AAOIFI CPFAS flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Statement of financial position (FAS 1)

Presentation separates assets, liabilities, UIAH equity, and owners' equity. Restricted investment accounts are excluded from the statement because the institution acts only as agent.

Mudarabah profit sharing

Profit is divided per a pre-agreed ratio between rabb al-mal and mudarib. A loss falls on the capital provider unless the mudarib was negligent or breached the contract.

Musharakah loss allocation

Profits may be shared in any agreed ratio, but losses must be shared strictly in proportion to each partner's capital contribution, never by a different agreed ratio.

Murabaha deferred profit

The markup is disclosed at sale. Deferred profit is recognized over the instalment period, typically on an effective-yield basis, rather than immediately at contract inception.

Ijarah asset recognition

The leased asset stays on the lessor's statement of financial position and is depreciated over its useful life. Rentals are recognized on a time-apportioned basis over the lease term.

Salam accounting treatment

The buyer records an advance payment as a salam receivable. On delivery, the purchased goods are recognized at cost and any subsequent sale generates revenue.

Istisna'a revenue recognition

Revenue is recognized using the percentage-of-completion method based on costs incurred relative to total estimated costs, with work-in-progress presented as an asset.

Zakah disclosure requirement

The institution discloses the zakah base and whether zakah is borne by the institution or by investment account holders. Zakah is not an accrual income tax expense.

SSB composition (GS 1)

The Shari'ah Supervisory Board must have at least three members with expertise in Islamic jurisprudence. The institution must not influence or override its rulings.

SSB report content (GS 3)

The annual report includes an SSB opinion stating whether operations complied with Shari'ah rules, identifying any violations, and describing corrective actions taken.

Internal Shari'ah review (GS 2)

A dedicated review function performs ex-post compliance checks on transactions and reports findings to the SSB and the audit and governance committee.

Audit and governance committee (GS 4)

This committee oversees financial reporting, internal controls, and Shari'ah compliance, and should have a majority of independent, non-executive members.

SSB independence threats (GS 5)

Independence is impaired by material financial interest in the institution, close family ties to management, or holding a concurrent executive position within the institution.

SSB access and resources (GS 6)

The institution must give the SSB unrestricted access to records, staff, and management, and provide adequate remuneration and administrative support for its work.

UIAH rights under governance

The governance framework must protect investment account holders, including fair profit allocation, disclosure of investment policies, and treatment of reserves.

Central Shari'ah governance (GS 8)

A national-level authority harmonizes Shari'ah rulings across institutions and sets a code of ethics for SSB members to ensure consistency.

Confidentiality principle

Client information must not be disclosed except where required by law, court order, or regulator, or where the client has given informed consent.

Objectivity in ethics

Professional judgment must be free from bias, conflict of interest, and undue influence of others. Where objectivity is impaired, the engagement must be declined or reassigned.

Auditor independence rule

An auditor may not hold a financial interest in the audited institution, serve as an officer, or have a relationship that a reasonable third party would see as impairing independence.

SSB ethical duty

Members must issue rulings based on Shari'ah evidence (dalil) rather than commercial pressure, and must disclose any personal interest in the matter before them.

Gifts and hospitality

Gifts or hospitality that could influence professional judgment must be refused or disclosed to the governance body to avoid improper influence.

Whistleblowing channel

The ethics framework requires defined internal channels for reporting fraud or Shari'ah violations, with protection against retaliation for good-faith reporters.

Professional competence

A professional must maintain current knowledge of Shari'ah and accounting developments and must not issue opinions outside their area of competence.

Conflict of interest disclosure

Where a personal or financial interest could affect judgment, the professional must disclose it and be excluded from decisions where objectivity is compromised.

Riba prohibition

Any guaranteed increase on a loan of money is prohibited. Returns must be linked to risk-sharing, trade in real assets, or usufruct, not to a fixed money premium.

Gharar in contracts

Excessive uncertainty in essential contract terms voids the transaction. Minor uncertainty is tolerated where it is unavoidable in ordinary commercial trade.

Murabaha ownership requirement

The institution must own and possess the asset before selling it on deferred terms. The markup is a sale profit, not interest on a loan.

Ijarah usufruct transfer

Ijarah transfers the right to use an asset for a defined period and rent. The lessor retains ownership and bears major maintenance and ownership risk.

Sukuk asset linkage

Sukuk represent ownership in tangible assets, usufruct, or a project. Returns depend on the underlying asset's performance, not a guaranteed coupon.

Takaful tabarru' basis

Takaful is a mutual risk-sharing arrangement where participants contribute on a donation (tabarru') basis. Surplus distribution follows the participants' agreement.

Zakah rate and hawl

Zakah is 2.5% of the zakah base on qualifying wealth that exceeds the nisab threshold and has been held for one lunar year (hawl).

Late payment penalties

Penalties charged for late payment are not revenue. They are treated as charitable donations and distributed to charity, not retained as income.