Question

Explain what is the role of the Accounting and Auditing Organization for Islamic Financial Institutions in regulating the Islamic banking industry?

Answer 1

Introduction:

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was created on February 26, 1990, to ensure that participants conform to the regulations set out in Islamic finance The AAOIFI is a non-profit organization that was established to maintain and promote Shari'ah standards for Islamic financial institutions, participants, and the overall industry. .

In Islamic finance, there are unique rules, restrictions, and requirements regarding business and investing. In order to be considered acceptable, transactions must adhere to the principals under Shariah. The Accounting and Auditing Organization for Islamic Financial Institutions sets compliance standards for institutions that wish to gain access to the Islamic banking market.The AAOIFI is continually updating its scope to include the various new financial instruments entering markets around the world.

The main role of AAOIFI are given below

1. To develop accounting, auditing, governance and ethical thought relating to the activities of Islamic financial institutions taking into consideration the international standards and practices which comply with Islamic Shari’ah rules;
2. To disseminate the accounting, auditing, governance and ethical thought relating to the activities of Islamic financial institutions and its application through training seminars, publication of periodical newsletters, preparation of reports, research articles.
3. Harmonize the accounting policies and procedures adopted by Islamic financial institutions through the preparation and issuance of accounting standards and the interpretations of the same to the said institutions
4. Improve the quality and uniformity of auditing and governance practices relating to Islamic financial institutions through the preparation and issuance of auditing and governance standards and the interpretation of the same to the said institutions.
5. Promote good ethical practices relating to Islamic financial institutions through the preparation and issuance of codes of ethics to these institutions.
6. To offer educational and training programs, including professional development programs on accounting, auditing, ethics, governance, Shari’ah, and other related areas, so as to promote knowledge on, and to encourage greater professionalism in, Islamic banking and finance.
7. To approach the concerned regulatory bodies, Islamic financial institutions, other financial institutions that offer Islamic financial services, and accounting and auditing firms in order to implement the standards, as well as the statements and guidelines that are published by AAOIFI. .
8. To carry out other activities, including certification of compliance of AAOIFI’s standards, so as to gain awareness and acceptance of AAOIFI’s standards on accounting, auditing, ethics, governance, and Shari’ah.

AAOIFI carries out these activities in accordance with the precepts of Islamic Shari’ah which represents a comprehensive system for all aspects of life, in conformity with the environment in which Islamic financial institutions have developed. This activity is intended both to enhance the confidence of users of the financial statements of Islamic financial institutions in the information that is produced about these institutions, and to encourage these users to invest or deposit their funds in Islamic financial institutions and to use their services.