AAOIFI and IASB held outreach meeting with international Islamic finance industry

During the outreach meeting, AAOIFI and IASB, the body that develops and issues International Financial Reporting Standards (IFRS), exhanged views with the international Islamic finance industry on issues relating to application of international accounting standards for Islamic finance. The meeting also discussed issued that Islamic financial institutions might need to address in applying IFRS 9Financial Instrument for their financial reporting, if they are required to adopt the same. IFRS 9 is a standard issued by IASB that deals with, amongst others, classification and measurement of financial assets.

The outreach meeting was attended by over 50 participants, comprising senior representatives of AAOIFI, IASB, central banks and regulatory authorities, national accounting standards boards from a number of countries including Saudi Arabia, United Arab Emirates, Indonesia, Malaysia, and Turkey, in addition to financial experts from Islamic financial institutions, accounting and auditing firms, academics and other Islamic finance industry stakeholders from over 15 countries across the major Islamic finance markets.

Dr. Hamed Hassan Merah, Secretary General of AAOIFI, said "the meeting was extremely helpful in strenghthening cooperation between AAOIFI and the IASB towards better understanding of issues relating to accounting standards for the Islamic finance industry. It also reflected the increasing global role of AAOIFI in all areas pertaining to Islamic finance".

In addition to its role in developing standards for the international Islamic finance industry, AAOIFI is also a member of the IASB's Consultative Group on Shariah-Compliant Instruments and Transactions.

(Zawya / 12 April 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance body AAOIFI to revise four standards, eyes sukuk

The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) will revise four of its standards in the first half of next year while expanding its guidance for Islamic bonds, the industry body said.

Earlier this month, AAOIFI issued two new standards and revised three others as it takes a more proactive approach under its new secretary general, Hamed Hassan Merah.

AAOIFI held its annual conference this week, after which it said it would seek either to revise or supplement its existing standard for sukuk, to provide the industry with more extensive guidance.

"We are...looking at the possibility of developing clearer guidance on sukuk that will incorporate accounting, legal, technical and tax-related aspects," Merah said in a statement.

Sukuk issuance is increasing worldwide but the structures used to create the instruments aren't uniform, which limits their cross-border acceptance by investors and trading in the secondary markets.

Year-to-date, sukuk issuance totals $110.9 billion through 665 deals globally, up from $97.3 billion through 703 deals a year earlier, according to Zawya, a Thomson Reuters company.

AAOIFI is also revising its accounting standards covering investment accounts, takaful (Islamic insurance), and ijara and murabaha financing structures.

A revised investment accounts standard is to be released by the end of 2014, important for Islamic banks which are seeking greater clarity on how to classify their deposits.

Consultations on takaful, ijara and murabaha will be conducted in the first half of 2015, AAOIFI said.

On takaful, AAOIFI is considering how to extend its guidance to retakaful, the issue of fixing agency fees rather than linking the fees to profits or performance, and clarifying the definition of benevolent loans (qard hassan), a conference document showed.

For ijara, a sale and lease-back contract, AAOIFI wants to clarify distinctions between operating and financing leases. Industry practice is currently not aligned with the ijara standard, known as FAS 8; proposed changes would cover income recognition, balance sheet classification, depreciation, amortisation and disclosures, according to a separate conference document.

AAOIFI's murabaha standard will be redesigned to stipulate the use of collateral for the recovery of receivables, while specifying accounting treatment and disclosure requirements, a third document showed.

The body is also engaging its counterpart in conventional finance, the London-based International Accounting Standards Board; AAOIFI invited IASB officials to its annual conference in Manama.

An IASB official said on the sidelines of the conference that his organisation would seek to develop non-binding guidance on the interpretation of their standards by Islamic financial firms, to help reduce uncertainty in the marketplace.

(Reuters / 19 November 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance body AAOIFI picks up pace with new standards

The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued two new sharia standards, revised three others and said it will review at least five more in coming months.

The move appears to signal a more proactive approach by AAOIFI, which is one of the world's top standard-setting bodies for Islamic finance but has acted only gradually to address some of the industry's big issues and controversies in recent years.

Before its latest announcement, AAOIFI had issued only two of its 88 standards in the last three years, while other Islamic finance organisations have stepped up their activities as the industry expands around the globe.

AAOIFI may now be picking up the pace after it appointed a new secretary-general in September, Saudi Arabian national Hamed Hassan Merah.

After a meeting of its 20-member sharia board last week in Riyadh, AAOIFI said it had issued a standard for arboun (down payments) and another on conditional termination of contracts, following a public hearing held in October.

AAOIFI has also revised standards covering the conversion of conventional banks into Islamic ones, debt transfers (hawala) and murabaha - a common sharia-compliant sale contract.

In murabaha, an institution agrees to purchase merchandise from a counterparty, who promises to buy it back with an agreed mark-up at a later date. Murabaha contracts can take several forms, some of which may resemble interest-bearing loans, which has attracted criticism from some scholars and regulators.

AAOIFI did not publicly reveal details of its new and revised standards, so it was not immediately clear whether the murabaha change was minor or substantial.

The organisation is also developing a new standard on repurchase agreements, a key liquidity management tool to which most Islamic banks currently have limited access. It will review existing standards for several widely used contracts, including those on ijara, salam, istisna, musharaka and mudaraba.

As part of the review, it will seek industry feedback before its next sharia board meeting, to be held next March. AAOIFI will hold its annual conference, organised in partnership with the World Bank, on Nov. 17 and 18 this year.

Under its previous secretary-general, AAOIFI had said it would look to develop a new framework for disclosing financial data, while possibly revising standards for takaful (Islamic insurance), investment accounts and other products.

Established in 1990, AAOIFI issues guidelines that are followed wholly or in part by Islamic financial institutions around the world. AAOIFI standards have been used by or influenced regulation in jurisdictions including Bahrain, the Dubai International Financial Centre, Jordan, Lebanon, Malaysia, Pakistan, Qatar, and Saudi Arabia.

(Reuters / 11 November 2014)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com