Al Oqab, the Chairman of AAB commented that the current Board’s performance and achievements to date are in line with the vision of the full-fledged implementation of FAS for the Shari’ah conscious stakeholders across the globe. He further added that “standards issued to date would continue to harmonize and standardize the accounting practices of the Islamic finance industry. The extensive revision of FAS initiated will commence with this Board while the successor Board will continue to work on the revised FAS in the pipeline which are crucial to the industry”.
The Board was also presented with the revised exposure draft on the “AAOIFI Conceptual Framework for Financial Reporting by Islamic Financial Institutions” (the conceptual framework). This is as a result of the AAOIFI financial accounting standards development strategy of providing comprehensive guidance on improved recognition, measurement and presentation criteria. A comprehensive conceptual framework is meant to provide a frame of reference with fundamental principles for setting accounting standards and forms as a basis for resolving accounting disputes in a manner suitable and in compliance with Shari’ah principles and rules. The Board in its strive for continued improvement of the existing financial reporting practices decided to revise the existing conceptual framework after observations and current market practices noted over past several years. The revised conceptual framework introduces the main objectives as well as the concepts underlying financial accounting and reporting by Islamic banks or IFI and accordingly would supersede the existing conceptual framework. The Board observations and recommendations will be next presented to the working group and thereafter be presented at the next AAB meeting in June for finalization.
The Board also discussed preliminary study and conclusions of the revision of FAS 1 “General presentation and disclosures in the financial statements of Islamic banks and financial institutions”. The objective of a revised FAS 1 is to provide significant enhancement and make FAS 1 more comparable with the generally accepted accounting framework like IFRS, enabling users to apply AAOIFI accounting standards in a more consistent manner. The feedback received by AAB shall constitute the basis for the key future activities undertaken by the working group for the development of the revised FAS 1 which will include all mandatory and general disclosures. FAS 1 will consider the requirements of other FAS such as FAS 16, FAS 21 and FAS 22.
The Board was also presented with an update and report of the comprehensive revision of FAS on Takaful (i.e. FAS 12, 13, 15 and 19). The revision will include a short industry specific survey and interviews. It is expected to present the first output in the form of a revised exposure draft of FAS on Takaful towards the end of 2019, with the target to keep the application date similar to IFRS 17 of January 2022.
The next AAB meeting is scheduled to be held in June 2019.