The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Accounting Board (AAB) in its 15^th AAB meeting held on 14-15 September 2019 approved the issuance of the exposure draft of its Financial Accounting Standard (FAS) on “First Time Adoption of AAOIFI Financial Accounting Standards”.

In its bid to address the growing needs of the Islamic finance industry, AAOIFI issued a guidance note on the subject of first-time adoption with the same implementation effect as a full fledged standard. The decision to issue Accounting Guidance Note No. 1 “Guidance Note on First Time Adoption of AAOIFI Accounting Standards by an Islamic Financial Institution” rather than a full-fledged standard was with the understanding that the the Board may include a dedicated and comprehensive standard into its future standards development program, whereby the issued guidance note will be withdrawn and superseded by the new standard.

The AAB in implementation of the FAS review and revision project concluded that an authoritative standard, instead of a guidance note, is now required to assist the institutions which are in the process to adopt AAOIFI FASs or apply them for the first time. This FAS duly supersedes the AAOIFI Accounting Guidance Note No. 1 “Guidance Note on First Time Adoption of AAOIFI Accounting Standards by an Islamic Financial” and should be read together with AAOIFI Shari’ah Standard No. 6 “Conversion of a Conventional Bank to an Islamic Bank”.

The exposure draft aims to provide principles of financial reporting for Islamic financial institutions to be applied in the first financial statements and related transitional effects arising at the time of adopting AAOIFI FASs for the first time. Additionally, the exposure draft shall provide principle-based guidance to such institutions to smoothly transition from accounting frameworks other than AAOIFI FASs to AAOIFI FASs, and to prepare their first financial statements according to AAOIFI FASs.

Mr. Hamad Al-Oqab, Chairman, AAB, commenting on the issuance of the exposure draft on first time adoption of AAOIFI FASs stated that: “certain improvement opportunities were identified in the earlier guidance note, during the comprehensive review and revision project initiated by AAB in 2018 for the existing FASs. The Islamic finance industry has grown exponentially in the past decade and certain newer markets have adopted and are further inclined to adopt AAOIFI FASs”. He further added that “in response, AAB considered it relevant and timely to initiate the revision of the guidance note due to its great practical significance in jurisdictions that are newly adopting, and considering adopting, AAOIFI FASs. This FAS has been developed to address challenges that are faced by the institutions adopting AAOIFI FASs for the first time”.

The public hearings to obtain industry feedback for the exposure draft is to be held in multiple jurisdictions with the first public hearing event for the expsoure draft scheduled to take place on 29 October 2019, which will be hosted by Saudi Organization For Certified Public Accountants (SOCPA) at Intour Al Sahafa Hotel, Riyadh, Kingdom of Saudi Arabia. Comments on the exposure draft shall be directed – on or before 31 December 2019 – to accounting@aaoifi.com. All comments and suggestions of the public hearings as well as written comments will be presented to the AAB to discuss and make the changes it deems necessary.

The exposure draft can be accessed by CLICKING HERE