30 October 2008
Islamic financial institutions will now be required to show unrealised losses in sukuk and shares-available-for-sale in their financial statement under a newly created 'Investments fair value reserve' heading, the sector's accounting rulemaker announced yesterday.
The move comes in the wake of the recent decline in sukuk and share prices regionally and globally and was decided by the Kingdom-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the global rule making body for Islamic financial institutions. AAOIFI said the changes were in response to the industry need for a level playing field in accounting for such disclosure for Islamic investments.
Until now, Islamic financial institutions with available-for-sale investment portfolios and reporting under AAOIFI standards were required to reflect these declines through their income statement. This contrasts to their conventional counterparts reporting under International Financial Reporting Standards, who disclosed these losses - if deemed temporary in nature - under equity.
"With the revision, the unrealised losses shall be recognised in the institutions' statement of financial position under investment fair value reserve regardless of the balance of such reserves," said its Secretary General, Dr. Mohamad Nedal Alchaar. He said the revision would place the international Islamic finance industry in a stronger position to deal with the current global financial environment.
The revision would come into force with retrospective effect from July 1, 2008.
AAOIFI's Accounting and Auditing Standards Board gave the green signal to the latest round of revision after deliberations with central banks and regulatory authorities, Islamic financial institutions, accounting and auditing firms and other participants of the international Islamic finance industry.
AAOIFI has so far issued 68 standards covering the entire gamut of Islamic finance practices, including accounting, auditing, ethics and governance, which were accepted globally. The standards were used in all the leading jurisdictions that offer Islamic finance, including Bahrain, Dubai International Finance Centre, Kuwait, Lebanon, Malaysia, Pakistan, Qatar, Saudi Arabia, Sudan, Syria, and United Arab Emirates.
"The revision also reflects AAOIFI's ability to work closely with major stakeholders of the industry and to come out with timely reactions to market development. We will continue to review our standards to ensure that they remain supportive of the industry without compromising the overriding principles of accounting and Shari'a," he said.
AAOIFI is supported by over 190 institutional members comprising central banks and monetary authorities, financial institutions, accounting and auditing firms and other Islamic finance service providers, from over 40 countries.
By Senior Business Reporter
Islamic financial institutions will now be required to show unrealised losses in sukuk and shares-available-for-sale in their financial statement under a newly created 'Investments fair value reserve' heading, the sector's accounting rulemaker announced yesterday.
The move comes in the wake of the recent decline in sukuk and share prices regionally and globally and was decided by the Kingdom-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the global rule making body for Islamic financial institutions. AAOIFI said the changes were in response to the industry need for a level playing field in accounting for such disclosure for Islamic investments.
Until now, Islamic financial institutions with available-for-sale investment portfolios and reporting under AAOIFI standards were required to reflect these declines through their income statement. This contrasts to their conventional counterparts reporting under International Financial Reporting Standards, who disclosed these losses - if deemed temporary in nature - under equity.
"With the revision, the unrealised losses shall be recognised in the institutions' statement of financial position under investment fair value reserve regardless of the balance of such reserves," said its Secretary General, Dr. Mohamad Nedal Alchaar. He said the revision would place the international Islamic finance industry in a stronger position to deal with the current global financial environment.
The revision would come into force with retrospective effect from July 1, 2008.
AAOIFI's Accounting and Auditing Standards Board gave the green signal to the latest round of revision after deliberations with central banks and regulatory authorities, Islamic financial institutions, accounting and auditing firms and other participants of the international Islamic finance industry.
AAOIFI has so far issued 68 standards covering the entire gamut of Islamic finance practices, including accounting, auditing, ethics and governance, which were accepted globally. The standards were used in all the leading jurisdictions that offer Islamic finance, including Bahrain, Dubai International Finance Centre, Kuwait, Lebanon, Malaysia, Pakistan, Qatar, Saudi Arabia, Sudan, Syria, and United Arab Emirates.
"The revision also reflects AAOIFI's ability to work closely with major stakeholders of the industry and to come out with timely reactions to market development. We will continue to review our standards to ensure that they remain supportive of the industry without compromising the overriding principles of accounting and Shari'a," he said.
AAOIFI is supported by over 190 institutional members comprising central banks and monetary authorities, financial institutions, accounting and auditing firms and other Islamic finance service providers, from over 40 countries.
By Senior Business Reporter
© Bahrain Tribune 2008
