The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held the 11th meeting of its Accounting Board (AAB) on 1-2 September 2018 in Bahrain. This was the third of the four meetings scheduled for the year.
In this meeting, the Board in principle approved the exposure draft of the Financial Accounting Standard (FAS) on Ijarah after due deliberations. This draft improves upon and supersedes FAS 8, “Ijarah and Ijarah Muntahia Bittamleek” issued in 1995. The draft standard aims at setting out principles for the classification, recognition, measurement, presentation and disclosure of Ijarah type transactions, including their different forms entered into by the Islamic Financial Institutions (IFIs), in the both the capacities of lessor and lessee in line with the recent developments in the global accounting best practices.
It is expected that this standard will improve the overall accounting and financial reporting practices of the IFIs and will bring them closer to the global best practices, without any compromise on Shari’ah principles or the essence of the transaction.
The Board also reviewed the draft of FAS for Tawarruq and Commodity Murabaha. This draft standard considers Tawarruq and Commodity Murabaha transactions to be distinct from Murabaha and other deferred payment sales transactions, in their Shari’ah characteristics, and accordingly, in their legal form as well as economic substance. The Board resolved to issue the exposure draft after due concurrence of and addressing any comments from, the Shari’ah Committee with regard to any related Shari’ah issues.
In addition, the Board discussed the status of various standards which are in different stages of development. Commenting on this occasion, Mr. Mohammad Bouya, the Deputy Chairman, AAB praised the working of the Board and stated that “the accomplishments of AAB this year along with the respective working groups are in line with the AAB’s work plan for the year. The exposure draft on Ijarah is a significant step forward towards fulfilling the requirements of the Islamic finance industry, and aligning AAOIFI’s FASs with global best practices.”
Once issued, the exposure draft on Ijarah will be open for public commentary. AAOIFI Secretariat will hold public hearings for the standard in different jurisdictions to receive industry feedback and comments.