CIBAFI Advocates for Greater Clarity and Guidance in IASB’s Exposure Draft on Financial Instruments with Characteristics of Equity

The General Council for Islamic Banks and Financial Institutions (CIBAFI), the global umbrella of Islamic financial institutions, recently submitted its comments to the International Accounting Standards Board (IASB) on the Exposure Draft titled “Financial Instruments with Characteristics of Equity – Proposed Amendments to IAS 32, IFRS 7 and IAS 1”. The Exposure Draft, issued on 29th November 2023, was open for public consultation until 29th March 2024.

CIBAFI, in its role as an advocate for the Islamic Financial Services Industry (IFSI), provided collective feedback from its member banks across over 34 jurisdictions. The organization’s comments focused on the need for increased clarity and guidance in the proposed amendments, particularly concerning the treatment of Islamic financial instruments and their unique characteristics.

One of the key points raised by CIBAFI was the importance of considering the enforceability of rights and obligations under Islamic law (Shariah) when classifying financial instruments. The organization highlighted that the status of these rights and obligations varies across jurisdictions, leading to potential uncertainties in the treatment of instruments such as unrestricted Profit-Sharing Investment Accounts (uPSIAs) and Sukuk.

CIBAFI also emphasized the need for additional guidance on handling complex structures, multiple legal systems, and situations where the enforceability of certain aspects of the documentation may be uncertain. The organization believes that such guidance would greatly benefit Islamic financial institutions in their efforts to comply with the proposed amendments.

Furthermore, CIBAFI suggested enhancements to the disclosure requirements outlined in IFRS 7 to better cater to the specific needs of Islamic financial institutions. The organization proposed the inclusion of disclosures related to profit allocation, expense charging, investment prioritization, and administrative expenses associated with quasi-equity instruments.

CIBAFI’s comments underscore the importance of considering the unique characteristics of Islamic finance when developing and amending international accounting standards. The organization remains committed to working with the IASB and other stakeholders to ensure that the needs of the Islamic Financial Services Industry are adequately addressed in the ongoing development of financial reporting standards.

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