Divergences of an accounting and financial nature between takaful and conventional insurance will have to be resolved, as the implementation of IFRS 17 draws closer.
Mr Mohamed Zerrei, partner at the international accounting firm Grant Thornton said takaful is based on the pooling of risks and the distribution of losses and profits between policyholders, while conventional insurance leans towards the individualisation of contracts instead of their mutualisation. Each contract must be profitable, reported Bourse News quoting Mr Zerrei.
“In conventional insurance, there is risk transfer, while in takaful, there is risk pooling,” said Mr Zerrei, pointing out the ideological difference between the two forms of insurance.
Financial reporting: IFRS or AAOIFI?
At a recent professional conference in Rabat, Mr Zerrei discussed the differences between the IFRS (International Financial Reporting Standards) and standards set by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions).
In most cases, insurers do not have a choice. In Europe, IFRS standards are imposed whereas Bahrain and Qatar adopt the AAOIFI, while the rest of the countries in the GCC adhere to the IFRS. “In Morocco, we are also moving towards this frame of reference,” said Mr Zerrei.
He said that AAOIFI standards are changing, approaching closer to IFRS standards. In Malaysia, where Islamic finance is the most developed, the choice is focused on local standards very close to the IFRS and also based on the concept of fair value.
IFRS 17, which covers insurance contracts, is set to be implemented by January 2022.
IFRS 17 is applicable to the takaful contract, said Mr Zerrei. It provides for contracts to be pooled if there are financial flows between the contracts. This reflects takaful activity in that a deficit arising from one contract will be offset by the cashflow of other contracts related to the same takaful insurance account.
He said in Morocco, several questions remain unresolved, especially in relation to accounting for takaful, according to local Moroccan standards. Things are not yet fully decided at the level of the National Accounting Council. On the tax side too, many issues are still to be resolved. One reason is that takaful legislation in Morocco has still not been enacted. M