Comparing the value-relevance of AAOIFI versus IFRS accounting numbers in the Takaful industry

Purpose: This study compares the value relevance of accounting numbers prepared under the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards with those produced under the International Financial Reporting Standards (IFRS) for Takaful companies.

Design: We assess the value-relevance of accounting numbers using the Easton and Harris (1991) and Ohlson (1995) return and price models. We use 54 insurance companies from ten developing countries in Asia and the Middle East from 2006 to 2015.

Findings: Our analysis shows that book value is significantly related to stock price under AAOIFI and IFRS. It also shows that Takaful companies adopting AAOIFI accounting standards have a more significant effect on stock price. This suggests that AAOIFI standards are more value-relevant than IFRS.

Practical implications: Takaful companies and their stakeholders can use our findings to determine which accounting standards (IFRS or AAOIFI) produces the more relevant accounting information. This study is useful for investors that consider Islamic ethical practices to make their investment decisions for the standards-setting bodies that focus on establishing accounting standards for the Takaful industry.

Originality: We investigate a new aspect of the topic of value relevance. To the best of our knowledge, we believe this is the first paper examining the value relevance of Takaful companies' accounting information prepared under AAOIFI and IFRS.