The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held its 22nd meeting (6th meeting for the year 2020) via video conference.
The main agenda item was review and approval of the exposure draft of revised financial accounting standard (FAS) 1 “General Presentation and Disclosures in the Financial Statements of Islamic Banks and Financial Institutions”. The revised standard included consequential amendments to other standards and the full set of illustrative financial statements. The board also reviewed a progress report 2020 on financial accounting standards development and approved its plan for 2021.
The revision of FAS 1 along with the AAOIFI Conceptual Framework (the framework) was initiated on a priority basis in line with the recommendations of the “AAOIFI Financial Accounting Standards (FAS) Review and Revision Project” carried out in 2018. The project aimed to assess the need to revise/ review all existing FASs, if necessary. The board approved and issued the initial exposure drafts of revised FAS 1 along with the revised framework in 2019. However, after further contemplation and in light of the recommendations from respective working groups, including comments from the Takaful working group, and workings groups for revision of FAS 23 and FAS 24 and AAOIFI’s Technical Advisory and Interpretations Committee (TAIC), the board perceived the need to reissue the exposure draft.
The revised FAS 1 consists of two parts: part 1 is applicable to all institutions and part 2 is applicable only to Islamic banks and similar Islamic Financial Institutions (IFIs). The revised FAS 1 has adopted certain terminology, that differs from what is set out in the respective FASs, for better understanding of the nature of the transactions and for standardization of its use. The board discussed the matter of terminology at length and observed that various projects are currently underway to revise and update the existing FASs. The standardized terminology shall be introduced in the new FASs. However, until these FASs are revised, the standardized terminology adopted in FAS 1 shall supersede what is used in the respective FASs. The exposure draft provides a list of this standardized terminology. The revised FAS 1 aims to assist preparers to produce financial statements that are clear, understandable and aid the users to take better economic decisions.
The board also reviewed the exposure draft of FAS 1 illustrative financial statements that would be issued along with the revised FAS 1. These illustrative financial statements are meant to serve as a means of guidance to the industry.
The board reviewed the progress report for 2020 and its plan for 2021. Overall, the board has successfully finalized four standards, one AAB statement on COVID-19 and two exposure drafts. For the remaining FASs currently undergoing revision, the board elaborated and decided to assign more priority to revision of FAS 3 /4, FAS 7 / 10, FAS 14, FAS 23 / 24, among others.
The board agenda also included a discussion on significant matters of the AAOIFI Technical Release (TR) on “Implementation guidance for FAS 31 “Investment Agency (Al-Wakala Bi Al-Istithmar)””. No comments or objections were raised on the draft. The TR is currently under review by the committee of the AAOIFI Shari’ah Board for Review of Accounting and Governance Standards (the Shari’ah committee) and will be issued upon completion of its reivew.
On this occasion, Mr Hamad Al Oqab, Chairman of AAB, stated that “this year has been quite challenging on many fronts. However, under such conditions the board and its working groups have worked extensively and tirelessly on the projects at hand. The issuance and approval of four final standards, which included the revised AAOIFI Conceptual Framework, and the conversion of six meetings for the year is a testament to the board members’ commitment to the mission of developing high-quality standards for the Islamic finance industry”. He also called on AAOIFI to closely monitor implementation and other challenges that the industry may face following the issuance of the final standards.
Mr. Omar Mustafa Ansari, the Secretary General, AAOIFI stated: “I would like to express my appreciation to all the members of the board and the working groups and the AAOIFI team for their support and continuous efforts in developing the standards for the best interest of the industry”.
Details of public hearings scheduled for 2021 for the newly issued FASs will be announced in due course for participation by the industry stakeholders.
All AAOIFI standard can be accessed exclusively by the digital version (of AAOIFI standards) subscribers, and free subscription can be attained on the AAOIFI website: www.aaoifi.com