AAOIFI Accounting Standards

FAS 1 vs IAS 1
(AAOIFI vs IFRS)

Md Nahid Imam
Certified Islamic Banker

ISLAMIC FINANCE IN EUROPE

AAOIFI Accounting standards

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AAOIFI Accounting Standards

AAOIFI has issued the Financial Accounting Standard No. 1 on General Presentation and
Disclosure in the Financial Statements of Islamic Banks and Financial Institutions in January
1996. The standard is applicable to the financial statements published especially by Islamic
banks to meet the common information needs of the main users of such statements. The
standard makes it clear that if the requirements of the standard contradict the banks charter
or the laws and regulations of the country in which it operates a disclosure should be made on
the contradiction and the impact of promulgated standards on the relevant elements of the
financial statements.
AAOIFI FAS 1 specified that the complete set of financial statements consist of conventional
statements of IAS 1 such as a statement of financial position (balance sheet); income
statement, cash flows statement; statement of changes in owners equity, or a statement
of retained earnings; and notes to the financial statements.
However, the standard added three (3) additional statements that could be useful for users of
Islamic banks and financial institutions, namely:
(i)
(ii)
(iii)

Statement of changes in restricted investment;

Statement of sources and uses of funds in the Zakat and charity fund (if the bank
assumes the responsibility for the collection and distribution of Zakat); and
Statement of sources and uses of funds in the Qard fund.

The standard also makes it clear that Islamic banks and financial institutions, in addition to
other conventional disclosures (Para 3/2), should disclose two (2) very important aspects of
their unique functions i.e.
(i)

(ii)

the role of the Shariah adviser or the Shariah board in supervising the banks
activities and the nature of advisers or boards authority in accordance with the
banks bye-laws and in actual practice; and,
the banks responsibility towards Zakat.

For the disclosure of significant accounting policies, AAOIFI FAS 1 made a number of
disclosure requirements such as
(i)
disclosure of accounting policies;
(ii)
disclosure of bases and methods adopted by the banks management for
revaluation of assets, liabilities and restricted investments to their cash equivalent
value;
(iii) disclosure of earnings or expenditures prohibited by the shariah and how the
bank intends to dispose of the assets generated by the prohibited earnings or
acquired through prohibited expenditures;
(iv)
disclosure related to unrestricted and restricted investment accounts;
(v)
disclosure on the distribution of unrestricted investment accounts, by type, in
accordance with maturity (Para 3/9); (vi) disclosure of the method used by the
Islamic bank in allocating investment profits (or losses) between unrestricted
investment account holders or their equivalent (Para 3/18);
(vi)
disclosure on returns to each type of investment accounts and their rate of return.

AAOIFI Accounting standards

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