Overview
This standard establishes the principles for the general presentation and disclosure of
financial statements prepared by Islamic financial institutions (IFIs) to ensure they are
Shari’ah-compliant, transparent, and comparable. It outlines the structure, content, and
qualitative characteristics of financial statements, focusing on fair presentation, consistency,
and the unique requirements of Islamic finance.
Key Sections of the Standard
1. Objective (Paragraph 1/1)
o To define the basis for preparing and presenting financial statements for IFIs,
ensuring:
Fair presentation of financial position, performance, and cash flows.
Compliance with Shari’ah principles.
Provision of relevant, reliable, and comparable information to users.
2. Scope (Paragraph 2/1)
o Applies to all financial statements prepared by IFIs, including banks, Takaful
(Islamic insurance) companies, and other institutions offering Shari’ah-
compliant products.
o Covers general-purpose financial statements intended for external users (e.g.,
investors, regulators, customers).
o Excludes special-purpose reports or non-financial disclosures unless specified.
3. Definitions (Paragraph 3/1)
o Financial Statements: A structured representation of an IFI’s financial
position, performance, and cash flows, including:
Statement of Financial Position (balance sheet).
Statement of Profit or Loss (income statement).
Statement of Cash Flows.
Statement of Changes in Equity.
Statement of Changes in Restricted Investment Accounts (specific to
IFIs).
Notes to the financial statements.
o Fair Presentation: Faithful representation of the effects of transactions and
events in accordance with Shari’ah and AAOIFI standards.
o Shari’ah Compliance: Adherence to Islamic principles, prohibiting Riba
(interest), Gharar (uncertainty), and non-permissible activities.
4. Qualitative Characteristics (Paragraphs 4/1–4/4)
o Relevance: Information must be useful for decision-making.
o Faithful Representation: Information must be complete, neutral, and free
from material error.
o Comparability: Financial statements should allow users to compare
performance over time and across IFIs.
o Understandability: Information should be clear and concise for users with
reasonable financial knowledge.
o Materiality: Only information that could influence users’ decisions needs to
be disclosed.
5. Components of Financial Statements (Paragraphs 5/1–5/6)
o Statement of Financial Position: Presents assets, liabilities, and equity, with
specific line items for Islamic financing (e.g., Murabaha, Mudaraba,
Musharaka) and investment accounts.
o Statement of Profit or Loss: Reports income, expenses, and profit/loss,
distinguishing between Shari’ah-compliant income and any non-permissible
income (to be purified).
o Statement of Cash Flows: Classifies cash flows into operating, investing, and
financing activities, with specific guidance for Islamic financing transactions.
o Statement of Changes in Equity: Shows movements in owners’ equity and
profit-sharing investment accounts.
o Statement of Changes in Restricted Investment Accounts: Unique to IFIs,
detailing contributions, withdrawals, profits, and losses for restricted
investment account holders.
o Notes: Provide additional details, including accounting policies, Shari’ah
compliance disclosures, and risk management.
6. Presentation Requirements (Paragraphs 6/1–6/5)
o Financial statements must be presented fairly, with no offsetting of assets and
liabilities unless permitted by another AAOIFI standard.
o Comparative information for the prior period is required unless impracticable.
o Specific presentation for Islamic financial instruments (e.g., Murabaha
receivables, Ijarah assets, Sukuk) to reflect their Shari’ah-compliant nature.
o Non-permissible income (e.g., from incidental non-Shari’ah-compliant
activities) must be separately presented and disclosed for purification (e.g.,
donation to charity).
7. Disclosure Requirements (Paragraphs 7/1–7/7)
o Disclose:
Accounting policies and their basis (e.g., AAOIFI standards, Shari’ah
rulings).
Shari’ah compliance mechanisms, including the role of the Shari’ah
supervisory board.
Nature and extent of Islamic financing and investment activities (e.g.,
Mudaraba, Musharaka, Sukuk).
Risk exposures (credit, market, liquidity, operational) and their
management.
Details of restricted and unrestricted investment accounts, including
profit-sharing ratios and distributions.
Any non-permissible income and its purification process.
o Disclose significant judgments and estimates (e.g., impairment provisions, fair
value measurements).
o Provide a statement of compliance with AAOIFI standards and Shari’ah
principles.
8. Effective Date and Transition (Paragraphs 8/1–8/2)
o Effective for financial statements for periods beginning on or after 1 January
2023.
o Early adoption is permitted, with retrospective application for comparative
periods unless impracticable.
9. Appendices
o Appendix A: Basis for Conclusions – Explains the Shari’ah, technical, and
practical rationale for the standard’s requirements.
o Appendix B: Illustrative Financial Statements – Provides examples of
financial statements for an IFI, including formats for each component.
o Appendix C: Definitions – Detailed glossary of terms used in the standard.
Key Shari’ah Considerations
Financial statements must reflect Shari’ah compliance, with clear segregation of
permissible and non-permissible income.
The role of the Shari’ah supervisory board is critical, and its oversight must be
disclosed.
Transactions must avoid Riba, Gharar, and non-permissible activities, with specific
guidance for Islamic financial instruments.
Purification of non-permissible income is mandatory, with transparent disclosure of
the process.
Practical Implications for IFIs
IFIs must ensure their financial reporting systems capture the unique aspects of
Islamic finance, such as profit-sharing investment accounts and Shari’ah-compliant
assets.
Robust disclosure practices are required to meet regulatory and stakeholder
expectations, particularly regarding Shari’ah compliance and risk management.
Training and system upgrades may be needed to align with the standard’s
requirements, especially for comparative disclosures and non-permissible income
reporting.
Notes
The full text of the PDF includes detailed paragraphs, illustrative examples, and
Shari’ah rulings, which are too extensive to reproduce verbatim here. If you need
specific sections, paragraphs, or examples extracted, please specify!
The standard serves as the foundation for other AAOIFI standards, ensuring
consistency across Islamic financial reporting.
If you have access to the PDF and can upload it or provide specific pages, I can
provide a more detailed extraction or analysis.
