The potential adoption of Islamic accounting standards developed by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) by Islamic banks in the United Arab Emirates

Abstract

This study investigated the potential impact of applying the accounting standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in Islamic banks in the United Arab Emirates (UAE). This study aimed to examine the International Financial Reporting Standards (IFRS) currently in use by Islamic banks in the UAE, as compared to the AAOIFI accounting standards, in order to identify the differences and determine which system may better satisfy user needs in the UAE, as judged from the perspective of respondents to a research survey. This study also provided an understanding of the roles of key personnel in developing the AAOIFI’s standards in the UAE and the factors leading to the development of these standards were explored. Data was collected for this purpose through examination of documents, conducting a questionnaire survey with professionals and managers of Islamic banks in the UAE and conducting interviews with key personnel involved in the development of the Islamic Accounting Standards. It was found that the main participant in developing the Islamic Accounting Standards in the UAE is the Dubai International Finance Centre (DIFC). This study found that there is a serious concern, particularly in the Islamic countries, with regard to the IFRS dealing with transactions involving interest (Riba). One implication of this study was that in the era of globalization, accounting standard setters who came from different ideological and religious backgrounds should communicate with each other because their reporting standards and their different backgrounds can have global implications beyond their jurisdictions. The study also revealed that factors such as religion, culture and local investors, may have limited influence on the current adoption of accounting standards in the Islamic banks. This contrasts with economic and political factors such as domestic regulators, foreign investment, and global financial institutions which are major influences on the Islamic banks with regard to the adoption of IFRS. Furthermore, the study uncovered a concern among respondents of issues that may develop when Islamic banks commence the transition to AAOIFI standards. These issues include the prevention of attracting foreign direct investments, affecting the relationship with the big four accounting firms, giving rise to certain costs of time and sources and limiting the comparability with financial statements of other financial institutions. The study also indicated that there was a high level of support (61.5%) amongst respondents for the adoption of IFRS; however, the respondents’ opinion does not also reflect a perception that all IFRS are suitable for application of Shariah transactions. Therefore, the findings suggest support for not replacing IFRS, but to find a way to comply with AAOIFI standards as well as to continue using IFRS by Islamic banks in the UAE.

Date of Award	2016
Original language	English
Supervisor	Jesmin Islam (Supervisor), Mohobbot Ali (Supervisor) & Monir Mir (Supervisor)