AAOIFI’s Accounting Board holds its 33rd meeting and approves, in principle, the exposure draft of financial accounting standard “Financial Reporting for Institutions Operating[...]

The Accounting board (the board/ AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has held its 33^rd meeting on 22-23 May 2023 via video conferencing during which it approved the exposure draft of financial accounting standard "Financial Reporting for Institutions Operating in Hyperinflationary Economies", in principle, and discussed a host of other agenda items.

The meeting commenced with an update report on standards development and a presentation of a progress report on the financial accounting standard (FAS) review and revision project, for the period spanning January to May 2023. At the present, seven projects are underway including development of new standards and review / revision of existing ones. The board reconsidered the structure and composition of AAOIFI Technical Advisory and Interpretations Committee (TAIC) and decided to enhance its membership with a member from a Bahrain-based accounting firm.

The board also held extensive discussions on the exposure draft of the financial accounting standard "Financial Reporting for Institutions Operating in Hyperinflationary Economies", which aims to establish principles of financial reporting for the institutions applying AAOIFI Financial Accounting Standards (FASs) operating in hyperinflationary economies, duly considering the relevant Shari'ah principles and rules and the unique business model of Islamic financial institutions (IFIs). Additionally, pertinent aspects for accounting and reporting for institutions operating in hyperinflationary economies were incorporated into the draft standard.

Under other business, the board discussed the project of taxonomy and e-codification of AAOIFI standards and technical pronouncements, which aims to enhance the layout, mapping and classification of AAOIFI standards and it was decided that the project, in its current stage, will be enhanced with representation from the board as part of the respective committee in charge of the project.

Additionally, the board emphasised the significance of clarifying the concepts of accounting under Shari'ah principles and rules, and recommended a re-issue of an updated financial accounting statement incorporating an explanation of the philosophy underpinning specific accounting principles and conventions under Shari'ah.

Commenting on the exposure draft approved by the board for issuance, Mr. Hamad Al Oqab, Chairman of AAB, stated: "in response to changes in the economic circumstances in hyperinflationary jurisdictions, specifically the rapid and rampant increase in inflation, it was crucial to develop a standard on hyperinflationary accounting duly aligned with AAOIFI conceptual framework for financial reporting and related Shari'ah guidance". He further added: "accounting for hyperinflation under AAOIFI standards is unchartered area that requires a highly technical input and certain Shari'ah opinion. And at this stage, with the issuance of the exposure draft, the public views will be sought and obtained by means of a series of public hearing sessions in the foreseen future".