The Accounting Board (AAB) of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) convened its 42nd meeting on April 22-23, 2025, at AAOIFI’s headquarters in the Kingdom of Bahrain. The session marked a significant milestone with the board granting in-principle approval for the issuance of Financial Accounting Standard (FAS) 51 titled ‘Participatory Ventures’, among other important deliberations on existing standards and proposed revisions.
FAS 51 has been developed to establish a consistent accounting and financial reporting framework for participatory ventures, which are a core aspect of Islamic finance. Unlike conventional equity-based investments, participatory ventures often operate under profit-and-loss sharing models such as Mudarabah and Musharakah. The proposed standard expands on earlier frameworks by addressing not only the investor’s perspective but also encompassing financial reporting obligations for the working partner and the venture entity itself.
Mr. Hamad Al Oqab, Chairman of the Accounting Board, underscored the significance of the new standard. “The new standard is now also addressing the financial reporting requirements for the working partner and the venture itself, in addition to the earlier standard’s requirements applicable only to the investor,” he stated. “These updates are better aligned with the new conceptual framework and generally accepted accounting principles.” Mr. Al Oqab also praised the dedicated efforts of board members, working groups, and the AAOIFI secretariat in advancing this critical initiative.
Another important development during the meeting was the board’s decision, in principle, to withdraw FAS 26 titled ‘Investment in Real Estate’. The rationale behind this move is that the accounting treatments covered under FAS 26 are now sufficiently addressed by widely accepted accounting standards. However, the board resolved that a formal statement would be issued in due course to provide guidance on how generally accepted accounting principles (GAAP) should be applied to Islamic financial institutions in the context of real estate investments. Until such time, FAS 26 will remain in effect.
The board also engaged in an in-depth discussion of public feedback received on the FAS Discussion Paper 01/2024, which explores the accounting and financial reporting framework for Tawarruq and Commodity Murabaha transactions. These structures are commonly used in Islamic finance to facilitate liquidity management and structured financing in a Shari’ah-compliant manner. In light of diverse stakeholder comments, the board concluded that further industry consultation is required before finalizing a new standard. This includes additional engagement with Shari’ah scholars, finance professionals, and institutional stakeholders via a dedicated roundtable session aimed at refining the proposed approach.
Additionally, the board reviewed its annual work plan and assessed the progress of ongoing projects and standard development initiatives. The plan includes the continued evolution of AAOIFI’s accounting standards to align with contemporary market practices while maintaining fidelity to Islamic financial principles.
This meeting underscores AAOIFI’s ongoing role in setting robust, Shari’ah-compliant accounting standards for Islamic financial institutions worldwide. By embracing evolving practices and seeking active industry input, AAOIFI aims to enhance transparency, accountability, and investor confidence within the Islamic finance ecosystem.