MANAMA: Financial accounting standards (FAS) for Islamic financial institutions are being revised to make them more comparable with generally accepted accounting framework like International Financial Reporting Standards (IFRS), it has emerged.
The accounting board of Bahrain-based standard-setting body Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has said in June last year, it launched the FAS review and revision project to implement a review and revision process for all existing FAS. A working group was also set up to assess the suitability of combining standards under one FAS.
The objective was to provide significant enhancement and make FAS more comparable with the generally accepted accounting framework like IFRS, enabling users to apply AAOIFI accounting standards in a more consistent manner.
The latest meeting of the board has seen discussions on combining FAS 23 and FAS 24 (Consolidation/Investments in associates) to be in line with globally accepted accounting principles on accounting for consolidation/business combinations and accounting for subsidiaries, associates and joint ventures.
Other FAS such as FAS 14 for investment funds and FAS 26 for investment in real estate are to be revised.
Additionally, the board also agreed with the recommendation that the guidance note on the first-time adoption of AAOIFI FAS to be improved and issued as a standard.
The board also added that certain aspects previously not covered in FAS such as accounting for hyperinflation will be considered as well.
Finally, the board recommended that all FAS will identify any perceived gaps and provisions will be made into the new standards or added into the revised standards that would be withdrawn.
The board was also presented with the revised exposure draft on the AAOIFI Conceptual Framework for Financial Reporting by Islamic Financial Institutions.
This is as a result of the AAOIFI financial accounting standards development strategy of providing comprehensive guidance on improved recognition, measurement and presentation criteria.
A comprehensive conceptual framework is meant to provide a frame of reference with fundamental principles for setting accounting standards and forms as a basis for resolving accounting disputes in a manner suitable and in compliance with Sharia principles and rules.
The board decided to revise the existing conceptual framework after observations and current market practices noted over past several years.
The revised conceptual framework introduces the main objectives as well as the concepts underlying financial accounting and reporting by Islamic banks or IFI and accordingly would supersede the existing conceptual framework.
The observations and recommendations will be presented to the working group and subsequently at the next board meeting next month.
A revised exposure draft for FAS on Takaful (Islamic insurance) is expected by the end of 2019, with the target to keep the application date similar to IFRS 17 of January 2022.
avinash@gdn.com.bh
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