The Accounting and Auditing Organization for Islamic Financial Institutions

The Accounting and Auditing Organization for Islamic financial institutions (AAOIFI) was established in 1990 in the State of Bahrain.

The Accounting and Auditing Organization for Islamic financial institutions seeks to develop the accounting and auditing thinking in the banking fields related to the activities of Islamic financial institutions, and to prepare and issue the accounting and auditing standards for these institutions, review and modify them, and seek to use and apply these Standards and guidelines on banking, investment and insurance practices issued by the authority. It established the Shariah Board of the Accounting and Auditing Commission for Islamic financial institutions to deal with fatwas issued by various Shariah supervisory bodies.

The (AAOIFI) Shariah board  was tasked with carrying out the legal aspects related to the work of the Commission, the most important of which is to study the accounting standards and to adopt them legally.

In addition to other tasks that includs :

• Issuance of Shariah standards.
• Find more investment and financing formulas.
• Consider what is referred to the Council by Islamic financial institutions.
• Study of the accounting standards that were vested in the Shariah Committee referred to.

The coordination between the Shariah bodies is one of the most important objectives of (AAOIFI) Shariah board, by achieving uniformity or convergence in the perceptions and applications between the Shariah supervisory bodies of Islamic financial institutions to avoid inconsistencies or incompatibility between the fatwas and applications of these institutions.

The Shariah standards are the formulas adopted by the Shariah Board to indicate the selected Shariah provisions relating to various banking activities, such as finance, investment and services, and related issues in which doctrinal trends abound.

48 criteria have been adopted until the beginning of 2012, distributed as follows:

25 Accounting Standards
5 Adjustable parameters.
48 legal criteria.
5 Criteria for review.
10 Standard of ethics.

These standards are widely accepted by international and regional institutions. It is currently applied in a number of Islamic financial institutions in the State of Bahrain, Jordan, Lebanon, Qatar, Sudan, Saudi Arabia, Syria, the United Kingdom and France, and also used as a guide by other countries such as Australia, Malaysia, Pakistan, Saudi Arabia and Egypt… and others.

It should be noted that there are no accounting and auditing standards acceptable to all Islamic financial institutions, where each Islamic financial institution and Regulatory Authority has developed standards, practices and regulations independently of other regulatory institutions and authorities in the financial services industry.

These practices have resulted in the following results:

• Conflicting accounting practices between Islamic financial institutions.
• Lack of transparency in financial statements due to insufficient disclosure.
• Lack of consistency in making financial statements and disclosures not comparable.

In the field of supporting sharia control, The Accounting and Auditing Organization for Islamic Financial Institutions organizes an annual conference on Shariah bodies, in which the researchers provide everything related to the support and development of Shariah supervisory systems, and improve the level of legal, technical and professional, where nine conferences were held for this purpose.

In the area of raising the level of workers in the Islamic financial industry, (AAOIFI) has issued intensive training programs, professional certificates.