What we doAdvisory & ConsultancyIslamic Finance & AAOIFI
The new AAOIFI standards, applied before they are audited.
AAOIFI’s FAS 45, 46 and 47 apply to financial periods beginning on or after 1 January 2026, and they reach the core of an Islamic bank’s balance sheet: which investment accounts are quasi-equity, which funds are off-balance-sheet assets under management, and how assets move between investment pools. FAS 44, 48 and 49 add further judgements. The standards are issued. What is not yet settled in many institutions is whether the classifications, pool policies, disclosures and Sharia governance behind them will hold when the first annual statements under them are audited.
Where this begins
Three conversations this practice usually starts with.
The standards are effective; the judgements are not written down
Finance knows FAS 45 to 47 apply from 2026 and the external auditor has asked how. Nobody has yet documented which investment accounts are presented as quasi-equity, which arrangements belong off balance sheet, or how the move from FAS 27 changes what investment account holders are shown — and the year end will not wait for the answers.
Assets move between pools without a policy anyone could show
Assets pass between the bank’s pool and the investment account holders’ pools, or from one pool to another, for liquidity or allocation reasons. FAS 47, which supersedes FAS 21, now governs transfers of assets between investment pools. Where the policy, the approvals and the trail live in emails, the profit distributed to account holders becomes hard to defend.
A window inside a conventional bank
An Islamic window shares systems, treasury and people with the conventional bank around it. Keeping its funds, pools, profit allocation and Sharia oversight demonstrably separate — and reporting them under AAOIFI standards where the regulator requires it — is a governance question as much as an accounting one.
What we deliver
Every classification evidenced, every pool traceable.
An AAOIFI engagement leaves the institution able to report under the current standards with confidence: the gaps assessed, the classifications decided and documented, the pool and profit-distribution policies written down, and the Sharia governance and audit functions ready for scrutiny. The deliverables are working documents, prepared with your finance, treasury and Sharia teams.
The FAS 44–49 gap assessment
A standard-by-standard review of current accounting policies, disclosures and processes against FAS 44 on determining control of assets and business, FAS 45 on quasi-equity including investment accounts, FAS 46 on off-balance-sheet assets under management, FAS 47 on transfers between investment pools, and FAS 48 and FAS 49 where they are relevant — with the gaps ranked and the open decisions listed for the people who must take them.
Investment-account classification
Each category of investment account and managed fund reviewed against FAS 45 and FAS 46: what is presented as quasi-equity, what sits off balance sheet as assets under management, the reasoning behind each judgement, and the accounting policy wording that both the auditor and the Sharia board will ask to see.
Pool-transfer and profit-allocation policies
The policy for moving assets between pools — triggers, approvals and limits — documented against FAS 47; the profit-allocation and reserve practices behind it mapped end to end; and the controls that make each transfer traceable after the event.
Profit-distribution disclosure
The disclosures that investment account holders, analysts and supervisors read — profit rates, allocation between the bank and account holders, pool composition and reserves — reviewed for consistency with the new standards and with what the institution actually does, so that the published account and the ledger agree.
Sharia governance and Sharia audit readiness
A review of how the Sharia supervisory board, the Sharia compliance function and internal Sharia audit are mandated, resourced, evidenced and reported to the board — with the gaps that an external Sharia audit or a supervisory review would raise identified before they are raised.
Islamic windows of conventional banks
For a window: the separation of funds, pools and profit allocation from the conventional book assessed, Sharia oversight of shared systems and staff reviewed, and the reporting of the window under AAOIFI standards mapped where the regulator requires it.
How the engagement runs
Assess. Decide. Document. Report.
Assess
Policies, disclosures and processes reviewed against FAS 44 to 49, investment accounts and pools inventoried, and Sharia governance arrangements mapped — delivered in weeks, with the open judgements listed for decision.
Decide
Classification judgements, pool-transfer rules and disclosure choices taken with your finance leadership and the Sharia board, and documented for the auditor.
Document
Accounting policies, the pool-transfer policy, profit-distribution procedures and Sharia governance charters written down, each with the controls and evidence trail it needs.
Report
The first annual statements under the new standards, the audit committee and Sharia board briefings, and the questions the external auditor will ask — then ownership handed over.
Perimeter and fee are fixed at the gap assessment — engagements are scoped to a defined end: statements and Sharia governance the institution can explain and defend.
Questions we are asked
Before the first conversation.
What are AAOIFI FAS 45, 46 and 47?
They are three financial accounting standards of AAOIFI, the Accounting and Auditing Organization for Islamic Financial Institutions, whose English versions were issued in December 2023. FAS 45 covers quasi-equity, including investment accounts, and, with FAS 46, supersedes FAS 27; FAS 46 covers off-balance-sheet assets under management; FAS 47 covers the transfer of assets between investment pools and supersedes FAS 21. All three apply to financial periods beginning on or after 1 January 2026.
The standards are already effective — why is the work still urgent?
Because the first annual financial statements prepared under FAS 45 to 47 are the ones that will be audited, compared and read by investment account holders. For an institution with a calendar year end, 2026 is the first financial year under the new standards, so the classification judgements, pool policies and disclosures need to be settled before that year closes rather than discovered at the audit.
What about FAS 44, 48 and 49?
FAS 44 addresses determining control of assets and business. FAS 48 on promotional gifts and prizes and FAS 49 on financial reporting for institutions operating in hyperinflationary economies were issued in December 2024. The gap assessment covers each one where it is relevant to the institution, and confirms with management and the auditor when it applies, since that depends on the standard and on what the regulator requires.
Does the practice cover Islamic windows of conventional banks?
Yes. A window raises the same accounting questions as a full Islamic bank, plus one more: whether its funds, pools and profit allocation are demonstrably separate from the conventional book that shares its systems and people. The engagement assesses that separation, the Sharia oversight around it and how the window reports under AAOIFI standards where the regulator requires them.
Can you work alongside our auditor and our Sharia board?
Yes, and we recommend it. The external auditor and the Sharia board will each form a view on the same judgements, so they are raised early, documented with the reasoning and taken through governance before the year closes. We prepare the analysis and the paper trail; the decisions, the accounts and the Sharia rulings remain the institution’s, and the independence of the auditor and the Sharia board is untouched.
Background reading on this subject
Written by the practitioners who lead the programme — read before you enquire.
The Capability Arc™
This practice is one point on the arc.
Most AAOIFI clients pair the engagement with the programme that builds the internal bench — and with Sharia Governance, Audit & Compliance and Islamic Treasury & Liquidity Management for the teams behind the numbers — because the judgements have to be owned by the people who sign the accounts.
Learn it · Training
AAOIFI Standards Update for Islamic Banks
Two days on FAS 45, 46 and 47 — investment accounts, off-balance-sheet assets and pool transfers — plus FAS 44, 48 and 49, for finance, treasury and Sharia teams.
Fix it · Advisory
IFRS 18 Implementation Advisory
When the institution, or its group, also reports under IFRS and the new income statement has to be ready for 2027.
Automate it · Smart IT
Reporting Automation & Dashboards
When pool allocation, profit distribution and the new disclosures need to come out of the system rather than out of re-keyed workbooks.
The ask
Ask for a confidential AAOIFI readiness review.
A senior practitioner reads your current investment-account policies, pool arrangements, published profit-distribution disclosures and Sharia governance charters — and tells you, in a private working session, where FAS 45 to 47 will weigh most, which judgements are still open, and what has to be in place before the first year under the new standards closes.
Confidential by default; under NDA on request. A senior practitioner replies within two working days.
Islamic Finance & AAOIFI
Leave the question with us.
Two lines on the mandate is enough — a senior practitioner replies within one business day.