In partnership with Center of Research Excellence for Islamic Banking & Finance in King Fahad University of Petroleum and Minerals (KFUPM), Dhahran, Kingdom of Saudi Arabia, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) held a specialized workshop to discuss accounting issues related to its prospective Shari’ah standard on Sukuk. The workshop was hosted by KFUPM on Wednesday and Thursday 25th and 26th of Muharram 1438 corresponding to 26th and 27th October 2016, where a group of accounting experts from regulatory and supervisory bodies, Islamic financial institutions, national accounting bodies and academics attended the workshop.
The workshop was opened by a speech delivered by His Excellency the University Vice Deputy Dean Dr. Sahel N. Abduljauwad, who expressed his appreciation to AAOIFI’s role and added that such collaboration between universities, research and academic centers, and the international professional organizations will have a significant impact on progress of learning and professional development and will contribute to economic development. He also welcomed the experts participating in the workshop who hailed from various parts of the world.
In this respect, Dr. Abdullah Al-Mansour, Director of Center of Research Excellence for Islamic Banking & Finance, stressed on the importance of the Islamic finance industry and the need to further develop this industry, as well as, the plans crafted by the center in cooperation with the School of Industrial Management at the University to support the development of research and practices in the area of Islamic finance, including the organization of this focused workshop on Sukuk to discuss relevant accounting issues.
Previously, AAOIFI Shari’ah Board issued a resolution with respect to an extensive revision project on the Standard, towards developing a new comprehensive standard on Sukuk. The new standard will provide technical guidance on Shari’ah requirements as well as practical guidance on procedures for Sukuk issuances, covering the various stages from structuring to eventual issuance and listing of Sukuk on secondary markets. Development of the new standard will take into consideration the existing standards, laws and regulations, Fatwas as well as resolutions that have been issued by Shari’ah Supervisory Boards of leading Islamic financial institutions, in addition to prevailing market practices relating to Sukuk.
Sukuk are among the most important Islamic finance tools that have achieved significant growth and wide application – and are even considered to be a distinct sector, per se. The evolution of Sukuk sector, with emergence of a diverse array of Sukuk structures and types, has called on AAOIFI to reconsider its existing Shari’ah Standard on Sukuk that was issued around 12 years ago and had provided fundamental guidance to the international Islamic finance industry. The revision is also necessary to reflect changes in the areas of accounting, law and regulations, and such others, which relate to Sukuk.
Key discussion points are as follows:
1. The participants appreciated AAOIFI's plan for revision of existing standards and re-emphasized the need for development of the Shari’ah and the accounting standards on Sukuk to address the issuer’s perspective which shall primarily be for the IFIs that issue Sukuk, and at the same time will provide guidelines to other institutions.
2. Experts have stressed that issuers and investors should fully comply with Shari'ah rules and principles related to Sukuk structuring because compliance is the cornerstone of Sukuk issuance and it affects the accounting treatment which becomes questionable such as treatments relating to risk and reward transfers, derecognition of assets, off-balance sheet vs. on-balance sheet issues.
3. The workshop maintained that a lot of Sukuk structures may not strictly meet the definition of a liability or equity and are at times more of a quasi-equity structure such as unrestricted or restricted investment accounts. And it was recommended that AAOIFI's technical boards consider such issues in the development process of the standard.
4. The participants stressed the need to set up a governance mechanism for Sukuk and other instruments, including a governance structure, compliance audit and fiduciary and Shari'ah compliance rating.
Brief Overview about AAOIFI
AAOIFI, established in 1991 and based in Bahrain, is the leading international not-for-profit organisation primarily responsible for development and issuance of standards for the global Islamic finance industry. It is supported by numbers of institutional members, including central banks and regulatory authorities, financial institutions, accounting and auditing firms, and legal firms, from over 45 countries. Its standards are currently followed by the leading Islamic financial institutions across the world and have introduced a progressive degree of harmonisation of international Islamic finance practices.
For more information, please contact:
Mr. Mohamad H. Khaled, Marketing and PR Head AAOIFI
Office: +973 - 17375404
Mobile: +973 - 34206816
The Center of Research Excellence in Islamic Banking and Finance (CEIF) was established in June of 2009 as part of Ministry of Education’s initiative (formerly Ministry of Higher Education) to encourage scientific research and development in vital and promising areas. KFUPM established CEIF in recognition of the importance of Islamic finance for the development of financial markets in the kingdom and the world. Since then, CEIF has made a great effort in building its infrastructure, conducting workshops, providing training and producing scientific research in the field of Islamic finance. In 2012, the center received a generous gift from Abdelrahman Saleh Al Rajhi & Family Foundation to carry on its excellent research and educational mission.
For more information, please contact:
Mr. Sultan Al Rasheedi, Center Secretary
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