The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has made an important regulatory beginning. Bahrain-based AAOIFI seeks to support the faith of Islam by developing accounting standards for Islamic investment vehicles and by conducting related training and publicity. AAOIFI also expects to strengthen the effectiveness of Sharia committees by facilitating evaluation of emerging financing instruments and by aiding in the implementation of Islamic ethics. The agency merits close monitoring by Western bankers and their accountants, given the rapidly growing asset base of Islamic financial institutions. 

Key Words: Accounting and Auditing Organization for Islamic Financial Institutions (AAO- IFI); banks, Islamic; Emerging Issues Task Force; ethics, internalization; ethics, Islamic; iman (Arabic for faith); investment vehicles, Islamic; liquidity, short tenn; riba (Arabic for interest); Sharia committee; stakeholder model. 

INTRODUCTION

OVERVIEW OF ISLAMIC BANKING

PROHIBITED ACTIVITIES

ACCEPTABLE INVESTMENTS

PROBLEMS OF ISLAMIC BANKING

TABLE 1 Islamic Investment Vehicles 

ENTER AAOIFI

NEW DEVELOPMENTS

Growth in Islamic Investment Banking
Project Financing
The Emergence of New Instruments

CALL TO ACTION

TABLE 2 Some Possible Guidelines for Sharia Committees