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AOSSG survey finds comparability of Islamic financial institutions' financial statements needs to be improved

  • Islamic accounting Image
  • AOSSG (Asian-Oceanian Standard-Setters Group) (dk green) Image

11 Mar 2015

The Asian-Oceanian Standard-Setters Group (AOSSG) has released the results of a survey into the financial reporting standards that Islamic financial institutions (IFIs) are legally required to comply with in their jurisdiction and the extent of compliance.

The survey covers financial statements of 132 top IFIs from 31 jurisdictions around the world. In addition to identifying the financial reporting standards that the IFIs are legally required to comply with and the extent of compliance, the survey also noted the accounting treatment of selected Islamic financial transactions where past experience has shown that there are significant differences between the requirements under IFRS and the accounting standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Areas of focus were:

  • Lessor accounting for ijarah with an arrangement to transfer ownership;
  • Classification of customer investment accounts; and
  • Recognition and measurement of finance income.

Of the sampled IFIs, more IFIs apply IFRSs than AAOIFI standards: 46% stated compliance with IFRSs or IFRS as adopted for their jurisdiction (for example, IFRSs as adopted for the use in the EU), while only 18% stated compliance with the standards issued by AAOIFI. A large portion of IFIs (34% of the sample) complied with a local reporting framework.

However, regardless of the standards complied with, the study noted differing treatments in three main areas: ijarah, customer investment accounts and recognition and measurement of finance income. Reasons behind this were differing interpretation of the requirements and/or a market regulator or central bank may over-riding a requirement determined by an accounting standard-setter.

The study's overall conclusion is that the AOSSG may need to engage with regulators and central banks to promote the use of IFRS by IFIs.

Please click for access to the study on the AOSSG website. It offers a general survey of the standards applied and the treatment of the three areas of focus for the whole sample as well as findings listed by jurisdiction. Jurisdictions covered are Albania, Australia, Bahrain, Bangladesh, Bosnia, Brunei, Egypt, India, Indonesia, Iran, Jordan, Kazakhstan, Kuwait, Lebanon, Malaysia, Mauritius, Oman, Pakistan, Philippines, Qatar, Saudi Arabia, South Africa, Sri Lanka, Sudan, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States of America, and Yemen.

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