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Islamic accounting

Islamic Accounting 

Background

Accounting Standards for financial reporting by Islamic financial institutions have to be developed because in some cases Islamic financial institutions encounter accounting problems due to existing accounting standards such as IFRSs or local GAAP being developed based on conventional institutions, conventional product structures or practices, and may be perceived to be insufficient to account for and report Islamic financial transactions.

Sharia'a compliant transactions that observe the prohibition on charging interest may not have parallels in conventional financing and therefore, there may be significant accounting implications. Likewise, the Islamic finance industry is under considerable pressure to enhance practice and improve risk management systems and protect investors.

On this page, we maintain a history of recent developments in Islamic accounting requirements and practices.

Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Sharia'a standards for Islamic financial institutions and the industry. It was founded in 1991 and has so far issued a total of 42 standards covering the areas of accounting, auditing, ethics, and governance for Islamic financial institutions.

The AAOIFI website can be accessed at http://www.aaoifi.com/aaoifi/.

Deloitte Islamic Finance Knowledge Center

Deloitte maintains an Islamic Finance Knowledge Center (IFKC). The IFKC is active on a number of levels in its aim to set the standards of thought leadership in Islamic Finance, including:

    • Compiling a library of reference books, standards and industry reports
    • Issuing IKFC research and reports to industry stakeholders
    • Conducting surveys of Islamic Finance leaders
    • Sharing webcasts featuring discussions with experts and policy-makers
    • Publishing an e-magazine to share thought leadership with clients and markets

    Click for access to the Deloitte Islamic Finance Knowledge Center.

    We also offer resources at www.islamicfinance.deloitte.com. Working in conjunction with our full time Sharia'a Scholar, Mufti Hassaan Kaleem, our Islamic Finance specialists have produced the "Understanding Islamic Finance" series, which aims to provide an insight into the basic principles of Islamic Finance and explains for example Musharakah, Mudarabah, Murabaha, Ijarah, Salam, Istisna', and Sukuk.

    Related projects

    The IASB has noted Islamic accounting as one of the possible issues for the IASB's agenda post-2011.

    The Asian-Oceanian Standard Setters Group (AOSSG) has an Islamic Finance Working Group with the objective to facilitate AOSSG members providing input and feedback to the IASB on the adequacy and appropriateness of proposed and existing International Financial Reporting Standards (IFRSs) to Islamic financial transactions and events. The Working Group is chaired by Malaysia; Working Group members are Australia, China, Dubai, Indonesia, Korea, Pakistan, and Saudi Arabia. The AOSSG Working Group website can be accessed at http://www.aossg.org/working-groups/financial-reporting-relating-to-islamic-finance.

    Related news

    • Outcomes from the fifth AOSSG meeting

    • Dec 20, 2013

    • The Asian-Oceanian Standard-Setters Group (AOSSG) has released a communiqué from its meeting held in Colombo, Sri Lanka on 27 and 28 November 2013.

    • Accounting and Islamic finance in the Middle East and North Africa

    • Nov 25, 2013

    • The Asian-Oceanian Standards Setters Group (AOSSG) has published the results of a survey distributed by the AOSSG's Islamic Finance Working Group in 24 countries in the Middle East and North Africa to understand about accounting requirements for Islamic financial transactions in these jurisdictions. The survey showed a high degree of co-existence of International Financial Reporting Standards (IFRSs) and the accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

    • AOSSG Islamic Finance Working Group comments on the IASB's Leases ED

    • Oct 08, 2013

    • In an appendix to the general comment letter of the Asian-Oceanian Standard Setters Group (AOSSG), the AOSSG Islamic Finance Working Group supports the IASB's Leasing proposals but points at issues where more clarification would be needed from the viewpoint of Islamic accounting.

    • Proposed impairment model might pose problems in Islamic accounting

    • Jul 12, 2013

    • In an appendix to the general comment letter of the Asian-Oceanian Standard Setters Group (AOSSG), the AOSSG Islamic Finance Working Group points at problems that the IASB's proposed new impairment model might pose in the contetxt of Mudarabah / Musharakah profit distribution.

    • MASB releases feedback statement on discussion papers on Islamic finance transactions

    • Jan 04, 2013

    • The Malaysian Accounting Standards Board (MASB) has published a feedback statement on three discussion papers exploring the accounting treatment of a number of Islamic financial transactions. For the time being, the MASB will refrain from issuing Technical Releases (TRs) based on the discussion papers and the feedback received although it had originally intended to do so because it wants to avoid the impression of creating local interpretations.

    • Recent developments in Islamic banking, finance and accounting

    • Dec 27, 2012

    • The rapid global growth in Islamic finance has brought increased international attention to the questions of what Islamic finance is, how it differs from conventional finance and and whether accounting for Islamic and conventional finance transactions can be harmonised.

    • IASB concludes agenda consultation by releasing a feedback statement

    • Dec 18, 2012

    • In February 2010, the Trustees of the IFRS Foundation, the IASB's oversight body, announced enhancements to their governance arrangements, including the decision to undertake a three-yearly public consultation on the IASB's future technical agenda, in addition to consulting the Trustees and the IFRS Advisory Council annually on the existing and future agenda. On 20 June 2011, the IASB formally announced that it would be undertaking for the first time a public agenda consultation on its future work plan. A Request for Views was published on 26 July 2011. Today, the IASB rounded off its consultation by releasing a feedback statement that maps out future priorities.

    • Outcomes from the fourth AOSSG meeting

    • Dec 13, 2012

    • The Asian-Oceanian Standard-Setters Group (AOSSG) has released a communiqué from its meeting held in Kathmandu, Nepal on 28 and 29 November 2012. Highlights include plans for an ‘IFRS Centre of Excellence for a Developing Country’ (IFRS COEDC) in Nepal that would help Nepal to build its standard-setting capacity, the need for rapid finalisation of the IASB's project on 'bearer biological assets', and discussion on Islamic finance accounting issues.

    • Accounting for Islamic finance

    • Nov 08, 2012

    • The Malaysian Accounting Standards Board (MASB) has published a two-part staff-prepared paper discussing Islamic finance, accounting treatments for various Islamic finance instruments, and the reasons why the MASB chose to require Islamic financial institutions to follow Malaysian Financial Reporting Standards, which are equivalent to IFRS. The paper concludes with a call for the IASB to consider Islamic accounting issues.

    • Growth of the Islamic finance industry leads to need for better disclosures

    • Sep 19, 2012

    • The Islamic Financial Services Board (IFSB) has posted to its website a report from a high-level roundtable on 'Disclosure Requirements for Islamic Capital Market Products' organised by the IFSB, the International Organisation of Securities Commissions (IOSCO) and the Securities Commission Malaysia. The roundtable was to be a first step towards the development of international regulatory standards and best practices relating to disclosure requirements for Islamic capital market products.

    • AAOIFI issues two drafts on Islamic accounting

    • Feb 24, 2012

    • The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Sharia'a standards for Islamic financial institutions and the industry. Recently, the AAOIFI has published an exposure draft (ED) and a consultation paper.

    • AOSSG survey on Islamic accounting

    • Jan 10, 2012

    • The Islamic Finance Working Group of the Asian-Oceanian Standard Setters Group (AOSSG) has issued a survey on Islamic accounting.

    • Questionnaire on accounting for Islamic finance transactions

    • Jul 05, 2011

    • The Islamic Finance Working Group of the Asian-Oceanian Standard Setters Group (AOSSG) is conducting a survey to collate information and receive feedback regarding the standards that would apply to the financial reporting of Islamic financial transactions in the standard-setting jurisdictions of Asia-Oceania.

    • Shariah-compliant leases on the IASB's agenda for May

    • Apr 26, 2011

    • Even though the meeting is still marked as "tentative" the IASB has posted to its website a very insightful staff paper on Shariah-compliant leases for the IASB/FASB special meeting on 11 and 12 May 2011. Wayne Upton, the IASB's Director of International Activities, has compiled the paper as background paper about issues in lessor accounting.