The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has officially issued financial accounting standard (FAS) 32 “Ijarah” which will supersede the existing FAS 8 “Ijarah and Ijarah Muntahia Bittamleek”, accordingly.
The FAS on Ijarah revision project initiated in 2016 aimed to address the issues faced by the Islamic finance industry in relation to accounting and financial reporting as well as to improve the existing treatments in line with the global best practices. The exposure draft on revised “Ijarah” issued in late 2018 set out principles for the classification, recognition, measurement, presentation and disclosures of Ijarah transactions including their different forms entered into by the Islamic financial institutions in the capacity of both the lessor and lessee.
After issuance the exposure draft underwent extensive discussion, due deliberations and industry consultations which included inviting and evaluating industry and regulators’ comments received in writing and through multiple public hearing events held in Egypt, Pakistan, United Arab Emirates, and Turkey in 2019. The AAB concluded that it is key to have a deeper and expert-level discussion to evaluate public feedback received on the exposure draft which resulted in a roundtable event conducted in September 2019. This provided a platform to interact with professionals who are directly impacted by the proposed standard in their relevant areas and included discussions on emerging issues and challenges as well as Shari’ah underpinnings pertaining to Ijarah. The Board then addressed the needs and requirements of the stakeholders and reporting requirements of Ijarah-based transactions with an aim to improve the exposure draft.
The chairman of AAB, Mr Hamad Al-Oqab, added that “the revision of FAS on Ijarah included adressing emerging issues and challenges while emphasizing on differences from other international standards on leasing. This standard brings a fundamental shift in the accounting approach for Ijarah transactions, particularly, in the hand of the lessee in contrast to the earlier approach of the off-balance sheet accounting for Ijarah. He further added that “it was imperative that the new standard would be in line with improved global accounting, financial reporting and also taking into account regulatory requirements all the while adressing key Shari’ah underpinnings pertaining to Ijarah and Ijarah based transactions”.
This new standard will improve the overall accounting and financial reporting practices of the Islamic finance industry and will bring the same closer to the global best practices, without any compromise on Shari’ah principles or the essence of the transactions. This standard shall be effective for the financial periods beginning on or after 01 January 2021 with early adoption permitted.
The issued standard can be accessed exclusively by the digital version (of AAOIFI standards) subscribers, and free subscription can be attained, BY CLICKING HERE