The proponent of the International Financial Reporting Standards (IFRS) will be in talks with Islamic finance authorities this year and will be ready to modify the existing system to accommodate Islamic finance standards.
According to Robert Garnett, board member of International Accounting Standards Board (IASB), there may be "slight differences" but they can be resolved through critical judgment.
"We have to embrace all financial products so we will need to change our standards," Garnett told Emirates Business on the sidelines of the IFRS breakfast briefing in Dubai.
"To converge with Islamic finance standards we need to have some detailed discussions with AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions) so we can have a better understanding of their concerns and how we can accommodate those within a revised IFRS," he added.
Garnett, who is also the Chairman of the International Financial Reporting Interpretations Committee (IFRIC), said he plans to start the dialogue this year and looks forward to having a convergence despite some differences.
"I hope they can be converged, we all live on the same planet," he said. "Islamic financial products have been around much longer than the IASB. It's quite a daunting task but it's more than just intellectual challenge. It is important for the global markets that we bring ourselves together."
Paul Koster, Chief Executive of DFSA, said it is helpful that the two standards be converged as Islamic finance already plays a significant part in the global economy. Citing a report from Moody's and RBS, he said the Islamic finance industry is set to grow from $700bn (Dh2,571bn) to $4trn by 2013 and despite the crisis Islamic banking is still projected to grow by 15-20 per cent annually. "AAOIFI accounting standards have come about because of some unique requirements of the Islamic financial institutions," Koster said, adding there has been a limited attention given to AAOIFI at a time when convergence is taking place.
"We should remember AAOIFI standards were not intended to fully replace IFRS but merely cover those standards and transactions that IFRS does not," he said. "I think it is true to say in most cases the differences between IFRS and AAOIFI are more apparent than real. There are a few substantive differences such as when the term interest is used."
IFRS, which is currently required for all domestic listed entities in 85 jurisdictions and allowed in 113 jurisdictions, is developed by the IASB in London in collaboration with the Financial Accounting Standards Board (FASB) and other global accounting standard-setters.
As a principles-based system, IFRS can allow issuers to reflect the economic substance of transactions that may be unique to their industry, compared with a prescriptive, rules-based system such as the US' Gaap.
The IFRS and the Gaap are expected to converge in 2014 but prior to that, the IASB would first attempt to harmonise the two standards.
"We have plans to do that – the harmonisation of Gaap and IFRS before converging to a single standard – by 2011. We have started that way back in 2002. We plan to bring closer all the major aspects of IFRS and Gaap," Garnett said.
He said they are on track to meeting the 2014 convergence target and is looking at a single adoption date for all firms. "The US Securities and Exchange Commission (SEC) is going to take a decision in 2011, and part of that decision is going to be on the extent to which we have to converge our standards."
The IASB is planning to increase the number of its board directors from 14 to 16 in 2012, and the board hopes by that time, the region will be represented. "We are increasing the board of directors and one of the reasons is to allow opportunity for regional representation on the board itself," he said.
0 Comments:
Post a Comment