The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has officially published the exposure draft of AAOIFI’s accounting standard No. 31 on “Investment Agency (Al-Wakala Bi Al-Istithmar)” and seeks to invite opinion and feedback from the Islamic finance industry.
The standards intends to define the accounting principles and reporting requirements for investment agency (Al-Wakala Bi Al-Istithmar) transactions and instruments to be in line with ever-changing global best practices, in the hands of both, the principal (Muwakil) and the agent. It is expected to bring about certain significant changes in the current practices most notable of them being the off balance sheet treatment for the principal.
The use of Wakala (agency) as an investment and investment management tool has, in recent years, significantly increased in the Islamic financial institutions. This specific type of Wakala which is normally referred to as Al-Wakala Bi Al-Istithmar (investment agency) represents a significant portion of Islamic financial institutions’ portfolio. These are being used for procuring deposits, placements in inter-bank market, issuing Sukuk and other permissible avenues. This shows a growing need for a financial accounting standard for the same.
The public hearings will be held during 2017 in different parts of the world to obtain the industry feedback on the exposure draft. Details of the public hearings, with respect to dates and venues, will be announced very soon. In the meantime, comments on the exposure draft are welcome and should be directed no later than 20 October 2017 to this email: [email protected]. All the comments and suggestions of the public hearings will be presented to AAB in an upcoming meeting to discuss and make necessary changes to the standard.
The exposure draft can be accessed on the AAOIFI website on the following address: https://goo.gl/cfbaoK