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Accounting and Islamic finance in the Middle East and North Africa

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

25 Nov 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).

60% of respondents claimed that IFRSs or standards substantially converged with IFRSs are applied in their jurisdiction while 64% also responded that the AAOIFI standards are applied.

As IFRSs and AAOIFI standards differ, two methods have been developed for their co-existence: (1) AAOIFI standards are generally applied and IFRSs are used to fill the gaps where AAOIFI requirements are absent or (2) IFRSs are applied but for certain accounting issues there are exemptions from complying with IFRSs and AAOIFI standards are applied instead.

For the accountants and auditors who replied to the survey, the co-existence of IFRS and AAOIFI standards is not in conflict with IFRS convergence and most stated they would accept the preparation of financial statements that comply with IFRS for some items and with AAOIFI standards for others. This 'pragmatic' approach to convergence contrast sharply with the standard-setters' views in these jurisdictions. In 2011, the AOSSG conducted a similar survey amongst national accounting standard-setters, in which 78% of the respondents stated that having differential financial reporting standards for Islamic finance is not compatible with IFRS convergence.

The survey also showed that there is no great appetite for switching to IFRSs completely. 75% of respondents in jurisdictions where AAOIFI standards are applied thought that their jurisdiction should retain them in spite of the global IFRS trend. One of the reasons for the reluctance is that the IASB has not publicly announced if or how it plans to address accounting for Islamic financial transactions.

Please click for access to the survey results on the AOSSG website. They will be discussed at the upcoming fifth annual AOSSG meeting later this week.

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