The Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is engaging its counterpart in conventional finance to discuss the convergence of corporate accounting standards.
The move is a shift in approach by AAOIFI, which has traditionally developed accounting standards separately from those of the London-based International Accounting Standards Board (IASB).
Collaboration between the two bodies could reduce differences in accounting practices between Islamic and conventional finance, or at least uncertainty about the extent of the differences. This could help to reduce costs for banks and other companies.
AAOIFI has invited IASB officials to its annual conference in Manama this week, a gathering of the industry’s top sharia scholars and regulators, the AAOIIFI conference agenda shows.
Wayne Upton, international director of the IASB and chairman of the committee interpreting its International Financial Reporting Standards (IFRS), is to be a panelist in the first session of the conference, which opens on Monday.
In response to the rapid growth of Islamic finance, the IASB set up a group to consult with the industry last year, but until now AAOIFI has not become involved. The IASB’s last meeting, held in September in Kuala Lumpur, didn’t include AAOIFI, which was listed as “invitation pending”.
Under a new secretary-general appointed in September, AAOIFI now appears to be taking a more proactive approach to the industry, revising a wide range of standards and declaring its intention to develop new ones.
The IASB said in September that it didn’t want to reopen its standards to include Islamic finance, and would focus instead on addressing uncertainties and reducing diversity in the Islamic finance sector.
At the September meeting, members said any recommendations from the IASB would not reduce uncertainty if some entities adopted them and others did not, so a formal mechanism would be needed to ensure they were adopted industry-wide. AAOIFI could conceivably provide such a mechanism.
Among other things, the IASB is studying whether Islamic banking products qualify for amortised-cost classification in its fair value standard, known as IFRS 9, which is problematic for Islamic banks as it deals with payments of principal and interest; Islamic principles ban interest payments.
It is also discussing whether Islamic finance instruments fall within the scope of IFRS 15, its standard on revenue from contracts with customers.
Originally published on www.reuters.com