ISLAMABAD: The Securi­ties and Exchange Commi­ssion of Pakistan (SECP) has published a consultation paper to seek comments and feedback from stakeholders on the implementation of a new strategy for the adoption of AAOIFI’s Sharia, accounting, auditing and governance standards.

The proposed new strategy aims to enhance the adoption of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards by introducing a more comprehensive and interactive approach, with a phased implementation of all standards to ensure effective compliance.

By considering the maturity level of the industry and practical difficulties in adopting all standards at once, the proposed strategy suggests a staggered approach to implementation.

Presently, only seven Sharia standards have been adopted, whereas the adoption of 10 more is in process.

However, the existing approach, which includes picking standards based on necessity, produces an inadequate framework since many significant and consequential features offered in accounting, auditing, governance, and other Sharia-related standards may be missed.

The SECP has said that the new strategy has been envisaged emphasising comprehensiveness, integration, interaction, feedback, and preparedness for global and domestic Islamic finance growth.

All of AAOIFI’s standards shall be adopted as non-binding guidelines, and institutions will be encouraged to voluntarily adopt them while conducting Islamic financial transactions.

After a period of general sensitisation, compliance will shift to a “comply or explain” approach with penal action for non-compliance (not less than three years; the period will be announced later).

The final phase mandates full compliance with notified standards, and it is believed that the gradual implementation aims to better equip the industry for smooth compliance.

Published in Dawn, February 4th, 2024