On Conclusion of 3rd Meeting of AAOIFI Governance and Ethics Board, AAOIFI Issues Exposure Drafts for Standards on Central Shari’ah Boards and External Shari’ah Audit

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the third meeting of its Governance and Ethics Board (AGEB) on 21st and 22nd of December 2016, in the Kingdom of Bahrain.

The Board reviewed updates and approved changes to working group compositions including additions and amendments to the work plan for 2017 and agreed on the targets for finalization of several projects.

In particular, the exposure draft of the governance standard on “Central Shari’ah Board” was approved and 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 proposed standard covers several key aspects such as the appointment, composition and dismissal of the board members; tenure of the board; functions of central Shari’ah board; responsibilities of the appointing authority; fit and proper criteria and independence.  The exposure draft is expected to be issued by beginning of 2017 and will be posted on AAOIFI website. Public hearings, as per AAOIFI policy, will be held during beginning of 2017 to get the industry feedback on the exposure draft.

The Board further discussed several topics on its agenda, the most important of which were:

  • The exposure draft of the auditing standard on “External Shari’ah Audit” was discussed at length. The members discussed the key contents and the pertinent provisions of the draft and provided their input with regard to the definitions used; the compliance and ethical requirements; the underlying subject matter of the external Shari’ah audit; the criteria; using the work of the internal audit and internal Shari’ah review functions; using the work of the Shari’ah review and the report of the Shari’ah supervisor(s) and the documentation requirements. The Board also discussed that the standard will be followed by detailed guidelines on performance of external Shari’ah audit. This exposure draft and the respective project is being conducted by the AAOIFI Secretariat with the help and input from the Institute of Chartered Accountants of Pakistan (ICAP). The Board approved the principal contents and provisions of the exposure draft and requested the working group and the technical team to make specific amendments in line with the Board’s instructions. The revised exposure draft is expected to be published in the first quarter of 2017.
  • The Board reviewed its progress over the last year which was the first year after reconstitution. The Board also discussed the progress on the projects being carried forward to the next year including the Internal Shari’ah Audit, Shari’ah Compliance and Fiduciary Rating, and Comprehensive Ethics projects.
  • The Auditing Guidance Note No. 1 – “Communication of Key Audit Matters in the Independent Auditors’ Report” was discussed and approved, duly encompassing the AAOIFI views on the provisions for, and contents of, the long form audit report in line with global best practices (including ISA 701). The same will be issued in due course after taking the approval from AAOIFI Accounting Board.

 The next AGEB meeting is proposed to be held by March 2017, in Oman.