VOL 2 ISSUE 4 July/August 2010 ‘Sustainability’ is a word that has gained much interest, discussion and debate in the past few years. In an era where the ecological balance of our planet is fast disappearing, and share price based measures drive a short-term perspective towards result generation – need for sustainable business conduct undoubtedly hits the headlines. In response to this dire need of the hour the Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) joined forces to form the International Integrated Reporting Committee (IIRC), earlier this month. The key objective of IIRC is to create a globally accepted framework for accounting for sustainability. It aims to develop an integrated format that communicates financial, environmental, social and governance information in a clear, concise, consistent and comparable manner. The IIRC unites multi-disciplinary representatives from civil society and the corporate, accounting, securities, regulatory, NGO, IGO and standard-setting sectors. As a global professional body, CIMA is well represented in this initiative which intends to help develop more comprehensive and comprehensible information about an organisation’s past and future performance, to meet the needs of the emerging, more sustainable, global economic model. Finally, a special note of ‘Thank you’ is extended to the contributors of the current issue of The CIMA Edge. Nilushika Gunasekera. News and events World congress of accountants 2010 will take place in Kuala Lumpur, Malaysia from 8 to 11 November 2010 CIMA Global Business Challenge concluded this August with immense success. The South Asian and Middle Eastern region was well represented at this global competition with finalists from Sri Lanka, India, UAE, Pakistan and Bangladesh. Sri Lanka Upcoming events CIMA Technical Symposium 2010 ‘Mending the soul of business’ 24 November 2010 | Cinnamon Lakeside | Colombo Marketing in economic recovery by Prasanna Perera 8 September | Galadari Hotel Past 2010 Business Leaders Summit held on 28-29 July at the Cinnamon Grand hotel, was a resounding success as the timely theme ‘Re- imagine; Re-create’ captured Sri Lanka’s focus towards economic development. Evening discussion on budget highlights 2010 was held on 5 July at the CIMA auditorium. Bangladesh CIMA and ICMAB signed an agreement to allow mutual advanced entry for members into both of the accountancy bodies’ professional examinations. CIMA Sri Lanka Division Contents: feature articles Evening discussion on budget highlights The impact of the 2010 budget proposals on the Sri Lankan development drive was the key focus of this technical discussion. An informative and thought provoking economic and business analysis was followed by a participative, eagerly debated panel discussion. Green is the colour of life at Brandix From reducing canteen waste to investing in sophisticated air-conditioning, one of Sri Lanka’s leading apparel exporters is living its mission to be an eco friendly manufacturer in the forefront of its CSR and environmental commitments. Journey of Islamic finance With increased sources of funding, a strong ethical framework instilled in its financial products and an equitable level of profit sharing between investor and the investment firm, Islamic finance is fast expanding its customer base worldwide. Corporate reporting is no longer working A global study is set up to explore the changes needed to make corporate reporting fit for purpose in future. Please email your comments to [email protected]CIMA mid-size business confidence monitor 2010, Sri Lanka - Highlights of quarter two The highlights of the survey reveal that overall business confidence among mid sized firms has increased, indicating a positive trend in investment initiatives and entrepreneurship in Sri Lanka. CONTENTS 1 Evening discussion on budget highlights 2010 2 Green is the colour of life at Brandix 3 The journey of Islamic finance 4 Making corporate reporting fit for purpose 5 CIMA mid size business confidence survey Disclaimer: opinions expressed are the contributors’ own and do not necessarily represent the views of the institution or the organisations by which they are employed. Members and partners are cordially invited to contribute to The CIMA Edge by email to nilushika.gunasekera @cimaglobal.com
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VOL 2 ISSUE 4 July/August 2010
‘Sustainability’ is a word that has gained much interest, discussion and debate in the past few years.
In an era where the ecological balance of our planet is fast disappearing, and share price based measures drive a
short-term perspective towards result generation – need for sustainable business conduct undoubtedly hits the
headlines. In response to this dire need of the hour the Prince’s Accounting for Sustainability Project (A4S) and
the Global Reporting Initiative (GRI) joined forces to form the International Integrated Reporting Committee (IIRC),
earlier this month.
The key objective of IIRC is to create a globally accepted framework for accounting for sustainability. It aims to
develop an integrated format that communicates financial, environmental, social and governance information in a
clear, concise, consistent and comparable manner. The IIRC unites multi-disciplinary representatives from civil
society and the corporate, accounting, securities, regulatory, NGO, IGO and standard-setting sectors. As a global
professional body, CIMA is well represented in this initiative which intends to help develop more comprehensive
and comprehensible information about an organisation’s past and future performance, to meet the needs of the
emerging, more sustainable, global economic model.
Finally, a special note of ‘Thank you’ is extended to the contributors of the current issue of The CIMA Edge.
Nilushika Gunasekera.
News and events World congress of accountants 2010 will take
place in Kuala Lumpur, Malaysia from 8 to 11 November 2010
CIMA Global Business Challenge concluded this
August with immense success. The South Asian and Middle Eastern region was well represented at this global competition with finalists from Sri Lanka, India, UAE, Pakistan and Bangladesh. Sri Lanka Upcoming events CIMA Technical Symposium 2010
‘Mending the soul of business’ 24
November 2010 | Cinnamon Lakeside |
Colombo
Marketing in economic recovery by Prasanna
Perera 8 September | Galadari Hotel
Past 2010 Business Leaders Summit held on 28-29
July at the Cinnamon Grand hotel, was a resounding success as the timely theme ‘Re-imagine; Re-create’ captured Sri Lanka’s focus towards economic development.
Evening discussion on budget highlights 2010
was held on 5 July at the CIMA auditorium. Bangladesh CIMA and ICMAB signed an agreement to allow
mutual advanced entry for members into both of the accountancy bodies’ professional examinations.
CIMA Sri Lanka Division
Contents: feature articles
Evening discussion on budget highlights
The impact of the 2010 budget proposals on the Sri
Lankan development drive was the key focus of this
technical discussion. An informative and thought
provoking economic and business analysis was
followed by a participative, eagerly debated panel
discussion.
Green is the colour of life at Brandix
From reducing canteen waste to investing in
sophisticated air-conditioning, one of Sri Lanka’s
leading apparel exporters is living its mission to be an
eco friendly manufacturer in the forefront of its CSR
and environmental commitments.
Journey of Islamic finance
With increased sources of funding, a strong ethical
framework instilled in its financial products and an
equitable level of profit sharing between investor and
the investment firm, Islamic finance is fast expanding
its customer base worldwide.
Corporate reporting is no longer working
A global study is set up to explore the changes
needed to make corporate reporting fit for purpose in
increased, indicating a positive trend in investment
initiatives and entrepreneurship in Sri Lanka.
CONTENTS
1 Evening discussion
on budget highlights 2010 2 Green is the colour of life at Brandix 3 The journey of Islamic finance 4 Making corporate reporting fit for purpose 5 CIMA mid size business confidence survey
regulations and improved infrastructure have enormously aided
this finance system to reach out to the masses from the niche in
which it previously operated. Islamic finance is a finance system
that has evolved over centuries from the time of Prophet
Muhammad (peace be upon him) whose reported sayings and
actions together with the Quran (Holy Book) and the Fiqh
(Islamic Jurisprudence) form the basis of Shariah (Islamic law).
The compliance to Shariah applies to every aspect of a Muslim’s
life including his financial dealings. The key attributes of the
Islamic Finance system entail the prohibition of interest,
speculation, gambling, unjust enrichment and investments in
certain industries that have an adverse impact on the society.
These industries include tobacco, pornography, alcohol etc. The
principles also advocate the sharing of risks and rewards in a
just and equitable manner, where the risk taker is compensated
by a higher reward.
1. The origins of Islamic banking and finance
Islamic finance originated more than four decades ago.
Presently we are at the tail end of the fifth decade and have
experienced that the Islamic finance industry has grown like no
other. The industry has been strongly pushed by the resurgence
to meet the financing needs of Muslims to being widely accepted
by the non-Muslim world. Countries are found competing against
one another to promote themselves as the Islamic finance hubs
in their Continent and globally as a whole. The first decade
entailed the establishment of the Pilgrims Fund Board in
Malaysia (1962) and the Mitt Ghamr Savings Project established
in Egypt (1963) by Dr. Al Najjad who laid the foundation for Profit
& Loss Sharing concept. This was used by the project as a
means of distributing the returns.
The second decade commenced with the Nasr Social Bank
absorbing the Mit Ghamr project (1972) .This decade records a
milestone in the history of modern Islamic finance with
establishment of the Islamic Development Bank, Saudi Arabia
and the Dubai Islamic Bank, UAE (1975). This marked the
foundation of commercial banking based on Islamic principles.
The decade saw the first ‘International Conference on Islamic
Economics’ in Saudi Arabia (1976) and the establishment of
Centre for Research in Islamic Economics in Saudi Arabia
(1978) closely followed by Insurance Company of Sudan (1979).
Many other Islamic financial institutions including Malaysia’s
Berhad Islamic Bank emerged in the third decade of growth,
where the concept of commercial banking was extended to
project finance and syndications.
The decade concluded with the establishment of the Accounting
and Auditing Organisation for Islamic Financial Institutions
(AAOIFI) in Bahrain (1991). The fourth decade (1992 to 2001)
saw many other successes including the launch of Harvard
Islamic finance programme, Dow Jones Islamic Index etc.
By this era the Islamic leasing (Ijarah) and Islamic
methodologies for equity and fund management were
developed.
The fifth decade, the period at the time of writing, has by far
been the most successful one for the Islamic finance and
banking industry. The innovation of several structured alternative
assets particularly the securitisation within the Islamic
permissibility (Sukuk) being launched in Muslim and non-Muslim
states alike took place in this decade. The rise in acceptability of
Islamic banking and finance can be seen through the legislative
changes and the launch of key large Islamic banks such as the
Islamic Bank of Britain in the UK and Islamic Bank of Asia in
Singapore. The decade saw continued and committed
improvement in the infrastructure for the industry with the launch
of the Establishment of Islamic Finance Standards Board in
Malaysia, the Liquidity Management Centre in Bahrain etc.
2. Regulators and infrastructure of Islamic banking and
finance
A critical success factor to the growth of this industry was
continued regulation and new innovation. Recently, the growth
of this ebullient industry has come under scrutiny. Therefore,
further regulation and specification of accounting treatment by a
standard-setting board is required. A brief description of some of
the key bodies engaged in this task is outlined below.
Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI)
AAOIFI is a not-for-profit organisation based in Bahrain. Its main
objective is to maintain and promote Shariah standards for
Islamic financial institutions, participants and the overall industry.
AAOIFI achieves this by defining acceptable standards for
various areas such as accounting, governance, ethics,
transactions and investments.
Islamic Financial Services Board (IFSB)
Based in Kuala Lumpur, Malaysia, the IFSB is the international
standard-setting organisation that promotes and enhances the
soundness and stability of the Islamic financial services industry.
The IFSB issues global prudential standards and guiding
principles for the industry, namely: capital adequacy, corporate
governance, risk management and transparency.
International Islamic Financial Market (IIFM)
The primary focus of IIFM lies in the standardisation of certain
Islamic products, documentation and related processes. IIFM
was founded as an infrastructure institution with the mandate to
take part in the establishment, development and promotion of
Islamic capital and money market. The IIFM operates with the
collective efforts of its permanent members which include central
banks and government agencies of Bahrain, Brunei Darussalam,
Indonesia, Malaysia, Sudan, Pakistan, United Arab Emirates
and the Islamic Development Bank based in Saudi Arabia.
Sarah is an Associate Member of CIMA and has completed her Islamic finance qualification from the Chartered Institute of
Securities and Investment (CISI UK). She is currently serving as an analyst in the tax and regulatory division of KPMG Ford
Rhodes, Thornton & Co. handling a diverse portfolio of clients from myriad industries.
feature article
International Islamic Rating Agency (IIRA)
This is the sole rating agency that provides capital markets and
the banking sector in predominantly Islamic countries with a rating
on a full array of capital instruments and speciality Islamic
financial products. The IIRA also engages in enhancing the level
of analytical expertise in Islamic financial markets.
International Research and Training Institute (IRTI)
This institute undertakes research and provides training and
information services to the member countries of the Islamic
Development Bank and Muslim communities in non-member
countries to help bring their economic, financial and banking
activities into conformity with Shariah. The institute promotes
economic development and cooperation amongst these parties.
3. The present state and future aspirations of Islamic banking
Today, the Islamic banking and finance industry broadly operates
on a four tier model.
The Islamic banking windows
Independent branches of conventional banks rendering Islamic
finance services
Fully fledged subsidiaries engaged purely in Islamic banking
Fully fledged banks
According to ‘The Banker's Top 500 Islamic Financial Institutions’
rankings, assets held by fully Shariah-compliant banks or Islamic
banking windows of conventional banks rose to $822bn in 2009,
accounting for a 28.6% increase from the previous year.
Today, Islamic finance has spread from the borders of the Middle
East (or rather the Muslim world) to most continents around the
globe. This system which is perceived and proven to be a better
alternative to finance has steered many countries to amend laws
to facilitate the playing field for Islamic finance over its
conventional counterparts. The sea of misconception that ‘Islamic
finance is only for those of Islamic faith’ has been abridged thus
far. Islamic finance is undoubtedly faith based but, is no longer
purely faith driven. Non-Islamic states have been as successful as
Muslim states in advocating the principles of Islamic finance.
The ‘Islamic’ dimension is slowly fading away and the finance
system is gaining momentum as the system is just and equitable.
The gathering of the momentum does inevitably take time, and
those who started early have indeed been more successful at
benefiting from the change than the late comers. Yet, there is
space and time for everyone to embrace the system and make a
difference in their economic outlook. If I may borrow a leaf from
President Obama’s book ‘yes we can’.
feature article
Corporate reporting is no longer working
What needs to be done to make it fit for purpose in the future?
The financial crises of the last decade have demonstrated
serious shortcomings in the understanding of corporate
business models, the alignment of incentives, and the
management of risk. The current corporate reporting model
has not highlighted where these shortcomings exist. This
failing is exacerbated by the pace of change of business
today, with a plethora of new challenges impacting long-term
success, including a shift in the global balance of power,
resource constraints and climate change. This landscape
provides a compelling reason to review what the major
barriers to effective reporting are and how these might be
overcome.
The Chartered Institute of Management Accountants,
PricewaterhouseCoopers LLP and Tomorrow's Company are
setting up a global study to explore what changes are needed
to make corporate reporting fit for purpose for the future. By
corporate reporting we mean all the mechanisms by which
companies communicate their performance and activity to
their stakeholders, with a particular emphasis on the flow of
information into the investment community. We are focusing
on the following areas.
The weaknesses and strengths in the current system.
The barriers obstructing the evolution of corporate reporting.
Solutions you propose to rectify these weaknesses.
To what extent is there a shared understanding about the purpose of corporate reporting and the overriding objective of reporting standards?
To what degree are investors, accountants, standard setters and management incentivised to engage in any dialogue about changing the reporting model?
Is the level of technical knowledge and understanding of financial and non-financial information and metrics a barrier?
Are the transactional, regulatory, technological and other changes as a result of globalisation creating too much complexity and change for the system to deal with?
Who is best placed to change the system and what is needed to help them do this?
CIMA Sri Lanka division welcomes responses on any or all of the above areas to be used for a global research. Please email your responses to [email protected] on or before 15 September 2010.