AAOIFI issues Financial Accounting Standard No. 31 “Investment Agency (Al-Wakala Bi Al-Istithmar)”

The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has officially issued AAOIFI’s accounting standard No. 31 “Investment Agency (Al-Wakala Bi Al-Istithmar)”. This standard has been finalized by AAB after extensive discussion, due deliberations and extensive industry consultations which included inviting and evaluating industry and regulators’comments through the public hearing events conducted in mulitple countires and also comments received in writing.


The objective of this standard is to establish the principles of accounting and financial reporting for the investment agency (Al-Wakala Bi Al-Istithmar) instruments and the related assets and obligations from both the principal (investor) and the agent perspectives. The standard provides a broad classification where at the inception of the transaction, the principal (investor) shall evaluate the nature of investment as either a ‘pass-through investment’ – as a preferred option; or the ‘Wakala venture’ approach.


On the other hand, the agent shall generally keep the assets off-balance sheet as these relate to the principal, unless the specified criteria for on-balance sheet accounting is met under different situations.

Chairman of the Accounting Board of AAOIFI, Mr. Hamad Al-Oqab, added that “Currently Al-Wakala Bi Al-Istithmar represent a significant portion of an Islamic financial institutions’ portfolio. The increased usage and application of Wakala-based instruments by IFIs has resulted in divergent practices due to its multiple structures and complexities. Based on the market feedback, the Board concluded that there is a dire need for AAOIFI to develop a standard on such transactions. It is expected that this standard will result in uniform accounting practices in this respect”.

This standard shall be effective from the financial periods beginning on or after 1 January 2020 with earlier adoption permitted.

The issued standard can be accessed exclusively by the digital version (of AAOIFI standards) subscribers, as for the interested parties, free viewing can be attained, on the AAOIFI website BY CLICKING HERE

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