AFS 2033-Islamic Accounting

CHAPTER 3:
Presentation & Disclosure: Financial Reporting for
Islamic Financial Institutions
Ê The needs for accounting standard
Ê Difference nature of Islamic contracts
Ê Different needs of users
Ê Conventional financial reporting standard are not adequate to
address the information needs of Islamic financial institutions
Islamic Accounting Standards

Ê Accounting and Auditing Organizations of Islamic Financial

Institutions (AAOIFI)
Accounting and Auditing Organizations of
Islamic Financial Institutions (AAOIFI)

Ê History: established in 26 February 1990 and registered

in March 1991-agreement of association by IFIs
worldwide supported by IDB
Ê Autonomous non-for-profit corporate body that
prepares accounting, auditing, governance, ethics and
Shari'a standards for Islamic financial institutions and the
industry
Ê Head office-Bahrain

Ê Funded by founding members of IFIs, establishment of

waqf etc
Accounting and Auditing Organizations of
Islamic Financial Institutions (AAOIFI)

Ê The objectives of AAOIFI are:

1. to develop accounting and auditing thoughts relevant to Islamic

financial institutions;
2. to disseminate accounting and auditing thoughts relevant to Islamic
financial institutions and its applications through training, seminars,
publication of periodical newsletters, carrying out and
commissioning of research and other means;
3. to prepare, promulgate and interpret accounting and auditing
standards for Islamic financial institutions; and
4. to review and amend accounting and auditing standards for Islamic
financial institutions.
Ê Standards that have been developed by AAOIFI:
Ê Accounting Standards
Ê Auditing Standards
Ê Governance Standards
Ê Ethics Standards
Ê Shaʼria Standards
Accounting standards
Ê 1. Objective of financial accounting for Islamic banks and Ê 14. General Presentation and Disclosure in the Financial
Statements of Islamic Insurance Companies.
financial institution (IFIs).

Ê 15. Disclosure of Bases for Determining and Allocating Surplus

Ê 2. Concept of financial accounting for IFIs. or Deficit in Islamic Insurance Companies.

Ê 3. General presentation and disclosure in the Ê 16. Investment Funds.

financial statements of IFIs.

Ê 17. Provisions and Reserves in Islamic Insurance Companies.

Ê 4. Murabaha and Murabaha to the purchase orderer.

Ê 18. Foreign Currency Transactions and Foreign Operation.

Ê 5. Mudaraba financing.
Ê 19. Investments.
Ê 6. Musharaka financing.
Ê 20. Islamic Financial Services Offered by Conventional
Financial Institutions.
Ê 7. Disclosure of bases for profit allocation between owners’
equity and investment account holders.
Ê 21. Contributions in Islamic Insurance Companies.

Ê 8. Equity of investment account holders and their equivalent.

Ê 22. Deferred Payment Sale .

Ê 9. Salam and Parallel Salam.

Ê 23. Disclosure on Transfer of Assets.

Ê 10. Ijarah and Ijarah Muntahia Bittamleek. Ê 24. Segment Reporting.

Ê 11. Zakah. Ê 25. Consolidation.

Ê 12. Istisna’a and Parallel Istisna’a. Ê 26. Investment in Associates

Ê 13. Provisions and Reserves.

AAOIFI FAS No 1
Ê Set of financial statements consists of:
Ê Statement of Financial Position (Balance Sheet)
Ê Income Statement
Ê Cash Flows Statement
Ê Statement of Changes in Ownersʼ Equity/Statement of Retained
Earnings
Ê Notes to the financial statements

Ê With 3 additional statements:

Ê Statement of changes in restricted investment
Ê Statement of sources and uses of funds in the Zakah and charity
fund
Ê Statement of sources and uses of funds in the Qard fund
AAOIFI

Ê Additional disclosures:
Ê Role of the Shariah adviser or the Shariah board in supervising
the bankʼs activities and the nature of the adviserʼs or boardʼs
authority in accordance with the bankʼs by laws and in actual
practice
Ê Bankʼs responsibility towards zakah
Ê Accounting policies adopted by management of the Islamic bank
which are not consistent with the concepts of financial
accounting for Islamic banks – AAOIFI-cash equivalent value
Cont: Additional disclosure

Ê Revaluation of assets, liabilities & restricted investments to cash

equivalent value
Ê Disclosure of earnings or expenditures prohibited by the Shariah
– amount, nature of earnings, sources, how to dispose
Ê Disclosure related to unrestricted and restricted investment
accounts-balance, maturity
Ê Disclosure on the method used by the Islamic bank in allocating
investment profit/loss between unrestricted investment account
holders