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IOSCO report on Islamic capital markets

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28 Jul 2004

The International Organization of Securities Commissions (IOSCO) has published Islamic Capital Market Fact Finding Report intended to assist regulators in assessing the extent of the development and potential regulatory issues relating to the Islamic capital market, as well as to gather information on Islamic financial products and activities.

Among the sections of interest from an IFRS perspective:
  • 3.3.1 Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)
  • 4.3.2 Key issues relating to the Islamic capital market, which describes, among other things, how IFRSs are used by Islamic financial institutions.
Two excerpts relating to accounting:

"In some cases, Islamic financial institutions encounter accounting problems because the existing accounting standards such as International Accounting Standards (IASs), Generally Accepted Accounting Principles (GAAPs) or domestic standards, were 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. Shariah compliant transactions may not have parallels in conventional financing and therefore, there may be significant accounting implications. For example, in the case of Mudharabah contracts, the transaction is neither equity nor liability in nature as the depositor does not assume the rights of an equity holder (i.e., shareholder) of the Islamic financial institution and neither is he guaranteed of returns. Hence, from an Islamic accounting viewpoint, a Mudharabah account may be presented as an 'investment account', appearing as a separate line item from equity or liability on the balance sheet."

"The current approach to developing financial standards for Islamic transactions is to benchmark against international standards such as International Accounting Standards (IASs) to ensure consistency with globally accepted standards and modifying them, where necessary, in order to ensure financial statements present fairly the financial position, financial performance and cash flows of the Islamic financial institution.... This can be seen as a response to the growth and increasing maturity of the Islamic capital market that requires more specific disclosure and standards that address the specific features of Islamic products and services. Hence, international Islamic financial institutions such as AAOIFI have begun to set international Islamic accounting standards for Islamic financial institutions which are likely to be used by the global Islamic financial services industry."

Click for Islamic Capital Market Fact Finding Report (PDF 611k).

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