Page 134 - ICD AR21 EN

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021
(CONTINUED)
33 EFFECT OF NEW AND REVISED FINANCIAL ACCOUNTING STANDARDS (Continued)
iii) the role of the agent is not limited whereby the agent performs day-to-day asset management function and,
where applicable, is also responsible for replacement of assets or recoveries against them.
In case of Wakala venture approach, an investment shall be accounted for in the books of the investor applying the “equity method of accounting”; where the investment shall be recognized initially at cost and subsequently shall be measured at the end of the financial period at carrying amount and shall be adjusted to include the investor’s share in profit or loss of the Wakala venture.
From the agent perspective, the standard requires that at inception of the transaction the agent shall recognize
an agency arrangement under off-balance sheet approach since the agent does not control the related assets / business. However, there are exceptions to off-balance- sheet approach whereby virtue of additional considerations attached to the instrument based on investment agency may mandate the same to be accounted for as on- balance sheet. An agent may maintain multi-level investment arrangements. Under such arrangement, the Group is reinvesting Wakala funds into a secondary contract. Such secondary contracts shall be accounted for in line with the requirements of respective FAS in the books of the agent.
The Board of Directors decided not to early adopt the standard with effect from the current year.
The Corporation has applied the Standard on all the transactions outstanding as of 31 December 2021 and
the corresponding previous year end. However, there was no Wakala arrangement in prior year. As a result of implementation for this standard, A statement of off-balance sheet assets under management has been added in the financial statements and related assets and liabilities has been recorded in such statement and classified as off-balance sheet.
Impact of initial application of FAS 32 – Ijarah
In these financial statements, the Corporation has applied FAS 32 – Ijarah, for annual periods beginning on or after January 1, 2021, with earlier permitted.The Corporation decided to adopt the standard from January 1, 2021.
FAS 32 introduces some new changes as explained below:
• changesintheclassification.ljarahtransactionsunderinthisstandardareclassifiedintotheoperatingIjarah, Ijrarah Muntahia Bittamleek (Ijarah MBT) with expected transfer of ownership after the end of the Ijarah term either through a sale or gift and Ijarah MBT with gradual transfer.
• newrecognitionandmeasurementprinciplesforinitialrecognitionforright-of-useasset,Ijarahliabilityand advance payments for lessee and lessor accounting;
• requirementtoidentifyandseparateljarahandnon-ljarahcomponents.,ifneeded;
• newrecognitionandmeasurementprincipleforanIjarahMBTthroughgradualtransfer/Diminishing
Musharaka ljarah
132 ICD ANNUAL REPORT 2021