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Islamic accounting

New 'Guiding Principles' for the Islamic financial services industry

02 Apr 2012

The Council of the Islamic Financial Services Board (IFSB) has resolved to approve the adoption of two new Guiding Principles, dealing with liquidity risk management and stress testing.

The two documents are:

  • IFSB-12: Guiding Principles on Liquidity Risk Management for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes)
  • IFSB-13: Guiding Principles on Stress Testing for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takāful) Institutions and Islamic Collective Investment Schemes)

IFSB-12 delineates a set of guiding principles for the robust management of liquidity risk by institutions offering Islamic financial services (IIFS) and their vigorous supervision and monitoring by supervisory authorities, taking into consideration the specificities of the IIFS, while complementing relevant international standards and best practices.

The Guiding Principles in IFSB-13 aim to provide a set of guidance intended to complement the existing international stress testing framework taking into consideration the specificities of IIFS as well as the lessons learned from the financial crisis so as to contribute to the soundness and stability of the IIFS, in particular, as well as the Islamic financial services industry as a whole.

Click for more information (link to IFSB website).

AOSSG Islamic Finance Working Group comments on "gaps" in revenue recognition ED

26 Mar 2012

The Islamic Finance Working Group of the Asian-Oceanic Standard-Setters Group (AOSSG) has submitted a comment letter to the IASB on ED/2011/6 'Revenue from Contracts with Customers', noting "gaps in guidance for Islamic finance transactions".

The Working Group was set up to provide input and feedback on the adequacy and appropriateness of proposed and existing IFRS to Islamic financial transactions and events. The Working Group comprises staff from the standard-setters of Australia, China, Dubai, Korea, Malaysia, Pakistan, and Saudi Arabia.

The Working Group comment letter, which is in addition to the main AOSSG submission on the exposure draft, notes a number of issues.  Some of these issues were previously raised in response to the earlier revenue recognition exposure draft (ED/2010/6).

The issues raised in the comment letter include:

  • The ED could result in a sale that is a financing transaction being reported differently from other financings under IAS 39
  • The application of ‘enforceable’ and ‘unconditional’ in relation to promises to repurchase must be clear
  • Contracts with multiple unrelated parties can still be ‘a single contract’. Also, what constitutes ‘a contract’ may be interpreted differently in Islamic finance
  • The description of a customer appears to exclude commercial customers
  • It would be useful to include an example of a deferred payment sale in the Illustrative Examples.

The submission outlines why each of these issues should be dealt with by the IASB and provides the Working Group's recommendations on how they should be rectified.

Click for access to the letter (link to AOSSG website).

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