3. Established in accordance with the Agreement of Association which
was signed by Islamic financial institutions on 1 Safar, 1410H
corresponding to 26 February, 1990 in Algiers
Registered on 11 Ramadan 1411 corresponding to 27 March, 1991
in the State of Bahrain.
An Islamic international autonomous non-for-profit corporate
body
Prepares accounting, auditing, governance, ethics and Shari'ah
standards for Islamic financial institutions and the industry
Responsible for formulation, issuance of finance standards and
developing new standards and also reviewing existing standards
ACCOUNTING AND AUDITING ORGANIZATION FOR ISLAMIC
FINANCIAL INSTITUTIONS ( AAOIFI )
4. supported by institutional members
including central banks, Islamic financial
institutions, and other participants from the
international Islamic banking and finance
industry, worldwide.
gained assuring support for the
implementation of its standards, which are
now adopted in the Kingdom of Bahrain,
Dubai International Financial Centre, Jordan,
Lebanon, Qatar, Sudan and Syria
5. The relevant authorities in Australia,
Indonesia, Malaysia, Pakistan, Kingdom of
Saudi Arabia, and South Africa have issued
guidelines that are based on AAOIFI’s standards
and pronouncements.
to support technical application of standards,
AAOIFI offers the following professional
qualifications programs.
Certified Islamic Professional
Accountants (CIPA)
Certified Sharia’a Adviser and
Auditor (CSAA)
6. MISSION
Standardization and harmonization
of international Islamic finance
practices and financial reporting in
accordance to Shari’ah
VISION
To guide Islamic financial markets
operation and financial reporting on
Shari’ah principle and rules.
To provide Islamic financial
markets with a standard that can
support growth of the industry.
Of AAOIFI
7. To develop accounting and auditing thoughts relevant to
Islamic Financial Institutions
To disseminate accounting and auditing thoughts relevant to
Islamic Financial Institutions and its applications through
training, seminar, publication of periodical newsletters,
carrying out and commissioning of research and other means
To prepare, promulgate and interpret accounting and
auditing standards for Islamic Financial Institutions
To review and amend accounting and auditing standards for
Islamic Financial Institutions
AAOIFI PRIMARY OBJECTIVE
8.
9. Introduction to MASB
• The Malaysian Accounting Standards Board (MASB) is
established under the Financial Reporting Act 1997 (the Act)
• Act as independent authority to develop and issue
accounting and financial reporting standards in Malaysia.
• Make up the frameworks for financial reporting in Malaysia
together with the Financial Reporting Foundation (FRF).
• These frameworks comprises an independent standard-
setting structure with representation from all relevant parties
in the standard-setting process, including preparers, users,
regulators and the accountancy profession
10. Develop and promote high quality
accounting and reporting standards
that are consistent with international
best practices for the benefit of users,
preparers, auditors and the public in
Malaysia.
In a wider context, the MASB seeks to
contribute directly to the international
development of financial reporting for the
benefit of users, preparers and auditors of
financial reports.
11. - Develop high quality, clear and enforceable national accounting
standards for financial reporting that benefit users.
- Bring about harmonisation of national accounting standards
with international accounting standards
- Promote the use and application of those standards by way of
communication with and education of users, preparers, auditors
and the public
-Activelly contribute to the development of accounting standards
internationally, including, Islamic-based accounting standards
- Promote and support research in the area of financial
reporting, in particular, for emerging markets and Islamic
markets.
Of MASB
12. FUNCTION AND POWER OF MASB
• Issue new accounting standards as approved accounting standards and to
review, revise or adopt existing accounting standards as approved
accounting standards;
• Issue statements of principles for financial reporting;
• Sponsor or undertake development of possible accounting standards;
• Conduct public consultation as necessary;
• Develop a conceptual framework for the purpose of evaluating proposed
accounting standards;
• Make such changes to proposed accounting standards as considered
necessary;
• Seek the view of the FRF in relation to new and existing standards,
statement of principles, and changes to proposed standards;
• Determine scope and application of accounting standards; and
• Perform such other function as the Minister of Finance may prescribe
13. - Lack of Shar’iah consistency as each bank relied on shari’ah
advisors of respective banks.
- This lack of comparability and consistency on the accounting
treatment on recognition, measurement and disclosure of
Islamic-based transactions.
- Causing the measurement and comparison of financial
performance of the banks are difficult to make.
- So, MASB aim to develop Malaysian accounting standard or
technical releases for Islamic financial institutions.
- Section known as MASB FRSi-1 (from 2003- 2010) then only
serve as Technical Realese or TRi-3 (from 2010 onward).
Problem arise in MASB
14. MASB TRi-3
Applies to all financial institutions that undertake Islamic Banking
Activities and participate in Islamic Banking Scheme
Specify a complete set of financial statements which is include (like
requirements for a complete set of financial statement for conventional
institutions)
• 1)balance sheet
• 2) income statement
• 3) cash flow statement
• 4) accounting policies, explanatory notes & appendices
• 5)and statement that showing about owners equity
# Recommends voluntary additional statements that include a financial
review by management DESCRIBING and EXPLAINING the main features of
the Islamic financial institutions financial performance and financial
position, mentioning principal uncertainties such as sources of funding
and factors determining performance
15. - MASB Tri-3 also recommended an environmental report and
value added statements and any other statements useful to
users, such as Zakat Fund and Qard Fund
- Prescribe guidelines on going concern principles whereby the
management should make an IFI’s ability to continue as a going
concern
- MASB Tri-3 prescribed that the financial statements of IFIs
should be clearly identified and distinguished from other
information in the same published documents
- Recommended a number of additional disclosures unique in the
case of IFIs, such as disclosures associated with risks of Islamic
contract like wadi’ah contract guarantee safe custody of
deposits
- Prescribed required disclosure of Shari’ah advisor and zakat
obligations. It is required that an IFI should disclosure the role
and authority of shariah or board in monitoring the IFIs
activities pertaining to the shariah matters
16. General presentation and disclosure in the financial
statements of Islamic banks and financial institutions
This is the financial accounting standard no. 1 (FAS 1)
that issued by AAOIFI on January 1996.
The standard is applicable to the financial statement
published by Islamic banks to meet the common
information needs of the main users of such statements.
17. Disclosure Requirements In Accounting
Disclosure
i. Firm need to avoid any riba
transaction
• Firm are required pay zakat on
saving, share and etc.
Full disclosure of account
information to users for purposes of
serving God.
18. AAOIFI FAS 1 are complete set of financial statements
consist of conventional statement
Balance sheet
Income statement
Cash flows
statement
Statement of changes
in owner’s equity or
statement of retained
earnings
Notes to the
financial
statements
19. There are 3 additional statements
I. Statement of changed in restricted
investment.
II. Statement of sources and uses of funds in
the Zakah and charity funds.
III. Statement of sources and uses of funds in
the Qard fund.
I. Statement of changed in restricted
investment.
II. Statement of sources and uses of funds
in the Zakah and charity funds.
III. Statement of sources and uses of funds
in the Qard fund.
20. The role of the Shariah
advisor / Shariah board’s
supervising the bank’s
activities and the nature
of adviser’s / board’s
authority (bank’s by-laws
and actual practice.
The bank’s
responsibility
toward Zakah
The important
aspect of
unique
function
21. The disclosure of significant accounting policies:
1) Accounting policies adopted by the management of the
Islamic bank but which are not consistent with the
concepts of financial accounting for Islamic banks
-Revaluation of asset, liabilities and restricted investment
to their cash equivalent value
2) Disclosure of earnings or expenditure prohibited by the
Shariah.
- The amount and nature of earnings or expenditures
that have been realized or incurred from sources or by
means which are not permitted by the Shariah.
- Dispose of the assets generated by the prohibited
earnings or acquired through prohibited expenditures.
(To enhance the confidence of the stakeholders on the
integrity of Islamic financial institutions).
22. 3) Requires disclosures related to unrestricted and
restricted investment accounts.
- Disclosures are required on the magnitude of balances of
all unrestricted investment accounts and their equivalent
- Disclosure should be made on the distribution of
unrestricted investment accounts in accordance with
maturity.
4) The disclosures of the method used by the Islamic bank
in allocating investment profits / losses between
unrestricted investment account holders or their equivalent.
- Disclosure should be made of the returns of each type of
investment accounts and their rate of return.
23. Disclosure Requirements On
Balance Sheet Investment
Accounts
• Disclosure should be made, in the notes to the
financial statements on the accounting policies and
of the bases applied by the IFI in the allocation of
profits between owners‟ equity and investment
account holders. (Para 23)
• Disclosure should be made in the notes to the
financial statements on significant accounting
policies, of the bases applied by the IFI for charging
provisions, and the parties to whom they revert
once they are no longer required. (Para 24)
24. • Comparison on structural objectives
COMPARISON BETWEEN AAOIFI
STANDARD & IASB STANDARD
• Categories of accounting standards for Islamic
financial institutions
• Examples of main differences between AAOIFI
Standards and IFRS
25. A. Differences on COVERAGE of standards
IFRSAAOIFI
• For entire economic
and social activities.
• Generic, mostly not
industry-specific.
• Specific for Islamic
finance industry.
• Based on requirement of
Islamic finance practices.
Comparison on structural objectives
26. B. Differences on TYPES of standards
IFRSAAOIFI
• Type-specific.
• Accounting.
• All-encompassing.
• Accounting,
• Shari’ah,
• Auditing, Ethics, and
Governance.
27. Categories
of
accounting
standards
for IFIs
AAOIFI standards issued
because IFRS / IASB
standards cannot be
adopted in whole by
Islamic financial
institutions (IFIs).
AAOIFI standards issued
for specific Islamic
banking and finance
practices not covered by
IFRS / IASB standards.
IFRS / IASB standards that
can be adopted by IFIs
(therefore AAOIFI does
not issue similar ones and
allows adoption of those
standards).
28. 1. AAOIFI standards issued because IFRS / IASB
standards cannot be adopted in whole by IFIs
• Due to Shari’ah compliance issues or because IFRS /
IASB standards do not fully cover characteristics of
Islamic banking and finance.
• In these cases, AAOIFI standards are issued to apply to
topics covered by the IFRS / IASB standards.
• Eg.: AAOIFI’s FAS 1 (General Presentation and
Disclosure in Financial Statements of IFIs) covers IAS 1
(Presentation), 7 (Cash Flow), 18 (Revenue), etc.
Categories of accounting standards for IFIs
29. 2. AAOIFI standards issued for specific Islamic banking
and finance practices not covered by IFRS / IASB
standards
• For financial transactions and practices unique to Islamic
banking and finance.
• In these cases, AAOIFI standards are issued to apply to
topics not covered by IFRS / IASB standards.
• Eg.: AAOIFI’s FAS 2 (Murabaha & Murabaha to the
Purchase Orderer), FAS 7 (Salam & Parallel Salam).
30. 3. IFRS / IASB standards that can be adopted by IFIs
• These standards do not give rise to Shari’ah compliance
issues and are adequate to cover practices of IFIs. In
these cases, AAOIFI does not issue equivalent standards
• IFIs adopting AAOIFI standards are allowed to also follow
other standards if there are no equivalent AAOIFI
standards.
• Eg.: IAS 10 (Events after Balance Sheet Dates), IAS 24
(Related Party Disclosures).
31. Examples of main differences between AAOIFI and IFRS
A. Investment account funds in IFIs
• An IFI’s major source of funds is ‘unrestricted’ investment account
funds from its customers.
• These funds are generally managed by IFI based on Mudarabah
investment management profit-sharing agreement.
• Under Mudaraba investment management, IFI is not liable for loss
arising from investments (except due to IFI’s misconduct,
negligence, etc) – Shari’ah standard.
• AAOIFI standards require ‘unrestricted’ investment account funds to
be presented in statement of financial position as a separate item
between liabilities and owners’ equity.
• In contrast, based on IFRS these would be presented as liabilities
(along with other deposits).
32. B. Ijarah (leasing)
• An IFIs major financing mechanisms are Operating Ijarah and
Ijarah Muntahia Bittamleek.
• For both, asset ownership rests with IFI throughout the lease
term.
• In Ijarah Muntahia Bittemleek, there must be independent
contract for transfer of asset ownership.
• AAOIFI standards require both Operating Ijarah and Ijarah
Muntahia Bittamleek to be treated similar to Operating Lease.
• In contrast, based on IFRS, both Operating Ijarah and Ijarah
Muntahia Bittamleek would normally be classified and treated
as Finance Lease.
33. IAS vs IFRS
• IAS stands for International Accounting Standards,
while IFRS refers to International Financial Reporting
Standards.
• IAS standards were published between 1973 and
2001, while IFRS standards were published from
2001 onwards.
• IAS standards were issued by the IASC, while the
IFRS are issued by the IASB, which succeeded the
IASC.
• Principles of the IFRS take precedence if there’s
contradiction with those of the IAS, and this results
in the IAS principles being dropped.