AAOIFI Accounting Board holds its 39th meeting and approves two financial accounting standards and one exposure draft in principle

The Accounting and Auditing Organization for Islamic Financial Institutions' (AAOIFI's) Accounting Board (AAB / the board) held its 39^th meeting on 19-20 August 2024, in the Kingdom of Bahrain. The agenda included reviewing comments received during the public consultation phase on two exposure drafts of financial accounting standards (FASs). Following thorough deliberation and incorporation of necessary changes, the board approved in principle the issuance of AAOIFI FAS 48 "Financial Reporting for Institutions Operating in Hyperinflationary Economies" and FAS 49 "Promotional Gifts and Prizes". Additionally, the board approved in principle the exposure draft (ED) of FAS on "Deferred Delivery Sales".

The board also reviewed and deliberated on the progress being made in the standards development and review projects, agreeing on the priorities for its annual plan for the remainder of the current year.

The objective of FAS 48 "Financial Reporting for Institutions Operating in Hyperinflationary Economies" is to establish the principles of financial reporting for the institutions applying AAOIFI FASs operating in hyperinflationary economies, duly considering the relevant Shari'ah principles and rules and their unique business models while AAOIFI FAS 49 "Promotional Gifts and Prizes" prescribes the accounting and financial reporting requirements applicable to promotional gifts and prizes awarded by the Islamic financial institutions to their customers, including quasi-equity and other investment accountholders.

The board agreed that the revision of FAS 7 "Salam and Parallel Salam" and FAS 10 "Istisna'a and Parallel Istisna'a" would lead to the development of two standards, one on "Deferred Delivery Sales" and the other relating to Istisna construction / development contracts. The exposure draft of FAS on "Deferred Delivery Sales", which is approved in principle, aims to prescribe the appropriate accounting and reporting principles for recognition, measurement, presentation and disclosures to apply in relation to deferred delivery sales transactions, comprising mainly Salam and Istisna sales transaction for the buyers and sellers for such transactions. The board agreed to discuss the ED of FAS on Istisna construction / development contracts in the upcoming meeting and to issue both EDs simultaneously within the next few months.

The board also deliberated on and approved the initial version of the discussion paper on "Tawarruq and Commodity Murabaha" which was developed for the purpose of obtaining expert views and feedback regarding the technical and Shari'ah aspects of a proposed standard on the subject. Thereafter, a standard will be developed and issued in due course.

Mr. Omar Mustafa Ansari, Secretary General of AAOIFI, stated: "These standards are expected to positively impact the industry by enhancing the transparency and relevance of financial statements for various stakeholders in the respective areas". He also extended gratitude to the AAOIFI accounting board members, working group members, professional experts and the broader stakeholders who largely contributed towards the development and issuance of these pronouncements as part of the standards' development process undertaken by AAOIFI.

Mr. Hamad Al Oqab, Chairman of the AAB, stated: "The board persistently spared no effort in addressing various aspects it came across in the issued standards and exposure draft. Overall, as part of the due process in the AAOIFI conceptual framework, this aims to enhance the degree of our responsiveness to the requirements of the industry on a timely basis and to ensure more effective financial reporting for Islamic finance transactions and in an ultimate bid to foster and improve relevant market practices across the industry".