AAOIFI Holds a Public Hearing on ‘Risk Reserves’

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), held a public hearing session and webinar option at its Head Office in Bahrain to discuss the exposure draft on Financial Accounting Standard (FAS) No: 35 Risk Reserves. The event was attended by Shari’ah Scholars, personnel from the banking and finance profession, professionals from audit firms, academicians and students of Islamic finance from various parts of the world through a webinar.

This standard intends to define the accounting principles for risk reserves maintained for the benefit of participatory stakeholders like investment account holders and Sukuk-holders etc. The standard encourages maintaining adequate risk reserves to safeguard the interest of such stakeholders, against various risks including credit, market, equity investment risks (insofar as not already taken care of by the allowances and provisions under FAS 30), as well as, the rate of return risk (including displaces commercial risk). This is expected to provide better stability to the Islamic finance industry in line with the best practices. This standard together with FAS 30 “Impairment, Credit Losses and Onerous Commitments” supersede the earlier FAS 11 “Provisions and Reserves’.

All industry feedback received—in the form of questions, comments, suggestions, and recommendations—during the public hearings, as well as, directly provided to AAOIFI is collated and presented to the respective working groups and boards to to be considered, discussed and deliberated before the final issuance of the standards. This standard is expected to be finalized and issued by the end of May 2018.

Multiple public hearings for AAOIFI accounting and governance and ethics standards are scheduled in different countries to obtain industry feedback on other issued exposure drafts.

Details of upcoming public hearings, with respect to dates and venues, will be announced shortly.