Accounting & Reporting for Shariah Compliant Derivatives

Expert Course Director

Vice President, SHAPETM Financial Corp

Shabnam Mokthar

Applying IFRS Denitions to Shariah Compliant Derivatives Applying IFRS Recognition Principles to Shariah Compliant Derivatives Applying AAOIFI Standards to Shariah Compliant Derivatives Accounting Issues for Embedded Derivatives & Other Products Prospective Derivative Guidance under IFRS

25th 27th November 2012, DUBAI

Visit www.IslamicFinanceTraining.com today or call +603 2162 7800 for more information

Course Objectives
This is a new, specialized training program that will examine the use, application and structure of Islamic derivative instruments in detail, with specic focus on accounting and nancial reporting issues. The course will be lecture based but will feature worked real-life examples, group exercises and discussions in order to demonstrate specic products or accounting principles. The aims of the course, among others, are as follows: To familiarize delegates with the structure and application of various Islamic derivatives and to explore the Shariah limitations of these products To dene derivatives under existing IFRS and to apply the IFRS denition to Shariah compliant derivatives To examine AAOIFI standards applicable for Shariah compliant derivatives and their application To understand the application of IFRS recognition principles to Shariah compliant derivatives To examine hedge accounting, fair value measurement and to understand the issues regarding embedded derivatives under Shariah compliant nance To discuss and understand prospective derivative guidance under IFRS (IFRS9 which replaces IAS 39)

Who Should Attend

The course is aimed at nancial control and risk professionals from nancial institutions, investors, regulators and end users of nancial derivatives. Specically: Accountants, internal auditors and nancial control professionals Risk and nancial management professionals Back oce, middle oce and settlement professionals Treasury and treasury operations support sta Consultants, advisors and external audit

Expert Course Director

Shabnam Mokhtar is currently the Vice President of SHAPETM Financial Corporation, a nancial consulting rm based in Kuwait, specialising in nancial advisory, consultancy and Islamic nance training. Prior to this, Shabnam was a researcher heading the Islamic Capital Market Unit with the International Shariah Research Academy (ISRA), an institution established by Bank Negara Malaysia (BNM) to promote applied research in the area of Shariah and Islamic nance. She also taught Islamic nance at University Putra Malaysia in addition to teaching accounting, bank management and nancial management subjects. She was appointed as a member of MARCs Syariah Advisory Panel in August 2010. Shabnam has conducted many training programs on Islamic banking, Sukuk & Islamic capital market products, risk management and AAOIFI accounting for clients in the ASEAN region, East Asia, GCC and Europe. She has a strong appreciation of issues relating to regulatory and nancial infrastructure development stemming from her attachment with BNMs Department of Islamic Banking and Takaful in 2008. Shabnam also served as an editor of MIF Monthly, a publication focusing on Islamic nance developments in Malaysia. After obtaining her Bachelor of Accountancy (First Class Honors) degree from University Putra Malaysia, Shabnam successfully earned her Master of Accounting degree with distinction from University of Illinois at Urbana Champaign, USA.

Course Agenda Day 1

Foundations Refresher Interactive review of Shariah principles that govern the structuring of Shariah compliant derivatives: o Riba al-Nasiah o Riba al-Fadl o Gharar o Promise versus contract o Possession (qabd) o Long Murabahah o Tawarruq Shariah compliant FX Swap how does this work?

Group discussion: How is a Shariah compliant forward dierent from a conventional forward?
Prot Rate Swap (PRS) Shariah issues in Interest Rate Swap (IRS) Prot Rate Swap Structures: o Two Tawarruq on each trade date (Murabahah Style 1) o One long term xed rate Tawarruq and multiple oating rate Tawarruq (Murabahah Style 2) o Promise based PRS Group Discussion: Risks in the dierent PRS structures? Comparing PRS to a conventional IRS Cross Currency Swap (CCS) Are there any Shariah issues with a conventional CCS? Cross Currency Swap versus Cross Currency Deposit PRS versus CCS will there be any dierences in underlying structure?

This session will be structured as a discussion and quiz oriented session.

Core Underlying Instruments for Shariah Compliant Derivatives Interactive review of instruments that represent the basic building blocks of Shariah compliant derivatives: o Murabahah versus Commodity Murabahah versus Tawarruq o Arbun Currency Hedge Forward Shariah issues in a conventional forward How Shariah compliant forward alternatives work: o Promise based solutions unilateral promise, two unilateral promises versus bilateral promises o Promise to deposit

Group Exercise: Applying PRS and CCS for dierent client needs.

Visit www.IslamicFinanceTraining.com today or call +603 2162 7800 for more information

Day 2
Futures and Options Shariah issues in conventional futures & options Arbun versus Promise based solution for: o Currency o Commodity o Financial securities Funded versus unfunded options AAOIFI Standards Applicable for Shariah Compliant Derivatives Summary of AAOIFI accounting for Murabahah What is the accounting eect of promises under AAOIFI? Does Arbun have any accounting implication? Application of AAOIFI Standards to Shariah Compliant Derivatives In this session dierent groups will focus on dierent underlying structures we have covered before and discuss the accounting implication from Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI) perspective. The main focus will be the balance sheet eect of Shariah compliant derivatives under AAOIFI. o Forward promise versus Murabahah versus FX Swap o PRS & CCS promise versus Murabahah 1 versus Murabahah 2 o Options promise versus Arbun versus Murabahah

Group Exercise: Applying structured Tawarruq with option components for capital protected funds.
Denition of a Derivative under IFRS Denition of a derivative under IFRS o What is an underlying? o How do you determine what the initial net investment is? o What constitutes settled at a future date?

Group Exercise: Applying the IFRS denition to Shariah compliant derivatives do they meet the denition? o Forward o PRS & CCS o Options funded and unfunded

Day 3
IFRS Recognition and Measurement Principles General recognition and measurement principles o How are derivatives generally accounted for under IFRS? o Are there other IFRS (besides derivatives) applicable for accounting for Shariah compliant transactions with derivative-like features? Why or why not? How are sales (compare to Murabahah), promises (compare to Waad) and down payment (compare to Arbun) accounted for under IFRS? Which guidance would take precedence (derivative or sale/promise/down payment guidance)? How does the IFRS approach of substance over form impact the accounting conclusions for Shariah compliant derivative-like transactions? How would these conclusions compare to AAOIFI? Applying IFRS Recognition Principles to Shariah Compliant Derivatives In this session dierent groups will focus on dierent underlying structures we have covered before and discuss the accounting implication from IFRS perspective. Does the underlying structure aect which IFRS we will apply? Why or why not? Forward promise versus Murabahah versus FX Swap PRS & CCS promise versus Murabahah 1 versus Murabahah 2 Options promise versus Arbun versus Murabahah How does this compare to the conclusions reached under AAOIFI? Hedge Accounting & Fair Value Measurement What are the dierent types of hedging relationships allowed under IFRS? What are the documentation requirements for hedge accounting? What are the recognition and measurement principles for hedging relationships? How is the eectiveness of hedging relationships tested? Fair value measurement methodologies (IFRS 13)

Group Discussion: Using Shariah compliant derivatives for hedging versus trading?
Embedded Derivatives Identication o What is an embedded derivative and what is a host contract? o How do you determine if the economic characteristics and risks of the derivative are clearly and closely related to the host contract? Recognition and measurement principles o How should embedded derivatives be accounted for?

Group Exercise: Shariah compliant instruments with potential embedded options lease with promise to (re) purchase, Sukuk, capital protected fund. How would these options impact the nancial statements?
Prospective Derivative Guidance under IFRS (IFRS9 which replaces IAS 39) What changes have been made to general recognition and measurement principles? What changes have been made to hedge accounting? What changes have been made to embedded derivative principles? Eective date

Group Discussion: How would the proposed changes to IFRS impact the prospective accounting for Shariah compliant derivatives?
Course Wrap-up and Conclusion

CIFA Guide to Foundations of Islamic Banking & Finance

published by REDmoney and SHAPE Financial Corp The Certied Islamic Financial Analyst (CIFA) Guide is a self-contained, 50 page companion to the rst level of the CIFA qualication program. The Guide is a detailed and comprehensive self-study reference tool that provides examples and in-depth descriptions of key Islamic nancial products and concepts. It is an essential reference point for those new to the Islamic nance sector or who wish to update their knowledge and understanding of Shariah-compliant products. The CIFA Guide is available to delegates of REDmoney training for US$50.

Visit www.IslamicFinanceTraining.com today or call +603 2162 7800 for more information

Accounting & Reporting for Shariah Compliant Derivatives

25th 27th November 2012, Dubai
BOOKING DETAILS
The pricing for this course is as follows: I am booking: Register on or before 27th September 2012 Register on or before 29th October 2012 Register after 29 October 2012
th

Pricing US$3,600 US$3,800 US$4,000

Please also tick the box below if you would like to receive the CIFA Guide to Foundations of Islamic Banking & Finance: CIFA Guide to Foundations of Islamic Banking & Finance (US$ 50)

Please note: A late booking fee of US$150 will be imposed on registration received within 14 days of the course start date. Fees include training materials, refreshments and lunch. Accommodation is not included.

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By email: info@islamicnancetraining.com By fax: +603 2162 7810 You may also book online at http://www.islamicnancetraining.com Please call us on: +603 2162 7800 or +603 2162 7802 if you require assistance. Our address is: REDmoney, 21/F, Menara Park, 12 Jalan Yap Kwan Seng, Kuala Lumpur, 50450, Malaysia Booking and Cancellation Policy important, please read carefully By completing and sending us this registration form you are conrming delegate places on the course. If delegates cannot attend the course replacement participants are always welcome. Otherwise delegates must request in writing (letter, fax or email) to cancel registration/s or transfer to a dierent course at least 21 days before the course start date to be eligible for a refund, less a 5% administration fee. Delegates who cancel within 21 days of the course start date, or who do not attend, are liable to pay the full course fee and no refunds will be given. Instead fees will be converted to an Islamic Finance Training course voucher equivalent to the original fee, less a 15% administration charge. This voucher is transferable within your organization and must be redeemed within one year of issue or become void. If a course is postponed for whatever reason delegate bookings will be automatically transferred to the new course date. Delegates who wish to transfer to a dierent course will be subject to the same terms as above and charged the dierence in course fees. No refunds or course vouchers will be issued for a no-show. Islamic Finance Training reserves the right to amend the published program or speaker. In the event of course cancellation by Islamic Finance Training due to unforeseen circumstances, Islamic Finance Training is liable only to refund the cost of the course.

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IFT1232/P