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  • Slide 1
  • Overview of AAOIFI International Islamic Finance Standards Policies and Regulatory Perspectives of Islamic Finance Oman 1 st Islamic Banking and Finance Conference Muscat, Oman January 2012
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  • AAOIFI Islamic Finance Standards AAOIFI AAOIFI is responsible for developing and issuing standards for international Islamic finance industry. Supported by over 200 institutional members from over 40 countries. Members are central banks, regulatory authorities, financial institutions, accounting & auditing firms, legal firms, etc.
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  • AAOIFI Islamic Finance Standards (contd) StandardsTotal of 84 standards issued: 44 Sharia standards. 26 accounting standards. 5 auditing standards. 7 governance standards. 2 codes of ethics. In addition, new standards are being developed and existing standards reviewed.
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  • AAOIFI Islamic Finance Standards (contd) Sharia Standards Guidances on Sharia permissibility and rules for specific Islamic finance products and mechanisms. Accounting Standards Guidances on accounting treatment for specific Islamic finance products and mechanisms. Guidances on presentation of financial statements for Islamic financial institutions (IFIs).
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  • AAOIFI Islamic Finance Standards (contd) Auditing Standards Guidances on external auditing of IFIs. Governance Standards Guidances on Sharia compliance and supervision processes and framework for IFIs. Codes of Ethics Codes of ethics for employees, accountants and auditors for IFIs.
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  • Adoption of standards AAOIFI standards are applied in all jurisdictions that offer Islamic finance, including Bahrain, Brunei, Dubai International Finance Centre, Egypt, France, Indonesia, Jordan, Kenya, Kuwait, Lebanon, Malaysia, Pakistan, Qatar, Qatar Financial Centre, Saudi Arabia, South Africa, Sudan, Syria, Saudi Arabia, United Arab Emirates, and United Kingdom; and Islamic Development Bank Group. Consequently, AAOIFI standards have introduced greater harmonisation of Islamic finance practices across the world. AAOIFI Islamic Finance Standards (contd)
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  • Application of standards Expertise for technical application of standards is supported by AAOIFIs professional development qualification programs: Certified Sharia Adviser and Auditor (CSAA). Certified Islamic Professional Accountant (CIPA). AAOIFI Islamic Finance Standards (contd)
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  • Application of standards (contd) AAOIFI has also launched Contract Certification Program to certify that financial contracts between Islamic financial institutions and their clients are in compliance with AAOIFI standards and Sharia rules and principles. This is to give further support for application of AAOIFI standards and harmonisation of Islamic finance practices. AAOIFI Islamic Finance Standards (contd)
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  • AAOIFI standards reflect concept and essence of Islamic finance transactions. And bring about harmonisation of Islamic finance practices. Enhance confidence of users of Islamic finance products. Promote growth of demand for Islamic finance. How AAOIFI Standards Support Islamic Finance Industry AAOIFI Islamic Finance Standards (contd)
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  • How AAOIFI Standards Support Islamic Finance Industry AAOIFI standards also ensure convergence of financial reporting by IFIs. And introduce greater clarity to the financial reports of IFIs. Promote better view of financial performance of IFIs. Enhance transparency of financial reports. AAOIFI Islamic Finance Standards (contd)
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  • Incorporation of Sharia principles Objectives of financial regulations policies must include ensuring financial institutions are able to discharge their obligations to their customers. Their products and services comply with Sharia. For IFIs, their obligations also include that: Their financial reporting accurately encapsulates characteristics of Sharia- compliant transactions that they carry out. AAOIFI international Sharia standards give guidance on application of Sharia on finance while governance standards give guidance on Sharia supervision. AAOIFI international accounting standards that incorporate international Sharia standards into accounting principles. Policies and regulatory perspectives of Islamic finance
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  • Uniformity of financial reporting Impact of accounting standards on policies and regulatory perspectives: Accounting standards / treatments on financial transactions Incl. standards / treat- ments on provisions, valuation, etc Financial state- ments (balance sheet, income statement, etc) of fin institutions Capital / liquidity requirement or buffer of financial institutions Measurement of credit exposures and corresponding reserves and provisions Measurement of leverage ratio Measurement of liquidity ratio Material impact on policies and regulation Specificities of Islamic finance must be reflected in accounting standards. Accounting standards must enable presentation of true and fair view of IFIs financial position. Specificities of Islamic finance must be taken into account for policy coordination on global systemic risk. Policies and regulatory perspectives of Islamic finance
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  • Thank You www.aaoifi.com
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  • Appendix I List of current standards
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  • Sharia Standards 1Trading in Currencies 2Debit Card, Charge Card and Credit Card 3Default in Payment by a Debtor 4Settlement of Debt by Set-Off 5Guarantees 6Conversion of a Conventional Bank to an Islamic Bank 7Hawala 8Murabaha to the Purchase Orderer 9Ijarah and Ijarah Muntahia Bittamleek 10Salam and Parallel Salam 11 Istisna a and Parallel Istisna a 12Sharika (Musharaka) and Modern Corporations 13Mudaraba 14Documentary Credit 15 Jua la 16Commercial Papers 17Investment Sukuk 18Possession (Qabd) 19Loan (Qard) 20Commodities in Organised Markets 21Financial Papers (Shares and Bonds) 22Concession Contracts 23Agency 24Syndicated Financing 25Combination of Contracts 26Islamic Insurance 27Indices 28Banking Services 29Ethics and Stipulations for Fatwa 30Monetization (Tawarruq) 31Gharar (Uncertainty) Stipulations in Financial Transactions 32Arbitration 33Waqf 34Ijarah on Labour (Individuals) 35Zakah 36Contingent Obligations Continue next page
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  • Sharia Standards (continued) 37Credit Facilities 38Online Financial Transactions 39Rahn (Pledge) 40Investment Accounts and Profit Distribution 41Reinsurance 42Disposal of Rights 43Bankruptcy 44Liquidity Management 45Capital Protection (in Investment Products) 46Investment Agency 47Stipulations on Income and Profit (in Financial Transactions) 48Options in Legal Contracts
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  • Accounting Statements & Standards SFA 1Conceptual Framework for Financial Reporting by Islamic Financial Institutions FAS 1General Presentation and Disclosure in the Financial Statements of Islamic Banks and Financial Institutions FAS 2Murabaha and Murabaha to the Purchase Orderer FAS 3Mudaraba Financing FAS 4Musharaka Financing FAS 5 Disclosure of Bases for Profit Allocation between Owners Equity and Investment Account Holders FAS 6Equity of Investment Account Holders and Their Equivalent FAS 7Salam and Parallel Salam FAS 8Ijarah and Ijarah Muntahia Bittamleek FAS 9Zakah FAS 10 Istisna a and Parallel Istisna a FAS 11Provisions and Reserves FAS 12General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies FAS 13Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies FAS 14Investment Funds FAS 15Provisions and Reserves in Islamic Insurance Companies FAS 16Foreign Currency Transactions and Foreign Operations FAS 17Investments for Real Estates Continue next page
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  • Accounting Statements & Standards (continued) FAS 18Islamic Financial Services Offered by Conventional Financial Institutions FAS 19Contributions in Islamic Insurance Companies FAS 20Deferred Payment Sale FAS 21Disclosure on Transfer of Assets FAS 22Segment Reporting FAS 23Consolidation FAS 24Investments in Associates FAS 25Investments in Sukuk, Shares, and Similar Instruments SFA = Financial Accounting Statements FAS = Financial Accounting Standards Accounting Guidance Note 1Guidance Note on First Time Adoption of AAOIFI Accounting Standards
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  • Auditing Standards 1Objectives and Principles of Auditing 2 The Auditor s Report 3Terms of Audit Engagement 4 Testing for Compliance with Shari a Rules and Principles by an External Auditor 5 The Auditor s Responsibility to Consider Fraud and Error in an Audit of Financial Statements Governance Standards 1 Shari a Supervisory Board: Appointment, Composition and Report 2 Shari a Review 3 Internal Shari a Review 4Audit and Governance Committee for Islamic Financial Institutions 5 Independence of Shari a Supervisory Board 6Statement on Governance Principles for Islamic Financial Institutions 7Corporate Social Responsibility Conduct and Disclosure for Islamic Financial Institutions Ethics Standards 1Codes of Ethics for Accountants and Auditors of Islamic Financial Institutions 2Codes of Ethics for the Employees of Islamic Financial Institutions
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  • Appendix II List of standards included in standards development programs for 2011 onwards
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  • List of standards included in the standards development program 2011 onwards Accounting Standards New Conceptual Framework for Financial Reporting (to