The Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI’s) Accounting Board (AAB / the board) has officially culminated the comprehensive revision project on FAS 27 “Investment Accounts” and FAS 21 “Disclosure on Transfer of Assets”, and has issued four financial accounting standards (FASs), namely:
The objective of FAS 44 “Determining Control of Assets and Business” is to establish, and bring at one place, the principles of assessing as to whether and when an institution controls an asset or a business, both in the case of underlying asset(s) of a participatory structure (determining as to what shall be on- and off-balance-sheet), as well as, for the purpose of consolidation of financial statements of subsidiaries.
FAS 45 “Quasi-equity (Including Investment Accounts)” aims to prescribe the principles of financial reporting related to instruments classified as quasi-equity, such as investment accounts and similar instruments invested with the Islamic financial institutions. The standard improves upon and enhances the requirements related to quasi-equity, as contained in the earlier FAS 27 “Investment Accounts” and better aligns with the “AAOIFI Conceptual Framework for Financial Reporting ” and FAS 1 “General Presentation and Disclosures in the Financial Statements”.
FAS 46 “Off-Balance-Sheet Assets Under Management” establishes the principles of financial reporting related to off-balance-sheet assets under management in line with the “AAOIFI Conceptual Framework for Financial Reporting”, and improves upon and enhances the requirements of the earlier standard.
FAS 47 “Transfer of Assets Between Investment Pools” supersedes and intends to improve upon the earlier FAS 21 “Disclosure on Transfer of Assets”. Its objective is to prescribe the financial reporting principles and disclosure requirements applicable to all transfers of assets between investment pools related to (and where material, between significant categories of) owners’ equity, quasi-equity and off-balance-sheet assets under management of an Islamic financial institution. It requires adoption and consistent application of accounting policies for such transfers in line with Shari’ah principles and rules and describes general disclosure requirements in this respect, for improved transparency.
On this occasion, Mr. Hamad Al Oqab, chairman of the AAB, stated: “These four standards are expected to improve the financial reporting by Islamic financial institutions considering their distinctive nature of transactions and business models. We look forward to witnessing the positive impact of implementing these standards by the different stakeholders in the industry”. He added: “We would like to extend our sincere gratitude to the members of AAB, the respective working group members and AAOIFI’s secretariat for their unwavering dedication towards finalisation of this set of standards which is expected to further enhance the financial reporting practices across the Islamic finance industry worldwide”.
Mr. Omar Mustafa Ansari, secretary general of AAOIFI, also stated: “The development of these standards involved a comprehensive process which entailed identifying areas for improvement and addressing existent gaps based on the valuable feedback and suggestions received from industry experts worldwide, as well as, the Shari’ah scholars. The newly issued standards aim to bridge these identified gaps and cater to the specific requirements of the users of financial statements, ultimately enhancing the financial reporting for the broader industry.”
The standards can be accessed on AAOIFI website: standard Links