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)

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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)

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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)

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Testing Islamic finance skills

MANAMA: Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) held the examinations for its certified Sharia adviser and auditor (CSAA) and certified Islamic professional accountant (CIPA) professional development programmes on September 11 in several locations across the globe.

AAOIFI secretary-general and chief executive Dr Khaled Al Fakih said through the CSAA and CIPA programmes, Islamic finance professionals can gain technical understanding of AAOIFI international Islamic finance standards and be guided on practical application of those standards.

"The programmes go a long way towards promoting adoption of AAOIFI standards in major Islamic finance markets.

"We are thankful for the support that we have received from the international Islamic finance industry," he said.

"We are especially grateful for assistance given by central banks, Islamic banks and higher learning institutions across the world in hosting the examinations for us," Dr Al Fakih added.

The examinations were held in major Islamic finance markets including Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Malaysia, Oman, Pakistan, Qatar, Saudi Arabia, South Africa, the UAE and the UK. AAOIFI will also be holding the next round of training courses for CSAA and CIPA professional development programmes from November 20 to 23 in Manama.

The training courses will follow the conclusion of AAOIFI-World Bank Annual Conference on Islamic Banking and Finance on November 18 and 19 in the kingdom.

(Gulf Daily News / 15 Sept 2013)

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NIB backs AAOIFI’s efforts to reform Islamic finance industry

NIB (Noor Islamic Bank) is backing what could be Islamic finance’s biggest shake up in years, lending its support to the announcement of seven new standards from the Middle East’s leading Islamic finance regulator, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

The new standards govern key areas of Islamic finance, including financial rights and their management; liquidity management; bankruptcy; capital and investment protection; agency investment; calculation of profits transaction and options of trust.

AAOIFI will introduce the new standards to the region’s Islamic financial community at a ceremony, to be held at Dubai’s Grand Hyatt hotel, on 23 May, of which Noor Islamic Bank is a sponsor. Islamic finance industry leaders will have the opportunity to debate the proposed changes before a final draft of the reforms is prepared by the end of this year.

Hussain AlQemzi, GCEO of Noor Investment Group and CEO of Noor Islamic Bank said, “We welcome AAOIFI’s initiative to reform the guidelines that direct the work of the Shari’a boards which act as advisors to our industry. The announcement of these new standards will be an opportunity for the Islamic finance industry to engage in meaningful and insightful debate about the future direction of our industry.

“This review of standards is timely. Islamic finance is growing rapidly, hitting $1.3 trillion last year. This speed of growth will inevitably expose systemic flaws in how the industry is regulated, which could impact Islamic finance institutions and stall growth unless they are addressed. That is why we are supporting AAOIFI’s efforts to bring about much needed change.”

AAOIFI, a Bahrain-based organisation, had previously said it wished to develop standards that can benefit the industry and help drive future growth. Among the basic components of Islamic finance to be reviewed this year will be the Murabaha, Mudaraba and Ijara structures, which are designed to permit investment while obeying religious bans on paying interest and pure monetary speculation.

AlQemiz has been an outspoken critic of the lack of clear global consensus on what products and services are Shari’ah compliant. According to AlQemzi, this disconnect between different regions of the world, such as the GCC and S.E Asia, makes it harder for Islamic finance players to construct the type of cross border deals required to challenge the conventional banks dominance.

He has also criticised the Islamic finance industry for its failure to challenge the pre-eminent position of the regulators in driving the sector forward. Speaking at a recent Islamic finance conference in Dubai, Al Qemzi called on his counterparts in the industry to challenge the regulators with new and innovative products and to take responsibility for the sector’s future growth.

NIB is backing what could be Islamic finance’s biggest shake up in years, lending its support to the announcement of seven new standards from the Middle East’s leading Islamic finance regulator, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

The new standards govern key areas of Islamic finance, including financial rights and their management; liquidity management; bankruptcy; capital and investment protection; agency investment; calculation of profits transaction and options of trust.

AAOIFI will introduce the new standards to the region’s Islamic financial community at a ceremony, to be held at Dubai’s Grand Hyatt hotel, on 23 May, of which Noor Islamic Bank is a sponsor. Islamic finance industry leaders will have the opportunity to debate the proposed changes before a final draft of the reforms is prepared by the end of this year.

Hussain AlQemzi, GCEO of Noor Investment Group and CEO of Noor Islamic Bank said, “We welcome AAOIFI’s initiative to reform the guidelines that direct the work of the Shari’a boards which act as advisors to our industry. The announcement of these new standards will be an opportunity for the Islamic finance industry to engage in meaningful and insightful debate about the future direction of our industry.

“This review of standards is timely. Islamic finance is growing rapidly, hitting $1.3 trillion last year. This speed of growth will inevitably expose systemic flaws in how the industry is regulated, which could impact Islamic finance institutions and stall growth unless they are addressed. That is why we are supporting AAOIFI’s efforts to bring about much needed change.”

AAOIFI, a Bahrain-based organisation, had previously said it wished to develop standards that can benefit the industry and help drive future growth. Among the basic components of Islamic finance to be reviewed this year will be the Murabaha, Mudaraba and Ijara structures, which are designed to permit investment while obeying religious bans on paying interest and pure monetary speculation.

AlQemiz has been an outspoken critic of the lack of clear global consensus on what products and services are Shari’ah compliant. According to AlQemzi, this disconnect between different regions of the world, such as the GCC and S.E Asia, makes it harder for Islamic finance players to construct the type of cross border deals required to challenge the conventional banks dominance.

He has also criticised the Islamic finance industry for its failure to challenge the pre-eminent position of the regulators in driving the sector forward. Speaking at a recent Islamic finance conference in Dubai, Al Qemzi called on his counterparts in the industry to challenge the regulators with new and innovative products and to take responsibility for the sector’s future growth.

(C.P.I  Financial / 21 May 2012)

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AAOIFI issues 7 sharia standards for Islamic finance

(Reuters) - The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has introduced new guidelines for applying religious law to finance, as it prepares to launch a sweeping review of the industry.

The seven new standards, which help scholars decide whether financial activities and products conform with sharia law, address issues including financial rights, bankruptcy, capital protection, entrusting money to an agent for investment, and contract termination.

Capital protection has been widely discussed in the industry over recent months; some investment firms are keen to offer it in products, but Islamic principles do not allow companies to promise guaranteed returns.

AAOIFI's new standards also cover the ways in which financial institutions manage their liquidity, discussing the sources and uses of funds and offering rules for calculating and distributing profits from investment instruments.

How to increase liquidity has been a key concern for Islamic banks. Last month two global bodies launched a standard contract for Islamic profit rate swaps, which banks can use to manage their exposures over varying time periods.

The Bahrain-based AAOIFI announced the new standards on Sunday after several days of internal discussions among sharia scholars, its deputy secretary-general Khairul Nizam told Reuters. The standards are being issued first in Arabic and will be translated into English later.

AAOIFI, one of the top standard-setting bodies in Islamic finance globally, will over the next couple of years conduct a broad review of how the industry operates, addressing issues such as how boards of scholars work, the organisation's secretary-general Khaled Al Fakih said earlier. (Editing by Andrew Torchia)

( Reuters / 30 April 2012)

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AAOIFI proposes Islamic finance accounting changes

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has proposed more detailed accounting standards for real estate while increasing disclosure for Islamic banks’ investment accounts.

The move by the Bahrain-based AAOIFI, one of the main standard-setting bodies in Islamic finance, suggests it is responding to the same kind of pressure to tighten standards that has been seen in the conventional finance industry since the global financial crisis erupted in 2008.

Both proposals were discussed at a public hearing for industry participants in Manama and there will be another hearing in Doha on April 12. They could become effective as early as July this year and would be applied retroactively.

The new real estate standards focus on valuation methodology, clarifying the differences between mark-to-market values and book values, and specifying how to treat buildings that are still under construction. Disclosure requirements are increased.

“Complex accounting issues have evolved in line with the expansion of the real estate sector,” AAOIFI said, making the current standards look “very basic.”

Islamic investment houses across the Gulf have been under increased investor scrutiny over their exposure to the real estate sector and their approach to valuing those assets.

Bahraini investment house Arcapita, a major real estate investor, filed for U.S. bankruptcy protection last month ahead of the maturing of a $1.1 billion Islamic facility. AAOIFI standards are applied in Bahrain and used as guidelines in many other national jurisdictions.

AAOIFI also proposed merging two of its existing standards for Islamic banks' investment accounts, saying it wanted to eliminate “accounting arbitrage.” The investment accounts are the equivalent of deposit accounts at conventional banks, and are a major source of funds for Islamic banks.

Current requirements for banks to disclose risks surrounding the accounts are insufficient, considering the risk that investors are taking, AAOIFI said.

(Al-Arabiya News / 03 April 2012)

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