Page 18 - CMA Journal (Mar-Apr 2025)

Exclusive Interview

This empowers Islamic banks to align their
transactions, follow shared protocols, and
uphold quality standards, which helps build
trust among stakeholders. In Islamic finance,
which is distinct by design, such alignment is
vital. If it is not different (from conventional
finance), then it may not be termed as Islamic.
Adopting a full set of AAOIFI standards will
enable Pakistan to strengthen its Islamic
finance ecosystem, improve global
compatibility, and ensure authenticity in both
structure and spirit.
ICMA: What specific challenges do
Pakistan’s Islamic financial institutions face Interview session on Zoom
in adopting AAOIFI standards, and how can these be
adoption of AAOIFI standards creates a significant
addressed?
challenge for accurate financial reporting in the sector.
Omar Mustafa: Islamic financial institutions in Pakistan SECP has also initiated a gradual process of adoption of
encounter certain challenges in adopting AAOIFI various AAOIFI standards.
standards, as although voluntary adoption allows them
In contrast, AAOIFI governance standards and code of
to apply selected standards at their discretion,
ethics can be voluntarily adopted. For instance, in
mandatory adoption of accounting and auditing
non-Muslim countries like the UK, USA, and Australia,
standards only becomes effective once the relevant
although AAOIFI standards are not legally required,
regulatory authority formally endorses them. The SECP
many institutions voluntarily follow them to
currently mandates the use of the IFRS framework (in
demonstrate alignment with global best practices and
addition to certain local Islamic finance standards),
ensure stakeholder confidence. Similarly, in Saudi Arabia,
which complicates the adoption of AAOIFI’s accounting
while AAOIFI standards are not mandated, many
and auditing standards. SBP has made 41 AAOIFI
institutions follow them for reputational and compliance
standards mandatory for the banking sector, whereas
reasons. The main challenge in Pakistan remains the lack
review of the remaining standards is underway.
of consensus among regulators. The State Bank of
Moreover, SBP has issued different guidelines and
Pakistan (SBP), Securities and Exchange Commission of
instructions based on broader parameters defined in
Pakistan (SECP) and Institute of Chartered Accountants
AAOIFI standards. Since Islamic finance requires unique
of Pakistan (ICAP) adopt AAOIFI standards in different
accounting standards, the absence of comprehensive
ways, which may allow room for inconsistencies. A
unified regulatory approach is necessary for a consistent
and comprehensive adoption of AAOIFI standards in
The AAOIFI’s 59 Shari’ah standards Pakistan’s Islamic finance sector.
provide foundational guidance on ICMA: How do AAOIFI’s Shari’ah, financial
accounting, and governance standards support the
permissible financial products like development of a more inclusive and ethical financial
system in Pakistan?
Murabahah and Ijarah, ensuring
Omar Mustafa: AAOIFI’s Shari’ah, accounting and
consistency and doctrinal clarity. governance standards provide a comprehensive ethical
framework for Pakistan’s financial system by ensuring
Complementing this, 36 financial that financial activities align with (objectives of Shari’ah)
Maqasid al-Shari’ah. These standards prohibit
accounting standards (FAS) and 7 exploitative practices such as misrepresentation, unjust
gain and speculative or impulsive transactions, thereby
auditing standards enhance promoting transparency and justice. They also restrict
financial transparency and investments in unethical industries, directing capital
toward ventures that reflect social responsibility and
regulatory confidence globally equity. This ethical discipline strengthens trust and
integrity within the financial ecosystem.

16 ICMA’s Chartered Management Accountant, Mar-Apr 2025