The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), in collaboration with State Bank of Pakistan (SBP) and the Institute of Chartered Accountants of Pakistan (ICAP) held a public hearing of its three exposure drafts: “Internal Shari’ah Audit”, “Sukuk Governance” and “Ijarah”. The Public hearing was recently in ICAP Auditorium.

The Acting Secretary General of AAOIFI, Mr. Omar Mustafa Ansari, presented and discussed the standards with over 70 participants including Shari’ah scholars, Islamic banking professionals, accounting and law experts, and researchers & academicians, and other industry stakeholders.

The public hearing is one of the mandatory steps in the standards development process at AAOIFI, and an opportunity for AAOIFI and the experts in the related fields to interact with and benefit from the knowledge, experience, and wisdom of professional individuals on the proposed standards.

The exposure draft on ‘Internal Shari’ah Audit’ builds upon the earlier standard (Internal Shari’ah Review issued in June 1999) and provides improved guidance on the subject at Islamic Financial Institutions (IFIs). The exposure draft prescribes the compliance, quality control and ethical requirements, objectives and organizational structure along with the professional requirements with regard to the principal procedures, documentation and reporting for internal Shari’ah audit. AAOIFI appreciates the contribution of Meezan Bank team for their assistance in drafting this exposure draft.

The purpose of developing standard on ‘Sukuk Governance’ is to recommend principles with an objective to standardize the global practices in this area as well as to provide robust coverage of areas that are crucial for the transparent issuance of instruments and management of investments. The exposure draft sets out the standardized requirements for various stages in Sukuk management that comprise issuance, management, maturity or termination and restructuring phases. This comprehensive coverage will provide a framework which is expected to bring enhanced governance into practice and strengthen the trust in Sukuk markets.

The exposure draft of Financial Accounting standard (FAS) on ‘Ijarah’ aims at setting out principles for the classification, recognition, measurement, presentation and disclosure of Ijarah type transactions, including their different forms entered into by the IFIs in both the capacities of lessor and lessee.

Mr. Ansari expressed high appreciation and gratitude to SBP and ICAP for supporting and hosting the AAOIFI public hearing, and also to Pakistan Islamic finance industry for their participation and feedback on the exposure drafts which will help refine and make these more relevant to cater to the needs of the industry. He said, “Islamic finance industry in Pakistan has been on the forefront of adopting AAOIFI standards and is growing not only in terms of size and depth of the market, but also in terms of nurturing relevant knowledge and qualified human resources. AAOIFI is glad to hold public hearing in the midst of highly qualified and enthusiastic market participants and gain their feedback on AAOIFI’s proposed standards.”

Mr. Ghulam Shabbir, Senior Joint Director, Islamic Banking Department at the State Bank of Pakistan while speaking on the occasion, appreciated the work of AAOIFI as an apex body for developing standards for the Islamic finance industry with regards to Shari’ah, governance, accounting and ethics and for providing much needed intellectual guidance to Islamic financial industry across the globe to better facilitate them in terms of policy formulation and strengthening Shari’ah compliance environment. He welcomed AAOIFI’s gesture for holding public hearing and consultative sessions within Pakistan and engaging the local industry in the process. He added that the public hearing session will not only help upgrade understanding of the participants regarding the topics but will also provide them an opportunity to share their views and recommendations to further enrich the exposure drafts developed by AAOIFI on the subject.

Similar public hearings for the exposure drafts have earlier taken place in 2019 in United Arab Emirates and in Bahrain, and further hearings are scheduled to be held in Saudi Arabia, Malaysia and other jurisdictions. All industry feedback received in the form of questions, comments, suggestions, and recommendations during this public hearing will be collated and taken back to the respective Boards for further discussion and deliberation before the issuance of the final standards.

Those interested in providing comments on the exposure drafts of the Internal Shari’ah audit, Sukuk governance and Ijarah may still do so by emailing [email protected] or [email protected].