The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) approved the issuance of the exposure draft on Financial Accounting Standard (FAS) on “Accounting for Takaful: Recognition and Measurement”.
Work on Takaful project was initiated with the objective of aligning AAOIFI standards as close as possible to global accounting standards, duly addressing the specific Shari’ah requirements. Due to complexity inherent in Takaful products, the board decided to develop one standard prescribing the presentation and disclosure matters, and one or more separate standards prescribing the accounting treatments.
The objective of this exposure draft is to set out the principles for the recognition and measurement of Takaful arrangements and ancillary transactions with the objective to faithfully present the information to the relevant stakeholders. The accounting treatments defined in the standard have been mapped with the Shari’ah principles and rules relating to Takaful including the rights and obligations of respective stakeholders of the Takaful arrangements.
This revised FAS brings significant changes from its predecessor standards (FAS 13 “Disclosure of Bases for Determining and Allocation Surplus or Deficit in Islamic Insurance Companies”, FAS 15 “Provisions and Reserves in Islamic Insurance Companies” and FAS 19 “Contributions in Islamic Insurance Companies”) and shall be read in conjunction with exposure draft of “General Presentation and Disclosures in the Financial Statements of Takaful Institutions” issued earlier this year.
On this occasion, Mr Hamad Al Oqab, Chairman of AAB, stated that “this exposure draft is the second part of the deliverables of the Takaful project that the board initiated under the recommendation of the “AAOIFI Financial Accounting Standards (FAS) review and revision project”. He also added that “new accounting treatments have been introduced in respect of the matters which were not addressed by the superseded standards or were not in line with the global best practices. Particularly with regard to the accounting for provision (or liability, as appropriate) for the Takaful arrangements and the accounting treatment and presentation for the investment component.”
The public hearings to obtain industry feedback for the exposure draft is to be held in online during the year 2021. Comments on the exposure draft shall be directed on or before 30 November 2021 to [email protected]. All comments and suggestions of the public hearings as well as written comments will be presented to AAB to discuss and make the changes it deems necessary.
The exposure draft can be accessed BY CLICKING HERE