mr khairul nizam (aaoifi - governance and auditing standards).pdf

8/10/2019 Mr Khairul Nizam (AAOIFI - Governance and Auditing Standards).pdf

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AAOIFI Governance

and Auditing Standards

4thAnnual IIBI ISRA Thematic Workshop

London, United Kingdom

Septemer !"#!


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Content

Overview of AAOIFI

AAOIFI Governance Standards on ShariaSupervision and Compliance

AAOIFI Auditing Standards

Appendices


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Overview of AAOIFI

AAOIFI $ AA%I&I is responsile 'or

de(eloping and issuing standards

'or international Islamic 'inanceindustr)*

$ Supported ) o(er !"" institutional

memers 'rom o(er 4" countries*

$ +emers are central anks,

regulator) authorities, 'inancial

institutions, accounting auditing

'irms, legal 'irms, etc*


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Overview of AAOIFI (contd)

Standards Total o' -- standards issued.

$ 4- Shari/a standards*

$ !0 accounting standards*

$ 1 auditing standards*

$ 2 go(ernance standards*$ ! codes o' ethics*

$ In addition, ne3 standards are

eing de(eloped and eisting

standards re(ie3ed*


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Sharia

Standards

$ 5uidances on Shari/a permissiilit)

and rules 'or speci'ic Islamic

'inance products and mechanisms*

Accounting

Standards

$ 5uidances on accounting treatment

'or speci'ic Islamic 'inance products

and mechanisms*

$ 5uidances on presentation o'

'inancial statements 'or Islamic

'inancial institutions*



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Auditing

Standards

$ 5uidances on eternal auditing o'

Islamic 'inancial institutions*

Governance

Standards

$ 5uidances on Shari/a compliance

and super(ision processes and

'rame3ork 'or Islamic 'inancial

institutions*

Codes of Ethics $ 6odes o' ethics 'or emplo)ees,

accountants and auditors 'or

Islamic 'inancial institutions*



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Adoption

of

standards

$ AAOIFI accounting standards have been made part of mandatory

reguatory re!uirement in "urisdictions such as #ahrain$ %ordan$

&atar$ &atar Financia Centre$ Sudan$ and Syria'

$ AAOIFI accounting standards have aso been adopted by Isamic

(eveopment #an) Group$ a mutiatera institution'

$ In addition$ AAOIFI accounting standards have aso been used

as basis of nationa accounting standards in "urisdictions such

as Indonesia and *a)istan'

$ In other "urisdictions incuding #runei$ (ubai Internationa

Financia Centre$ Egypt$ France$ +uwait$ ,ebanon$ -aaysia$

Saudi Arabia$ South Africa$ .nited Arab Emirates and .nited

+ingdom as we as in Africa and Centra Asia$ AAOIFI

accounting standards have been used vountariy as basis of

interna guideines by eading Isamic financia institutions'



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Adoption

of

standards

$ AAOIFI Sharia standards have been made part of mandatory

reguatory re!uirement in "urisdictions such as #ahrain$

*a)istan$ Sudan$ and Syria'

$ AAOIFI Sharia standards have aso been adopted by Isamic

(eveopment #an) Group$ a mutiatera institution'

$ In addition$ AAOIFI Sharia standards have aso been used as

basis of nationa Sharia guideines in "urisdictions such as

Indonesia and -aaysia'

$ In other "urisdictions incuding #runei$ (ubai Internationa

Financia Centre$ France$ %ordan$ +uwait$ ,ebanon$ Saudi Arabia$

&atar$ &atar Financia Centre$ South Africa$ .nited Arab Emirates

and .nited +ingdom as we as in Africa$ Centra Asia and /orth

America$ AAOIFI Sharia standards have been used vountariy

as basis of interna guideines by eading Isamic financia

institutions'



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Appication of

standards

$ 7pertise 'or technical application

o' standards is supported )

AA%I&I/s pro'essional de(elopment

8uali'ication programs.

Certified Sharia Adviser and

Auditor (CSAA).

Certified Islamic Professional

Accountant (CIPA).



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Appication of

standards (contd)

$ AA%I&I has also launched 6ontract

6erti'ication 9rogram to certi')

that 'inancial contracts et3een

Islamic 'inancial institutions and

their clients are in compliance 3ith

AA%I&I standards and Shari/a rules

and principles*

$ This is to gi(e 'urther support 'or

application o' AA%I&I standards

and harmonisation o' Islamic

'inance practices*



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AAOIFI Governance Standards onSharia Supervision and Compliance

AAOIFI

GovernanceStandards

$ Shari/a Super(isor) Board :SSB;.

Appointment, 6omposition and Report*$ Shari/a Re(ie3

$ Internal Shari/a Re(ie3*

$Audit and 5o(ernance 6ommittee*

$ Independence o' SSB*

$ 5o(ernance 9rinciples*

$ 6orporate Social Responsiilit) :6SR;*


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Sharia

Supervisory#oard 0SS#1

$ Appointed ) shareholders at

annual meeting*

$ At least < memers*

$ 7perts in Islamic commercial

=urisprudence*$ +a) include # memer 3ith

epertise in Islamic 'inance :rather

than =urisprudence;*

AAOIFI Governance Standards onSharia Supervision and Compliance (contd)


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SS# (contd) $ +a) not include signi'icant

shareholder or memer o' Board o'>irectors*

$ +a) engage eternal consultants to

assist duties*

$ Terms o' engagement to e agreed

3ith the institution and included in

letter o' appointment*



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SS# (contd) +ain 'unctions.

$ >irecting, re(ie3ing and super(ising

institution/s acti(ities to ensure

Shari/a compliance*

$Shari/a ad(ice and guidelines*

$ Shari/a appro(al on products and

ser(ices*

$ Shari/a re(ie3*



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Sharia 2eview $ 7amination carried out on ehal'

o' SSB o' the etent o' aninstitution/s compliance to Shari/a*

$ 6o(ers contracts, transactions,

policies, etc*

$ &orms asis o' SSB/s report in

institution/s annual 'inancial report*

$ >oes not relie(e management/s

responsiilit) on compliance*



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Interna Sharia

2eview

$ 6arried out ) an independent

department or as part o' internalaudit 'unctions*

$ 6ontinuous eamination and

e(aluation o' the etent o' an

institution/s compliance to Shari/a*

$ 9eriodical reports sumitted to audit

committee or such similar od) o'

an institution*



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AAOIFI Auditing Standards

AAOIFI Auditing

Standards

$ %=ecti(e and 9rinciples o' Auditing*

$ The Auditor/s Report*

$ Terms o' Audit 7ngagement*

$ Testing 'or 6ompliance 3ith Shari/a

Rules and 9rinciples ) an 7ternal

Audit*$ The Auditor/s Responsiilit) to

6onsider &raud and 7rror in an Audit o'

&inancial Statements*


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Ob"ective of

Audit

$ To enale auditor o' 'inancial

statements to epress an opinion as to

3hether the 'inancial statements areprepared, in all material respects, in

accordance to Shari/a rules and

principles, AA%I&I accounting

standards, and other rele(ant

accounting standards and practices*

AAOIFI Auditing Standards (contd)


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Concept of

2easonabe

Assurance

$ An audit is designed to pro(ide

reasonale assurance that 'inancial

statements taken as a 3hole are 'ree'rom material misstatement*

$ Reasonale assurance also means that

the auditor has satis'ied himsel' or

hersel' that transactions eaminedduring audit compl) 3ith Shari/a rules

and principles as determined ) the

Islamic 'inancial institution/s :I&I/s;

Shari/a Super(isor) Board :SSB;*



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2esponsibiity

of an e3terna

auditor forcompiance with

Sharia rues

and principes

$ While the auditor is responsile 'or

'orming and epressing an opinion on

the 'inancial statements, themanagement o' the I&I is responsile

'or ensuring that the 'inancial

statements and the I&I/s acti(ities

compl) 3ith Shari/a rules and principles

as determined ) the I&I/s SSB*

$ The responsiilit) to interpret Shari/a

rules and principles lies 3ith the I&I/s

SSB*



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2esponsibiity

of an e3terna

auditor forcompiance with

Sharia rues

and principes(contd)

$ The auditor shall e kno3ledgeale

aout Shari/a rules and principles, ut

3ould not possess the same le(el o'kno3ledge as that o' SSB memers,

and thus the auditor shall not e

epected to pro(ide interpretation o'

these rules and principles*

$ The 'at3as, rulings and guidance

issued ) the SSB 'orm the asis on

3hich the auditor considers 3hether the

I&I has complied 3ith Shari/a rules and

principles*



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Scope of

auditors wor)

$ The responsiilit) o' the auditor is to 'orm

an opinion on 3hether the transactions o'

the I&I are in compliance 3ith the 'at3as,

rulings and guidance issued ) its SSB*

$ The auditor shall ha(e no responsiilit) 'or

assessing the competence o' the memers

o' the SSB*

$ The I&I/s process 'or introducing ne3products or modi')ing eisting products

shall include appropriate procedures 'or

ensuring compliance 3ith Shari/a rules and

principles including re(ie3s ) the I&I/s

management, internal audit and the SSB*



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Scope of

auditors wor)

(contd)

$ Re(ie3 a(ailale documents to ensure that

all t)pes o' products o''ered ) the I&I ha(e

een su=ect to a re(ie3 ) the SSB, and

that the SSB has 'ound these products to

e in compliance 3ith Shari/a rules and

principles*

$ ?eri') that the transactions entered into )

the I&I are consistent 3ith the 'at3as,rulings and guidelines o' the SSB*

$ Re(ie3 the 'indings o' all internal re(ie3s

carried out ) the I&I management, the

internal audit, and the internal Shari/a

re(ie3 ) or on ehal' o' the SSB*



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4han) 5ou

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Appendi3 I

,ist of current standards


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Shari/a Standards

1 Trading in Currencies

2 Debit Card, Charge Card and Credit Card

3 Default in Payment by a Debtor

4 Settlement of Debt by Set-Off

!uarantees

" Con#ersion of a Con#entional $an% to an &slamic $an%

' (a)ala

* +urabaha to the Purchase Orderer

&arah and &arah +untahia $ittamlee%

1. Salam and Parallel Salam

11 &stisna/a and Parallel &stisna/a

12 Shari%a /+ushara%a0 and +odern Cororations

13 +udaraba

14 Documentary Credit

1 ua/la

1" Commercial Paers

1' &n#estment Su%u%

1* Possession /abd0

1 oan /ard0

2. Commodities in Organised +ar%ets

21 5inancial Paers /Shares and $onds0

22 Concession Contracts

23 6gency

24 Syndicated 5inancing

2 Combination of Contracts

2" &slamic &nsurance

2' &ndices

2* $an%ing Ser#ices

2 7thics and Stiulations for 5at)a

3. +oneti8ation /Ta)arru90

31 !harar /:ncertainty0 Stiulations in 5inancial Transactions

32 6rbitration

33 ;a9f

34 &arah on abour /&ndi#iduals0

3


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Shari/a Standards(continued)

3' Credit 5acilities

3* Online 5inancial Transactions

3 =ahn /Pledge0

4. &n#estment 6ccounts and Profit Distribution

41 =einsurance

42 Disosal of =ights

43 $an%rutcy

44 i9uidity +anagement

4 Caital Protection /in &n#estment Products0

4" &n#estment 6gency

4' Stiulations on &ncome and Profit /in 5inancial Transactions0

4* Otions in egal Contracts


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Accounting Statements Standards

S56 1 Concetual 5rame)or% for 5inancial =eorting by &slamic 5inancial &nstitutions

56S 1 !eneral Presentation and Disclosure in the 5inancial Statements of &slamic $an%s and 5inancial &nstitutions

56S 2 +urabaha and +urabaha to the Purchase Orderer

56S 3 +udaraba 5inancing

56S 4 +ushara%a 5inancing

56S Disclosure of $ases for Profit 6llocation bet)een O)ners/79uity and &n#estment 6ccount (olders

56S " 79uity of &n#estment 6ccount (olders and Their 79ui#alent

56S ' Salam and Parallel Salam

56S * &arah and &arah +untahia $ittamlee%

56S


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Accounting Statements Standards(continued)

56S 1* &slamic 5inancial Ser#ices Offered by Con#entional 5inancial &nstitutions

56S 1 Contributions in &slamic &nsurance Comanies

56S 2. Deferred Payment Sale

56S 21 Disclosure on Transfer of 6ssets

56S 22 Segment =eorting

56S 23 Consolidation

56S 24 &n#estments in 6ssociates

56S 2 &n#estments in Su%u%, Shares, and Similar &nstruments

S&A @ &inancial Accounting Statements

&AS @ &inancial Accounting Standards

Accounting 5uidance ote

1 !uidance >ote on 5irst Time 6dotion of 66O&5& 6ccounting Standards


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Auditing Standards

1 Obecti#es and Princiles of 6uditing

2 The 6uditor/s =eort

3 Terms of 6udit 7ngagement

4 Testing for Comliance )ith Shari/a =ules and Princiles by an 7?ternal 6uditor

The 6uditor/s =esonsibility to Consider 5raud and 7rror in an 6udit of 5inancial Statements

5o(ernance Standards

1 Shari/a Suer#isory $oard@ 6ointment, Comosition and =eort

2 Shari/a =e#ie)

3 &nternal Shari/a =e#ie)

4 6udit and !o#ernance Committee for &slamic 5inancial &nstitutions

&ndeendence of Shari/a Suer#isory $oard

" Statement on !o#ernance Princiles for &slamic 5inancial &nstitutions

' Cororate Social =esonsibility Conduct and Disclosure for &slamic 5inancial &nstitutions

7thics Standards

1 Codes of 7thics for 6ccountants and 6uditors of &slamic 5inancial &nstitutions

2 Codes of 7thics for the 7mloyees of &slamic 5inancial &nstitutions


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Appendi3 II

,ist of standards incuded in standardsdeveopment programs for 6788 onwards


33/46

,ist of standards incuded in the standards deveopment

program 6788 onwards

Accounting

Standards

$ e3 6onceptual &rame3ork 'or &inancial

Reporting :to replace Statements o'

&inancial Accounting # and !; issued in20*

$ Re(ised ne3 &inancial Accounting

Standard :&AS; !1 In(estments in Sukuk,

Shares, and Similar Instruments issuedin 20*

$ Re(ised ne3 &AS on In(estments in

Real 7state exposure draft released in

!an 202.


34/46


program 6788 onwards (contd)

Accounting

Standards

(contd)

$ Re(ised &AS 1 and 0 78uit) on

In(estment Accountholders consultation

note released in !an 202*$ Re(ised &AS #!, #


35/46



Accounting

Standards

(contd)

$ Re(ised &AS ! +uraaha*

$ Re(ised &AS < +udaraa*

$ Re(ised &AS 4 +usharaka*

$ Re(ised &AS - I=arah*

$ Re(ised &AS ## 9ro(isions and

Reser(es*

$ Re(ised &AS #4 In(estment &unds*

$ e3 standard on accounting 'or Sukuk*


36/46



Accounting

Standards

(contd)

$ e3 &AS on Interim Reporting*

$ e3 &AS on &air ?alue*

$ e3 &AS on Assets Deld 'or Sale*

$ e3 &AS on Liailities*

$ e3 &AS on Re(enue Recognition*

$ e3 &AS on Related 9art) Transactions*


37/46


38/46



Auditing

and

Governance

Standards

(contd)

$ e3 AS on materialit) in planning and per'orming

an audit*

$ e3 AS on audit e(idence regarding speci'ic

'inancial statement account alances and

disclosures*

$ e3 AS on anal)tical procedures*

$ e3 AS on 8ualit) control 'or an audit o' 'inancial

statements*

$ e3 AS on modi'ications to the auditor/s opinion*

$ e3 AS on auditor/s responsiilit) regarding

suse8uent e(ents*


39/46



Sharia

Standards

$ e3 Shari/a Standards :SSs; on >isposal o'

RightsE Bankruptc)E Li8uidit) +anagementE

6apital 9rotection :in In(estment 9roducts;E

Agenc) In(estment 6ontractsE Stipulations onIncome and 9ro'its :in &inancial Transactions;E

%ptions in Legal 6ontracts issued in 20*

$ e3 SSs under de(elopment include those on

6ontracts Termination and 6ompensationE&iduciar) In(estment 6ontractsE 9romise and

Bilateral 9romiseE 9uri'ication o' 9rohiited

IncomeE ReposE Risk +anagementE and

Special 9urpose ?ehicles*


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Appendi3 III

Standards deveopment process


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Sharia #oard

$.timate authority on Sharia

standards'$Comprises eading Sharia

schoars representing a ma"or

schoos of thoughts'

$Aso vets through other standards

to ensure Sharia compiance'

Accounting 9 Auditing Standards

#oard

$ .timate authority on accounting$auditing$ ethics$ governance

standards'

$ Senior representatives of the

industry'

Standards deveopment process

Sharia standards committees

Accounting standard committee

Auditing 9 governance standard

committee


42/46

*reiminary

study

Standards deveopment process (contd)

Consutation

note

E3posure

draft

2eview of

standard

Issuance of

standardFina standard


43/46

8' *reiminary study

$ On potentia new standard to be

deveoped$ or e3isting standard to

be reviewed based on

suggestions from industry$ AAOIFI

or its boards'

$ 4o cover genera or broad issues

reating to the standards

concerned'

$ For discussion by standards

boards 0i'e' Sharia #oard or

Accounting and Auditing

Standards #oard1 and their

committees'

6' Consutation note

$ Gives an outine on proposed

ma"or points of a new standard$ or

proposed ma"or changes to an

e3isting standard'


committees and boards'

$ Subse!uenty to be reeased to the

industry for comments andsuggestions$ and discussed at

pubic hearing meetings'

$ Comments and suggestions from

industry and pubic hearing

meetings to be considered when

deveoping e3posure draft'



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:' Fina standard

$ 4o be prepared for issuance as a

standard for the industry'

$ For discussion and approva by

standards committees and boards'

$ Once approved by standard

boards$ standard is issued and

considered binding 0ta)ing into

account effective date$ if any$ of thestandard1'


;' E3posure draft

$ 4o be prepared in the same format

as a fina standard'


committees and boards'

$ Subse!uenty to be reeased to the

industry for comments and

suggestions$ and discussed at

pubic hearing meetings'$ Comments and suggestions from

industry and pubic hearing

meetings to be considered when

deveoping fina standard'


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4han) 5ou

www'aaoifi'com

mr khairul nizam (aaoifi - governance and auditing standards).pdf

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