Conceptual Framework For Financial Reporting By Islamic Financial Institutions.docx

Conceptual Framework for Financial Reporting by Islamic Financial Institutions AAOIFI provides the basis for financial reporting standards of AAOIFI. The foundation of this framework is objective of financial accounting and reporting. The development of this framework is supported by the need for compliance with the Shariah, prohibition of interest and fulfilment of the needs of IFI users. Besides enhances confidence, this framework also serves as a basis and a guide for financial accounting standard. This framework is developed through identification of accounting aspects and the required disclosure. Next, this framework is used by both internal and external users and it should include the summarization of information that can assist in IFIs evaluation and inherent risk evaluation. Common framework

Many theorical framework has been developed for financial reporting such as the Financial Reporting Standards Board (FASB) in the US and Accounting Standard Board in the UK. At the same time, the moral aspect in business and accounting has also grown. Despite the integration of spiritual and temporal affairs, muslim societies still fall into interest-based transaction. Only recently muslim was available to practice their business according to their doctarine where the concept of time value of money is prohibited. Furthermore, Islamic banks operated in semi regulated market can set their own accounting policies to address Western accounting policies and Shari’a principle issues. The bank’s Shariah Standard Board play a crucial role on the accounting policy making. For external regulation purposes, Financial Accounting Organization for Islamic Banks and Financial Institutions (FAOIBFI) has been established in 1991. However, as Islamic banks now is all over the world it is difficult to adherence the FAOIBFI’s standards.