The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Accounting Board (AAB / the board) has officially issued the exposure draft of its financial accounting standard (FAS) “Financial Reporting for Institutions Operating in Hyperinflationary Economies”.
The objective of the exposure draft is to establish the principles of financial reporting for the institutions applying AAOIFI FASs operating in hyperinflationary economies, duly considering the relevant Shari’ah principles and rules and their unique business models.
For the purposes of the exposure draft, a hyperinflationary economy is defined as an economy wherein money (normally denoted in terms of the currency of that economy) loses purchasing power (against assets, goods and services) at such a rate that impedes the meaningful comparison of financial reporting in respect of transactions and events that have occurred at different times, sometimes within the same financial reporting period.
On this occasion, Mr. Hamad Al Oqab, chairman of the AAB, stated that; “in response to the challenges faced by Islamic financial institutions regarding financial reporting for institutions operating in hyperinflationary economies, the board decided on the need to develop a standard dedicated to financial reporting under hyperinflation. The standard intends to provide guidance on the measurement and presentation of financial information under hyperinflation, to ensure that financial statements accurately reflect the economic reality, provide comparable information, and are a reliable basis for stakeholders to make educated decisions”. He further added: “we look forward to receiving comments and feedback from the Islamic finance industry and its broader stakeholders given the complexity and importance of the standard.”
To obtain industry feedback, a series of public hearings for the exposure drafts are scheduled to be held during 2023.