The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Accounting Board (AAB / the board) has officially issued exposure drafts on “Quasi-equity (including Investment Accounts)” and “Off-Balance-Sheet Assets Under Management”. The proposed standards intend to improve upon and together supersede FAS 27 “Investment Accounts”.

The objective of the exposure draft on “Quasi-equity (including Investment Accounts)” is to establish the principles of financial reporting related to instruments classified as quasi-equity, such as investment accounts and similar instruments invested with the Islamic financial institution (the institution). Quasi-equity is an element of financial statements of an institution in line with the “AAOIFI Conceptual Framework for Financial Reporting” (the conceptual framework). The proposed standard provides the overall criteria for on-balance-sheet accounting for participatory investment instruments and quasi-equity, as well as, pooling, recognition, derecognition, measurement, presentation and disclosure for quasi-equity.

The proposed standard on “Off-balance-sheet Assets Under Management” aims to establish the principles of financial reporting related to off-balance-sheet assets under management in line with the conceptual framework. The proposed standard encompasses the aspects related to recognition, derecognition, measurement, selection and adoption of accounting policies etc., related to off-balance-sheet assets under management, as well as, certain specific aspects of financial reporting e.g., impairment and onerous commitments by the institution.

On this occasion, Mr Hamad Al Oqab, chairman of the AAB, stated that; “In view of the unique business model of Islamic financial institutions, as an outcome of the revision of FAS 27 “Investment Accounts”, the board decided to issue in its place two distinct standards addressing the financial reporting for instruments classified as quasi-equity and off-balance-sheet assets under management. The proposed standard intent to provide the users and preparers of financial statements with the required guidance and clarification of qualification criteria for on and off-balance-sheet accounting as per AAOIFI’s financial reporting framework. He further added: “With the issuance of the exposure drafts, the board has completed the initial stage of the revision of FAS 27 “Investment Accounts””.

To obtain industry feedback, a series of public hearings for the exposure drafts is scheduled to be held during 2023.

The exposure draft on “Quasi-equity (including Investment Accounts)” can be accessed by CLICKING HERE

The exposure drafts on “Off-Balance-Sheet Assets Under Management” can be accessed by CLICKING HERE