The document outlines the Islamic Banking Certificate Course (IBCC #62), focusing on the principles of accounting and the financial reporting framework used in Islamic finance. It discusses the role of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in establishing standards for the industry, including the significance of fair dealing and accurate reporting. The document emphasizes the adherence to international accounting standards such as IFRS and US GAAP, and details the structure and objectives of AAOIFI in promoting effective financial practices in accordance with Shari’ah principles.

1. Islamic Banking Certificate Course
(IBCC # 62) – exclusive for MUL
FUNDAMENTALS OF ACCOUNTING

2. Financial System & Reporting Framework
 Fair dealing is one of the cornerstones in Islamic financial system and recording of the
transactions with appropriate reporting is one of the mechanisms used undisputedly to
demonstrate fair dealings and to reflect the financial rights, obligations, earnings and
expenditures for organizations and parties in dealings.
 Globally, following two accounting frameworks have the highest level of accord and
acknowledgment;
1) International Financial Reporting Standards (IFRS) issued by International Accounting
Standard Board (IASB).
2) United States Generally Accepted Accounting Principles (US GAAP) issued by Financial
Accounting Standards Board (FASB) of the US.

3. Steps Involved in Financial Accounting
Reporting
• Prepare periodic
reports about the
entity’s financial
position.
Measurement
• Determine the
amount at which
assets/ liabilities will
be recognized.
Recognition
• Determine the timing
(when) of recognition
of assets/ liabilities.

4. Asset
• Resource
controlled by
an IFI which
gives an
economic
benefit in
present/
future.
Expense
• Gross
decreases in
assets or
increases in
liabilities or
combination of
both.
Liability
• Present
obligation
(result from
past event)
that is
enforceable
against the IFI.
Revenue/
Income
• Gross increases
in assets or
decreases in
liabilities or
combination of
both.
Capital
• Funds paid into
a business
by investors.
Basic Definitions – AAOIFI

5. • Cash/ Inventory/ Receivables
Asset
• Admin/ Marketing/ Depreciation
Expense
• Payables/ Security Deposit
Liability
Asset/ Expense/ Liability – Examples

6. Basic Thumb Rules of Accounting
Category If Increased
(Debit/ Credit)
Asset Debit
Expense Debit
Liability Credit
Income Credit
Capital Credit

7. ACCOUNTING & AUDITING ORGANIZATION
FOR ISLAMIC FINANCIAL INSTITUTIONS
“AAOIFI”

8. “
Introduction to AAOIFI
AAOIFI is the leading
international not-for-
profit organization
primarily responsible for
development and
issuance of standards for
the global Islamic
finance industry.
 Established in 1991 and based in Bahrain.
 Has issued more than 100 standards in the areas of Shari’ah, accounting,
auditing, ethics and governance for international Islamic finance.
 Supported by a number of institutional members, including central
banks and regulatory authorities, financial institutions, accounting and
auditing firms, and legal firms, from over 50 countries.
 AAOIFI’s standards are currently followed by all the leading Islamic
financial institutions across the world.

9. Objectives
The objectives of AAOIFI include:
a) Develop the accounting and auditing concepts relevant to IFIs;
b) Disseminate the accounting and auditing concepts relevant to IFIs and their
application through trainings, seminars, publications, research and other means;
c) Prepare, promulgate and interpret accounting and auditing standards for IFIs;
and
d) Review and amend the accounting and auditing standards for IFIs.

10. AAOIFI Boards and Adoption of
AAOIFI Standards

11. AAOIFI – at a glance
11
To support the growth of the Islamic finance industry by guiding its
operations on Shari’ah principles and rules through development of
standards and guidelines.
Vision
Standardization and harmonization of international Islamic finance
practices and financial reporting in accordance to Shari’ah.
Mission

12. AAOIFI – at a glance
12
1991 200+ 112 05 03 25+
Founding
Year
Member
Institutions
Standards
Issued
Areas of Standard
Development
No. of Technical
Boards
Countries /
Jurisdictions
Footprint
Not-for-profit
organization
based in
Kingdom of
Bahrain and
hosted by the
Central Bank of
Bahrain (CBB)
In 37+ countries
which includes
central banks,
regulatory
authorities, and
other Islamic
financial
institutions
By a team of 30+ Shari’ah
Scholars and 60+
professionals (besides 100+
working group members)
representing 20+ countries
Includes Shari’ah,
Accounting, Auditing,
Governance, and
Ethics
Shari’ah Board
(ASB) consists of 20
members while the
Accounting (AAB)
and Governance
and Ethics (AGEB)
Boards consist of
15 members each
Where AAOIFI
standards are
either fully or
partially adopted
on ‘as-is’ basis or
adapted and
used as
guidelines

13. Accounting (and
Auditing) Board
Governance & Ethics
Board
Shari’ah Board
A technical board responsible for issuing, reviewing and updating the
Shari’ah standards. The board has the absolute power in this respect
as it represents the main reference and authority for the Islamic
finance industry worldwide, whose standards are widely applied
globally.
A technical board responsible for issuing and reviewing the
accounting standards and all related materials including guidelines,
researches, interpretations, and other related scientific and
professional products.
A technical board which shall be responsible to carry out
development and review of governance standards and codes of
ethics, and all related materials including guidelines, researches and
interpretations.
in total
AAOIFI Boards

14. Adoption of AAOIFI Standards
Brief Overview
AAOIFI, being a
relatively newer
framework, is still going
through the process of
development,
improvement and
acceptance across
geographies.
Progression of AAOIFI
standards are now
adopted on a world-wide
basis.
Relevant authorities
have issued regulations
or guidelines that are
based on AAOIFI’s
standards.
AAOIFI has a large base
of members from over
50 countries.
14

15. Accounting and Auditing Board (AAB) – Composition
1. Up to 04 members representing IFIs (commercial banks, investment banks,
insurance/ financing companies etc.)
2. Up to 04 members representing accounting and auditing firms.
3. Up to 03 members representing central/ regulatory authorities.
4. At-least 01 member representing academicians (universities and educational
institutions).
5. Up to 03 members representing national accounting boards, accounting/ auditing
professional bodies, national stock exchanges etc.
6. No more than 02 members from the same accounting/ auditing firms or
institutions including subsidiaries and affiliates regardless of the sector being
represented.

16. Roles of AAB
To prepare, adopt and interpret accounting and auditing statements, standards
and guidelines for IFIs.
To prepare and adopt code of ethics and educational institutions standards
related to the activities of IFIs.
To review with the aim of making additions, deletions or amendments to
any accounting and auditing statements, standards and guidelines.
To prepare and adopt the due process for the preparation of standards, as well
as regulations and by-laws of the Standards Board.

17. Standards Issued by AAOIFI

18. Standards Issued by AAOIFI
Audit, Governance &
Ethics
14
Accounting
35
Shari’ah
57

19. SBP Adoption
January 2010
January 2010
January 2010
January 2010
SS # 13 Mudarabah
SS # 03 Procrastinating Debtor
SS # 09 Ijarah and Ijarah Muntahia Bittamleek
SS # 08 Murabaha
March 2013
January 2013
SS # 17 Investment Sukuk
SS # 12 Shirkah (Musharakah) and Modern Corporations
19

20. SBP Adoption
January 2019
January 2019
January 2019
January 2019
SS # 02 Debit Card, Charge Card and Credit Card
SS # 14 Documentary Credit
SS # 05 Guarantees
SS # 18 Posession
January 2019
January 2019
SS # 24 Syndicated Financing
SS # 38 Online Financial Dealings
20

21. SBP Adoption
January 2020
January 2020
January 2020
SS # 19 Loan (Qard)
SS # 28 Banking Services in Islamic Banks
SS # 23 Agency & Act of an Un Commissioned Agent
21
September 2020 SS # 49 Unilateral & Bilateral Promises