The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued an amendment to its accounting standard on consolidation to clarify the way an Islamic financial institution (FI) should determine if financial statements of an investee company, or a subsidiary, should be consolidated with its own
The existing Financial Accounting Standard (FAS) 23 'Consolidation' stipulates that consolidation will be required for an entity over which an Islamic financial institution can exercise control and it presumes that control exists if the Islamic financial institution holds 50% or more of the voting rights in the entity; or through agreement with the entity’s other shareholders or with the entity itself.
The amendment to the standard clarifies that in addition to the existing stipulations, control may also exist through rights arising from other contractual arrangement, voting rights of the Islamic financial institutions that give de facto power over an entity, potential voting rights, or a combination of these factors.
The amendment is effective for annual reporting periods ending on or after 31 December 2015 and the text of the amendment will be included in the next publication of AAOIFI standards scheduled for early 2015.
More details are available at http://www.aaoifi.com/en/news/clarification-and-amendment-on-accounting-standard-on-consolidation.html