The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held its 23rd meeting on 16 March 2021 via video conferencing.
The main agenda items included presentation and discussion of working group comments and recommendations as to the questions raised as part of the preliminary study for revision of financial accounting standards (FAS) 3 “Mudaraba Financing” and FAS 4 “Musharaka Financing”. The meeting also held extensive discussions on exposure draft of revised FAS 18 “General presentation and disclosures for Islamic financial services offered by conventional financial institutions”.
These projects were initiated the “AAOIFI Financial Accounting Standards (FAS) Review and Revision Project” (completed 2018) as part of the new strategy adopted by the board in 2016.
The board earlier recognized the practical challenges in establishing a fully-fledged Islamic bank in jurisdictions that do not mandate AAOIFI FASs. As the demand for Islamic financial services grows, many conventional financial institutions now offer Islamic finance services under a Shari’ah compliance proposition. The board discerned the need to revise FAS 18 in light of the rapid growth of the industry and the increasing demand for standards that address the requirements of specific stakeholders. The new FAS 18 will supersede the earlier FAS 18 “Islamic financial services offered by conventional financial institutions”.
On this occasion, Mr Hamad Al Oqab, Chairman, AAB, stated that “Islamic financial services are no longer restricted to Islamic financial institutions. Rather, these services are offered by institutions that do not strictly comply with Shari’ah principles and rules or apply AAOIFI standards. Therefore, the board concluded that after the completion and issuance of the revised AAOIFI Conceptual Framework last year, the revision of the standard on Islamic windows or broadly Islamic financial services offered by conventional financial institutions would be required on a priority basis”. He further added, “conventional financial institutions differ in their structure and form, while specific institutions provide Islamic financial services through Islamic investment funds, others provide Islamic banking services through stand-alone branches, divisions and windows. This standard is expected to provide the much-needed uniformity and harmonization in response to the demands from the industry”.
In connection with the FAS3-FAS4 project, the board’s suggestions and comments on the preliminary study will be provided to the respective working group and in line with the requirements of the board and working group, the secretariat will commence the drafting process of the revised standard.
AAOIFI is currently holding multiple public hearing events online. Details of public hearings scheduled for 2021 for the newly developed FASs will be announced 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