The Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI’s) Accounting Board (AAB / the board) held its 40^th meeting on 7 October 2024, via video conferencing, in the Kingdom of Bahrain. The board approved in principle the issuance of exposure draft (ED) of Financial Accounting Standard (FAS) on “Istisna Based Development Contracts” which is the second output of the revision project of FAS 7 “Salam and Parallel Salam” and FAS 10 “Istisna’a and Parallel Istisna’a”.

The board also reviewed and deliberated on the progress being made in the standards development and review projects, agreeing on the priorities as to its annual plan for the remainder of the current year. It also reviewed the progress achieved in the standards development and review projects, currently underway. For its strategy, the board members stressed the importance of ensuring that its initiatives remain closely aligned with established goals, taking into account both industry needs and stakeholder feedback.

The objective of ED of FAS on “Istisna Based Development Contracts” is to prescribe the appropriate accounting and financial reporting principles for recognition, measurement, presentation and disclosures to apply in relation to Istisna-based development contracts for the developers and customers in such transactions.

In cognisance of the increasing traction of integrated reporting and sustainability related exposures, the board has decided to establish a joint working group comprising members from both the AAOIFI Accounting Board and the AAOIFI Governance Board to set the tone for the expected output project.

The board also deliberated on the terms of reference of the newly established “ AAOIFI Takaful Accounting Committee” (ATAC). The board discussed ,in detail, the committee’s operational guidelines and its authoritative status. Comprising various experts in Takaful from different regions of the world, the committee aims to consider and improve the application of Takaful accounting practices while addressing real-time issues raised by a diverse base of stakeholders within the industry.

Mr. Omar Mustafa Ansari, Secretary General of AAOIFI, stated: “The newly issued exposure draft is anticipated to enhance financial reporting for stakeholders utilising Istisna-based development contracts by prescribing comprehensive accounting requirements and treatments from both the seller’s and buyer’s perspectives.” He also expressed gratitude for the board’s significant efforts and unwavering commitment to improving existing financial accounting standards towards addressing existing gaps and issues.

Mr. Hamad Al Oqab, Chairman of the AAB, stated: “The board remains steadfast in its commitment to thoroughly addressing all aspects of the issued standards and exposure drafts in accordance with Shari’ah principles and rules.” He added that: “The establishment of the Takaful Accounting Committee will zero in our focus on the challenges faced by Takaful institutions, hopefully leading to improved financial reporting and transparency for all the parties involved.”