The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is revamping key standards and boosting its engagement efforts with the industry, part of an ambitious reform agenda for the Bahrain-based body.
A revised standard for sukuk (Islamic bonds) and a new one covering the sale of debt are among major efforts planned for next year, secretary-general Hamed Hassan Merah told Reuters in an interview.
Established in 1990, AAOIFI issues guidelines that are followed wholly or in part by Islamic financial institutions around the world which hold around $2 trillion in assets.
Industry bodies like AAOIFI have been urged to adapt in a sector that has grown fast but remains fragmented across its core centres in the Middle East and Southeast Asia.
Merah has overseen a surge in activity at AAOIFI since taking the helm in September of last year: AAOIFI last held a review of its sharia standards five years ago, while it has issued six new standards in the past 15 months alone.
"We are now redrafting our sukuk standard. It is 13 years old, since then there have been a lot of changes in the sukuk market," Merah said on the sidelines of a conference in Manama jointly organised with the World Bank.
The revision would cover the asset-backed and asset-based nature of sukuk, capital boosting instruments, beneficial ownership and non-viability clauses, said Merah.
A new standard on the sale of debt would be closely watched by some scholars which view this practice with caution as it can open the door to speculation, which is disallowed under Islamic law.
"This will be one of the major standards. This will be very technical, but it will affect a lot of products."
A key change to how AAOIFI operates involves its accounting and auditing board, which has now been split into two, creating a board solely focused on governance and ethics, Merah said.
In another shift in approach, AAOIFI is seeking convergence with its counterpart in conventional finance, the International Accounting Standards Board, after conducting a study to identify gaps between their standards.
"We just started that long journey but we think we can achieve a lot," said Merah, adding that AAOIFI would update the curriculum of its accounting certification and revise ten of its accounting standards next year.
ENGAGEMENT
AAOIFI is also seeking to engage with the wider industry to make its inner workings more transparent and encourage wider adoption by regulators.
It will also publish extensive research it has conducted in the past to develop its standards, aiming to give a better understanding of its various rulings, said Merah.
AAOIFI has grown its membership as well, with the central banks of Morocco, Kazakhstan and Jordan joining this year.
Kazakhstan is considering making AAOIFI's sharia standards compulsory for its Islamic finance institutions, Merah said.
The launch of an Islamic accounting journal and translation of its standards to French and Russian are being prepared for next year, with ongoing discussions with the central bank of Pakistan for a translation to Urdu, said Merah.
Traditionally, AAOIFI has published its standards in Arabic first before making them available in other languages, but it now plans to make all versions available at the same time.
AAOIFI standards will soon be available online and through mobile applications, which to date comprise 54 sharia standards, 26 accounting standards, 5 auditing standards, 7 governance standards and 2 codes of ethics.
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