THE AUTHORITIES
AAOIFI is as close to an Islamic banking standards body as can be had but what does it do and who else is influential?
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI)
Shari’ah can be interpreted differently across the Islamic world, by region, by country, and even within a country. Banking products may therefore be offered to consumers according to each advisory board’s reading of the type of product or service being offered. To help clarify this reading, a number of international bodies have evolved. One of the primary sources of clarification is AAOIFI. Clearly a standardised reading of Shari’ah would benefit the commercial aspect of Islamic banking, whilst still holding on to the core values of Islam. So as well as being bound by conventional financial regulations, in the early 1980s many Islamic financial institutions started to feel the need for accounting and auditing standards that related specifically to Islamic practice. Much effort was made to define that need at both administrative and technical levels over the following few years. This was brought to a head in 1987 with the presentation of a paper by the Islamic Development Bank during its annual Board of Governors’ meeting, held in Istanbul in March of that year. IDB is a multilateral development financing institution created in 1975 to foster the economic development and social progress of its seven member countries and Muslim communities in non-member countries. Its research paper focused the minds of a number of individuals and organisations, influencing the establishment of several committees concerned with the examination of what indeed might constitute best practice for Islamic financial institutions. Together, these committees produced volumes of research papers and reports, which culminated in the formal establishment, in February 1990, of AAOIFI, at a meeting in Algiers. The founding signatories were the Islamic Development Bank, Dallah Al Baraka, Faysal Group (Dar Al Maal Al Islami), Al Rajhi Banking & Investment Corporation and Kuwait Finance House. In March of the following year, AAOIFI was registered in Bahrain as an international autonomous non-profit making corporate body. Today, the structure of AAOIFI consists of the General Assembly, the Board of Trustees, the Executive Committee, the General Secretariat, the Accounting and Auditing Standards Board, and the
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Shari’ah Board. The latter two work independently from the other boards, and are responsible for preparing, reviewing, releasing and amending standards. The Shari’ah Board is composed of 15 members, appointed by the Board of Trustees for a four-year term. These members are selected from among scholars of Fiqh (Islamic jurisprudence) who represent Shari’ah supervisory boards in the Islamic financial institutions that are members of AAOIFI, and Shari’ah supervisory boards in central banks.
The Shari’ah Board is a vital aspect of AAOIFI. It is charged with responsibility for achieving harmonisation and convergence in the concepts and application among the Shari’ah supervisory boards of Islamic financial institutions. In doing so, it seeks to avoid ‘contradiction or inconsistency between the fatwa (legal pronouncements in Islam, made by a law specialist on an issue; usually a fatwa is issued at the request of an individual or a judge to settle a question where Fiqh is unclear) and applications by these institutions’, providing a pro-active role for the Shari’ah supervisory boards of Islamic financial institutions and central banks. The Board is also responsible for helping Islamic financial institutions in the development of Shari’ah approved instruments. Another role is in examining any inquiries referred to the Shari’ah Board from Islamic financial institutions or from their Shari’ah supervisory boards. Here it may either give the Shari’ah opinion in matters requiring collective Ijtihad (reasoning), settle ‘divergent points of view’, or act as an arbitrator.
It also serves as an internal checks and balances measure for the AAOIFI itself, by reviewing the accounting, auditing, governance and ethical standards and related statements which the organisation issues, ensuring these conform with Islamic rules and principles. The Accounting and Auditing Standards Board is composed of 15 part-time members who are also appointed by the Board of Trustees for a four-year term. Members of the Standards Board represent categories including regulatory and supervisory authorities, Islamic financial institutions, Shari’ah Fiqh scholars, the accounting and auditing profession relating to the work of Islamic financial institutions, users of financial statements of Islamic financial institutions, and university professors in accounting and financial studies.
Islamic Report
www.ibsintelligence.com
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