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The accounting board of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has approved in principle a new financial accounting standard aimed at harmonising how direct costs are handled in Sharia-compliant transactions.
The decision on Financial Accounting Standard (FAS) 54, titled ‘Direct Costs: Determination, Attribution and Reimbursement,’ was made during the board’s 46th meeting held in Bahrain and via video conference, the global Islamic finance standard-setter said in a statement.
FAS 54 establishes accounting and financial reporting principles for tracking and reimbursing direct costs incurred by Islamic financial institutions. The standard is expected to be formally issued later this year following final due process.
“I believe that0 FAS 54 will bring greater harmony in financial reporting practices and, additionally, will help improving the level of compliance with Sharia principles and rules across the industry,” AAOIFI Accounting Board chairman Hamad Al Oqab said.
The board also addressed implementation challenges regarding FAS 40, which governs financial reporting for Islamic finance windows. To accommodate specific institutional difficulties in certain jurisdictions, the board issued an exemption statement to clarify the standard’s scope.
Additionally, AAOIFI plans to fast-track amendments to its foundational FAS 1 standard to align its general presentation and disclosure rules with recent changes in conventional accounting, specifically the International Financial Reporting Standard (IFRS) 18.
avinash@gdnmedia.bh
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