26 November 2012

ACCA and KPMG call for cooperation of standard-setters and Islamic banks to harmonise financial reporting

According to the ACCA and KPMG report, the rapid global growth in Islamic finance means that action must be taken to ensure the way in which it is reported financially is harmonised and made more consistent, e.g. by the application of IFRS.

The report calls on the IASB and the Islamic Finance industry to work together to develop guidance, standards and educate the investor community on key issues.

The roundtables in Kuala Lumpur, Dubai and London, which brought together experts in Islamic Finance, bankers and finance professionals working in the sector, along with regulatory authorities, academics and ratings agencies, made a number of recommendations to both the IASB and Islamic Finance Institutes (IFIs), which are highlighted in the new report published by KPMG and ACCA.

• The IASB should consider issuing guidance on the application of IFRS when accounting for certain Islamic financial products which are offered by Islamic financial institutions and conventional banks.   
• It should also consider issuing guidance on additional disclosures that could be made for stakeholders who are seeking information on the entity’s Sharia-compliant operations.
• The IASB should work with the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and other leading Islamic finance standard setters and regulators globally to establish the gaps between IFRS and Islamic accounting standards and to review the needs of users. This should also include a review of terminology used in IFRS, and consider whether such sensitive terms as ‘interest’ – forbidden in all forms in Islamic banking- can be amended or added to.
• If Islamic finance is to be part of the IASB agenda, the IFIs should support IASB by forming an expert advisory group, including Islamic scholars from various jurisdictions, which could contribute to the development of new standards and help with the overall review or provide advice on an ad hoc basis.
• The IFIs need to conduct further outreach and education, particularly with the investor community, while providers of professional qualifications should look into the relevance of Islamic Finance to their syllabuses and the members.
• The industry needs to engage more with local regulators to understand their expectations of financial reporting and the disclosure of Islamic financial instruments.

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