Task-1

AAOIFI standards:
Islamic financial institutions develop several kinds of standards and frame work for financial
reporting. It is also responsible in the developing and issuing the standards for international
Islamic finance industry. More than 40 countries worldwide supported these standards and in all
of these countries more than 200 institutional members are involved. These members are the
regulatory authorizes, financial institutions, accounting and auditing firms, legal firms etc. and
all of these members are known as central banks. There are total 88 standards in which 48
standards are the Sharia standards that are related to the financing and for financial sectors. It
provides guidance on the Sharia permissibility, rules for specific Islamic finance products and
its mechanisms. Accounting and auditing organization for Islamic financial institutions
(AAOIFI) has also launched different contract endorsement programs that verify the financial
contract between the Islamic financial institutions and their clients.
AAOIFI mandates applied for Shariah compliant Stocks:
Shariah screening process is the process that identifies the Shariah compiant investments. It
clearly defines all of the activities in which the Muslims must not to be involved, these activities
refer to the Interest which is known as Riba and the usage of alcoholic products and the
products that consume alcohol. The businesses based on these kind of activate or we can say that
a major portion of firms revenue came from the activities from which Muslims are prohibited; in
this case the Muslims, according to the AAIOFI standards must not be involved in it. Islamic
scholars develop a set of rules and standards in accordance to the Shariah compliant and for
every organization who wishes to operate in an Islamic economy must have to follow these
guidelines or principles. The scholars categorically define all the standards and also differentiate
from the non Shariah compliant. All of the rules and principles require a sound screening by
identifying the resources and sources of an organization which is generating the revenue. The
Shariah compliant set a standard for all the companies in which the income from all these non
Shariah compliant activities must be less than 5% of the total income. Some of the Shariah
complaints are:
The company directly or indirectly not to be involved in trading of Alcoholic products
The company must not to be involved in tobacco business and trade of tobacco
The source of revenue of a company must not from a music industry.
Casino businesses and activities are also not included in Shariah compliant
The firms use to trade with the interest rate are also excluded from Shariah compliant

 Advertising, film industries and other activities linked with T.V or cinema are also
excluded from Shariah compliant
Task-2:
The group that is known as Al Buhaira National Insurance Company P.S.C. Sharjah incorporated
in 1987. The company starts its operations and stock trading from the same year. The company is
registered in the Federal law of U.A.E and follow all the instructions that has been issued by the
Federal law No.6 in 2007. This law focuses on the development of insurance sector in U.A.E.
The company is registered with the insurance authority of Abu Dhabi under the registration
number 15. Al Buhaira National Insurance Company doing its business only in writing the
insurance which included all kinds of insurance, the saving and accumulation of funds are not
considered in the firms activities. In recent years the company applies revised rules of
international financial reporting standards (IFRS) that has been issued by the International
accounting standard board (IASB). In 2013 Al Buhaira National Insurance Company implement
various revised IFRS standards in the company and these standards are

IFRS 7: It is linked with the financial instruments

IFRS 10 It covers the areas related with the Consolidated Financial Statements
IFRS 11 Joint Arrangements are covered in this standard
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IFRS 2 Share Based Payments
IFRS 3 Business Combinations
IFRS 8 Operating Segments

All of the consolidated financial statements of the company have been prepared in accordance
with the IFRS standards and the applicable requirements of the United Arab Emirates federal law
No. 8 of 1984 and Federal Law No. 6 of 2007. The Al Buhaira National Insurance Company
P.S.C. also implemented the rules and standards ofAAOIFI mandates that are mandatory for
Shariah compliant Stocks trading in UAE. AAOIFI standards investigates that either the business
is in accordance with the practices of Islam or not. In the AAOIFI screening process the
regulatory authorities of the AAOIFI measures the Shariah requirements and the requirements
are: the sum of non-tolerated income resulting from the following factors must be less than 5%
of their total income.
Alcoholic beverages
Amusement and recreation Tobacco products

 Banks
Brokerage and securities firms
Hotels and motels
Mortgage companies
If all of these AAOIFI standards are not applied to any organization then it will not considered as
a Shariah compliant organization, so for Islamic financial these standards are mandatory.
The AAOIFI Shariah Compliant consist the following business:

Basic Industries
Commodities and Agriculture
Construction
Consumer Products
Energy
Healthcare
Information technology
Mining and manufacturing

All the rules mentioned above are applicable for all kind of organizations in an Islamic Shariah
compliant. Al Buhaira National Insurance Company implemented all these standards in all its
operations.
Different contracts offered by the company for its customers and these contracts are
known as the insurance contracts. While trading in the form of contracts the level of risk for the
company decreases. The managers face the risk of financial risks, cost risks, Insurance and
currency risk as well. The company usually trade in short term contracts because the long term
contracts may increases the risk level that is why to overcome a greater portion of risk a large
amount of shares is traded in the short term contracts. Short term insurance contracts have a
drawback, it increases the costs of the company but in case of Al Buhaira National Insurance
Company the increment in costs from the short term contacts does not influence the sales level of
the company. By using the fair value of the shares or contracts the financial managers measures
the financial assets and liabilities of the company.
The operational costs associated with the buying and selling of financial assets and
financial liabilities are also treated with their fair values. The company generates its funds from
two different sources. The first one is the equity source in which the company get finance from
its retained earnings and the second and most popular sources is the general public offerings. In

general public offering the company issues its shares for general public and other organizations
who wish to buy the shares of that very company through primary and secondary markets. Al
Buhaira National Insurance Company issued 20,000,000 its shares with a title of Available for
sales financial assets for investors and public in 2013.

Al Buhaira National Insurance Company expands its business and makes two branches in
Abu Dhabi. The financial highlights of the company showed a sound profit, total assets and
income increases in past 5 years. The companys total current assets in 2012 had a worth of
771,855,743 that increases in 2013 and the annual report of the company for the year 2013
showed total current assets were 940,358,918. The total assets of Al Buhaira National Insurance
Company according to the annual report had a worth of 1,834,782,953 and in the next year it had
a worth of 1,952,911,419. The profit after tax for the dividends and the retained earnings was
17,112,697 and for 2013 it was 10,372,006. High profit ultimately has a positive impact on the
goodwill of the company and it also increase the share price of the company. The EPS of the
company in 2012 was 0.07 and in 2013 it was 0.04.

Task-3
Investor Analysis:
Al Buhaira national insurance company implemented the rules and principles of AAIOFI and
Shariah mandates in all of its three branches. The company is listed in Abu Dhabi securities
exchange and trading in insurance within the Shariah compliant. For a Muslim investment
company the analysis of the AAIFOI standards, IAS and IFRS has a very much importance. In a
shariah mandate each and every organization must have to follow the Shariah standards and have
to pass the Shariah screening process. The screening process consists of the financial screening
as well as the screening of the sources of business. In financial screening process we take the
following assumptions:

The conventional debt of the company should be less than 30% of the total liabilities.
The income portion generated from Alcoholic beverages, amusement and recreation,
tobacco products, banks, brokerage and securities firms, hotels and motels must not
be greater than 5% of the total income of the company.
The portion of interest bearing deposit should be less than 45% of the total assets.

Conventional debt% = (conventional debt/total assets)*100

Particular

Year

Assets

2012

2013

Current assets

771,855,743

940,358,918

Non- current assets

1,062,927,210

1,012,552,501

Total assets

1,834,782,953

1,952,911,419

Current borrowing

239,144,223

214,880,825

Non-current borrowing

292,990,006

302,089,864

Total Conventional loan

532,134,229

516,970,689

Conventional loan

Conventional debt% = (conventional debt/total assets)*100

For 2012,
Conventional debt% = (532,134,229/1,834,782,953) *100
Conventional debt% = 28%
For 2013,
Conventional debt% = (516,970,689/1,952,911,419)*100
Conventional debt% = 26.4%
Interest bearing deposit %age = (Interest bearing deposits/ total assets) *100

Particular

Year

Assets

2012

2013

Total assets

1,834,782,953

1,952,911,419

Interest bearing deposit

249,530,481

241,820,256

For 2012,
Interest bearing deposit %age = (249,530,481/1,834,782,953) *100
Interest bearing deposit %age = 13.6%
For 2013,
Interest bearing deposit %age = (241,820,256/1,952,911,419) *100

Interest bearing deposit %age = 11.1%

Haram Revenue %age = (Haram revenue/ total revenue) *100

Particular

Year

Revenue

2012

2013

Total revenue

528,250,703

512,832,891

Non-Halal income

12,149,766

9,230,992

For 2012,
Haram Revenue %age = (12,149,766/528,250,703) *100
Haram Revenue %age = 2.3%
For year 2013,
Haram Revenue %age = (9,230,992/512,832,891) *100
Haram Revenue %age = 1.8%

For a fund manager of a company like Al-Taqwa the first and most important thing is
the complete analysis of Al Buhaira national insurance company. The manager has few
questions in his/her mind before purchasing the stock of the company. Is the company
follows all of the mandates of AAOIFI? If the answer is yes then he/she moves for further
components. Other components consist of a brief analysis of the financial assets and equity
of the firm. The portion of debt is also very important for a fund manager and the portion of
debt over total equity. The past Income statements of Al Buhaira national insurance company
showed a profit in last 3 years and it is attractive phenomenon for the investor to buy its
shares. In 2012 the net profit for the year was 17,112,697 and in 2013 it was 10,372,006 and
its earning per share (EPS) in 2012 was 0.07 and in 2013 it was 0.04. The profitability of the
organization in 2013 is less than the previous year but it still shows a positive profit in the
end. The risk factors like Market price risk, Liquidity risk, credit risk and foreign currency
risk of the company is low, well controlled and batter than other institutions. The company
offer250,000,000 number of shares in a year and the amount of these share reflects the
positive attitude of the investors, by analyzing all the above factors the fund manager
defiantly consider Al Buhaira national insurance company a profitable organization and will
defiantly go to buy the shares of Al Buhaira national insurance company.

Task-4
Al-Buhaira National Insurance Company:

The company is listed in the Abu Dhabi securities exchange in 2005.

The company also listed in S&P GCC Sharjah index.

Exchange

Symbol

ID

Stock type

Currency

Abu Dhabi securities

exchange

P.S.C

Al-Buharia
P.S.C

Ordinary

AED

Al Buhaira national insurance company which is known as Al Buhaira is a public listed

company and it is listed in Abu Dhabi securities exchange in 2005. It only operates within
the insurance sector with a multiline insurance. It only has two divisions working across

United Arab Emirates. Al Buharia national insurance company is registered in the Register
of insurance companies of the ministry of economy and commerce registration No.15. The
company was established in 16th of May 1978 and it has four main investors which has a
share of:

Investment group Private limited has the larger share in the company of 27.72%.
Abdullah Al Thani consist a 13.47% portion of the total shares.
Faisal Al Qassemi holds 12.34% shares and
Soha Al Nabolsy holds 8.04% shares of the company.