The Accounting Board (AAB / the board) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held its 26^th meeting on 3-4 December 2021, the first physical meeting to be held since 2020, at the AAOIFI head-office, Manama, Kingdom of Bahrain.

The meeting commenced with discussion on the board’s performance report for the period January to December 2021 which include the issuance of three exposure drafts and approval of three final standards. During the period, over 23 working group meetings and more than 40 short sub-committee and executive meetings were held for the development of multiple AAB projects. Additionally, nine public hearing sessions and three roundtable events were held on the exposure drafts issued in the year.

The board agenda included the review and finalisation of revised Financial Accounting Standard (FAS) 18 “Financial Reporting for Islamic Financial Services Offered by Conventional Financial Institutions” i.e., financial accounting standard on windows. The finalisation process entailed discussion on recommendations received from the working group including those received during the public hearings. The board accordingly adopted the final standard and approved it for issuance in light of the suggested changes. The standard was renamed to FAS 40 “Financial Reporting for Islamic Finance Windows”.

The board agenda also included the discussion of the results of three topics that the board could not reach consensus upon in the previous meeting which resulted in further consideration through a voting process circulated via email.

The board established consensus and agreed to retain the statement of Zakah, charity and Qard in the notes to the financial statements citing that a clear and detailed picture of the uses and applications of the same shall be conveniently achieved through a comprehensive disclosure.

The board also reached consensus regarding the final recommendations on the need to withdraw or revised FAS 26 “Investment in Real Estate”. The board agreed that the standard will not be withdrawn and instead the standard will be revised in line with new developments in the market related to investment in real estate as well as generally accepted accounting principles.

The final topic related to accounting for Zakah due by virtue of constitution documents. The board agreed in principle that Zakah is not computed on shareholders’ equity but rather, it is computed on the basis of Zakatable assets. Moreover, the requirements of the constitution documents shall be considered a legal requirement for the institution for this purpose. Therefore, the board upheld its view of the accounting prescribed in the exposure draft and approved the standard for final issuance.

The board was also presented with the AAOIFI Shari’ah Board comments as well as working group recommendations on exposure draft on “Tawarruq and Commodity Murabaha”. The board agreed further research was required for the accounting of such products in line with Shari’ah principles and rules.

The board briefly discussed the exposure draft of AAOIFI illustrative financial statements in line with FAS 1 (Revised 2021) and instructed the secretariat to make further improvements, before resubmission to the board for further elaboration.

On this occasion, Mr. Hamad Al Oqab, Chairman, AAB, stated that “this meeting, in particular, tackled very important issues and agenda topics. This includes the final approval of revised FAS 18, which we hope will provide the much-needed guidance to the conventional financial institutions offering Islamic finance products and services. The board also finalised its plans for the upcoming year and prioritised the issuance of standards for 2022 based industry needs”.

The board plans to hold six meetings in 2022.

All AAOIFI standards can be accessed exclusively by subscribers to the digital version of AAOIFI standards, and free subscription can be attained on the AAOIFI website: www.aaoifi.com