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A MAJOR new accounting standard aimed at boosting transparency and harmonising Sharia-compliant transactions across the global Islamic finance industry has been approved in principle by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
The AAOIFI Accounting Board (AAB) greenlit Financial Accounting Standard (FAS) 54, titled ‘Direct Costs: Determination, Attribution and Reimbursement,’ during its 46th meeting held at its headquarters in Bahrain and via video conference.
FAS 54 establishes comprehensive accounting and financial reporting principles for how Islamic financial institutions determine, attribute, and recoup direct costs linked to Sharia-compliant contracts. The milestone standard is slated for official release later this year following the completion of final due process.
Commenting on the approval, AAB chairman Hamad Al Oqab highlighted the standard’s potential to streamline global industry practices.
“The focus of the board has been to facilitate Islamic financial institutions in the implementation of consistent accounting practices with more transparency, in line with Sharia principles and rules,” Mr Al Oqab said.
“I believe that FAS 54 will bring greater harmony in financial reporting practices and, additionally, will help improve the level of compliance across the industry.”
In addition to the new standard, the board tackled pressing implementation challenges surrounding FAS 40 (‘Financial Reporting for Islamic Finance Windows’).
Recognising hurdles faced by certain institutions in specific jurisdictions, the AAB issued a scope clarification statement (AAOIFI AAB Statement 1/2026) to provide exemptions and ease compliance.
The meeting also set an aggressive timeline for international alignment. The board deliberated on updating FAS 1 (‘General Presentation and Disclosure in the Financial Statements’) to mirror recent updates in global benchmarks - most notably the International Financial Reporting Standard (IFRS) 18.
To meet impending global deadlines, the AAB confirmed it will fast-track a targeted project focusing on minor amendments to FAS 1 and its accompanying illustrative financial statements.
AAOIFI noted that its standard development pipeline remains fully on track to meet its objectives for 2026.
avinash@gdnmedia.bh
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