7 October 2025

Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI’s) Governance and Ethics Board (AGEB / the board) discussed and approved, in-principle, the issuance of two key AAOIFI Standards on Auditing and Assurance (SOAAs), namely SOAA 1 “Framework of Auditing” and SOAA 4 “Auditing Requirements for Assessing Compliance with Shari’ah Principles and Rules” during its 42^nd  meeting, held on 29-30 September 2025, via video conferencing.

The issuance of two AAOIFI SOAAs concludes major part of the ongoing AAOIFI auditing standards revision project, which was initiated to align AAOIFI’s auditing framework with international best practices while maintaining consistency with Shari’ah principles and rules. SOAA 1 “Framework of Auditing” provides a structured, principle-based framework for auditors in conducting audits of financial statements of institutions that report in line with Shari’ah principles and rules. On the other hand, SOAA 4 “Auditing Requirements for Assessing Compliance with Shari’ah Principles and Rules” sets out the requirements applicable to the auditors of the financial statements in respect of assessing compliance with Shari’ah principles and rules in audits of Islamic financial institutions and other entities operating under Shari’ah compliant frameworks.

Furthermore, the board deliberated on the exposure draft (ED) of the governance standard (GS) “Development and Governance of Shari’ah-Compliant Benchmark Rates”, which was issued in 2022 for public consultation. The secretariat has commenced the second stage of the project and presented to the board the appendix titled “Illustrative Model: Shari’ah-Compliant Benchmark Rate Based on Macro-Level Economic Indicators”. This appendix outlines the structure, characteristics, and workflow of practical approaches for calculating and applying Shari’ah-compliant benchmark rates, with the objective of offering robust alternatives to conventional benchmarks. The board is expected to review similar appendices on illustrative Shari’ah-compliant benchmark rates based on micro-level economic indicators and Islamic financial market indicators in its forthcoming meeting, after which the ED will be reissued with these appendices for public consultation.

In addition, the board reviewed feedback from AAOIFI’s Shari’ah Board’s Committee for the Review of Accounting and Governance Standards on the GS _ “Application of Shari’ah Governance Principles to Islamic Finance Windows”, which is expected to be issued shortly.

The board also discussed two preliminary studies on proposed GSs concerning “Surplus and Deficit Management for Takaful Fund” and “Smart Contracts”, and instructed the secretariat to develop exposure drafts accordingly.

The chairman of the AGEB, Mr. Farrukh Raza, stated: “I am pleased to announce the in-principle approval of two SOAAs, which will enhance stakeholders’ confidence in the reliability of financial reporting and institutional adherence to Shari’ah principles and rules”. He further added “I would like to extend my sincere appreciation to the board members, the Auditing and Assurance Standards Committee (AASC), and the secretariat for their tireless efforts and continued dedication. Their collective work towards the development of robust and much-needed standards, in the best interests of the Islamic finance industry, is truly commendable”.