Islamic banks adapting to IFRS accounting rules

Officials of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) are seen during the third meeting of the group's Accounting Board on September 25, 2016, in Bahrain. (Photo courtesy of AAOOFI.com)
Updated 28 November 2016

Islamic banks adapting to IFRS accounting rules

Reconciling accounting standards and religious principles is challenging Islamic banks and regulators as they adapt to new international book-keeping rules due to come into force in 2018.
The new rules, known as IFRS 9, will leave their mark on all major products used by Islamic banks — from simple savings accounts to Islamic bonds — and impact their bottom-lines.
Banks around the globe are gearing up to implement IFRS 9 from January 2018, posing a particular challenge for many Islamic finance contracts as they change the way financial assets are classified and measured, requiring lenders to book expected losses in advance.
The problem for most Islamic financial products is that their accounting treatment can often diverge from the actual economic substance of a transaction, a key concept behind IFRS 9.
This has prompted the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to set up a working group to look at ways to revise its rules for Islamic financial institutions, which now hold assets worth around $2 trillion.
AAOIFI issues guidelines that are followed wholly or in part by Islamic financial institutions across the world, so its efforts would help align the industry to global practices.
The working group is revising AAOIFI’s accounting standard for provisions and reserves and developing a new one for impairments and expected losses, secretary-general Hamed Hassan Merah told Reuters.
These changes will be discussed at a workshop in Jordan on Dec. 14 and at a meeting of AAOIFI’s accounting board starting on Dec. 26, with an exposure draft expected to be released for public comment early next year, Merah said.
AAOIFI will also look at amendments to its standard for investment accounts and a new standard covering Islamic derivatives such as waad and khayar, Merah added.

Lack of guidance
A potential clash with Islamic principles could make IFRS implementation tricky for Islamic banks when it comes to accounting of provisions and impairments.
“We still see diverging practices in a number of aspects,” Abdelilah Belatik, secretary-general of the General Council for Islamic Banks and Financial Institutions, a Bahrain-based non-profit organization, said.
“Some of these different practices are due to regulatory reasons, and in other cases to the lack of guidance.”
Islamic banks’ credit ratings, profitability and the cost of funding to customers could be affected by IFRS, Hamad Abdulla Eqab, chairman of AAOIFI’s accounting board, said during the organization’s annual conference earlier this month.
For instance, while IFRS 9 requires recognition of expected losses, AAOIFI rules only permit recognition of incurred losses.
Islamic law does not allow customers to be charged for a future event or a future loss, said Eqab, who is also group chief financial officer at Albaraka Banking Group.
Another issue related to IFRS 9 is how some Islamic finance transactions are classified, such as murabaha and musharaka.
Murabaha is a cost-plus-profit arrangement widely used to structure Islamic loans, while musharaka is a partnership contract where two or more parties share profits according to a stipulated ratio.
They could be deemed trading activities depending on the specific details of each contract, Belatik said.
Islamic bonds, or sukuk, may also be affected. A popular sukuk structure is a sale and lease-back contract known as ijara. However, some sukuk could be classified as leases and therefore fall under a different standard, IFRS 16.


White House says Trump regrets not raising tariffs higher

US President Donald Trump arrives at the G7 summit in Biarritz, France, on Sunday. Trump had been trying to use the conference to rally global leaders to do more to stimulate their economies, as fears rise of a potential slowdown in the US ahead of his reelection. (AP)
Updated 26 August 2019

White House says Trump regrets not raising tariffs higher

  • President’s comments appear at first to mark a rare moment of self-reflection by the US leader

TOKYO: President Donald Trump said Sunday that he had second thoughts about escalating the trade war with China, but the White House later reversed that message saying the president was misinterpreted and that his only regret in hiking tariffs is that he didn’t raise them higher. Trump faced a tense reception from world leaders meeting amid mounting anxiety of a global economic slowdown at the Group of Seven summit in France. During a breakfast meeting with British Prime Minister Boris Johnson, Trump suggested he had qualms about the spiraling conflict. “Yeah. For sure,” Trump told reporters when asked if he has second thoughts about escalating the dispute, adding he has “second thoughts about everything.”
But hours later, White House press secretary Stephanie Grisham issued a statement saying Trump’s comments about US tariffs on China were “greatly misinterpreted.”
She said Trump only responded “in the affirmative — because he regrets not raising the tariffs higher.” The comments appeared at first to mark a rare moment of self-reflection by the famously hard-nosed leader. But the later reversal fit a pattern for Trump in recoiling from statements he believes suggest weakness.

HIGHLIGHTS

• President Donald Trump faced a tense reception from world leaders meeting amid mounting anxiety of a global economic slowdown at the Group of Seven summit in France.

• White House said comments about US tariffs on China were ‘greatly misinterpreted.’

Trump had been trying to use the conference to rally global leaders to do more to stimulate their economies, as fears rise of a potential slowdown in the US ahead of his reelection. Trump’s counterparts, including Johnson, are trying to convince him to back off his trade wars with China and other countries, which they see as contributing to the economic weakening.

US-Japan agreement
Trump and Japan’s Prime Minister Shinzo Abe announced on Sunday a deal in principle on a major bilateral trade deal.
“It’s a very big transaction,” Trump said after talks with Abe on the sidelines of the G7 summit.
“Billions and billions of dollars,” he said. “It involves agriculture, it involves e-commerce. It involves many things. We’ve agreed in principle.”

Amazon fires
Also on Sunday, French President Emmanuel Macron said that world leaders at the G7 summit have agreed to help the countries affected by the huge wildfires ravaging the Amazon rainforest as soon as possible.
“We are all agreed on helping those countries which have been hit by the fires as fast as possible,” he told journalists.