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By our correspondent
Wednesday, December 19, 2012
From Print Edition
 
 

 

LAHORE: The rapid global growth in Islamic finance means that action must be taken to ensure that the way in which it is reported financially is harmonised and made more consistent, a report, based on a series of high level international roundtables, by KPMG and ACCA (the Association of Chartered Certified Accountants) has concluded.

 

The report calls on the International Accounting Standards Board (IASB) and the Islamic finance industry to work together to develop guidance and standards and educate the investor community on key issues.

 

The roundtables in Kuala Lumpur, Dubai and London, which brought together experts of 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 report.

 

The IASB should consider issuing guidance on the application of International Financial Reporting Standards (IFRS) when accounting for certain Islamic financial products, which are offered by Islamic financial institutions and conventional banks, the report said.

 

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 a 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 industry needs to engage more with local regulators to understand their expectations of financial reporting and the disclosure of Islamic financial instruments.

 

Samer Hijazi, a director in KPMG’s financial services audit practice, and co-author of the report stated that the Islamic finance industry had reached a new stage of maturity. “It has a wider variety of customers and stakeholders and a presence in more countries around the world than ever before. As the IASB seeks to establish IFRS as a single high quality set of global financial reporting standards, now it is the right time to consider how Islamic finance fits into this global framework.