A Review of AAOIFI Standards on Accounting for Sukuk Issuance

This paper reviews the provisions of the three Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)’s standards on Accounting for sukuk issuance; Financial Accounting Standards (FAS) 33 and 34 as well as Governance Standard (GS) 12, with a view to appreciating their major provisions for ensuring high quality financial reporting, their expected impacts to accountability and transparency in accounting for Sukuk issuance. In line with the spirit of total quality management (TQM), the paper highlights areas where improvement could be brought about to the quality of the three standards, which include, presenting a return on investment (ROI) estimate to potential investors, collecting and normalizing IFIs’ data, and working on developing Islamic risk hedging tools to improve sukuk performance, among others. The paper concludes that the three standards are avenues for propagating the sanctity of Sukuk as investment instrument whose time has come. The standards are specifically developed by AAOIFI to ensure transparency and accountability on Sukuk issuance in the best interest of stakeholders, as their provisions ensure high quality financial reporting by reporting entities. It is recommended that relevant reporting entities should adhere to the provisions of the AAOIFI standards as they initiate issuance of Sukuk instrument and should be accounting fully for the issuance for furtherance of Islamic finance principles and financial discipline in compliance with Shari’a.