Outlining banks' newly updated accounting rules, the head of Monetary and Banking Research Institute of the Central Bank of Iran gave assurances that the new financial statements will steer the banking system toward transparency and move the banking system away from usury.
According to Ali Divandari, the new procedures according to which banks' financial statements will be released, was devised by the CBI and approved by the MBRI back in January and banks are obliged to abide by it.
Comparing the old and the new procedures, Divandari explained that since the financial statements of banks had been developed in line "with usury-free banking, they were unique to Iran and use technical and Islamic finance terms that do not exist in international banking."
The old financial statements were a "hodgepodge of usury-free banking and professional accounting principles that had no resemblance to the statements issued by international banks and were impossible to analyze", he told journalists on Saturday as reported by IRNA.
That is why the new statements have been created according to international standards and specifically International Financial Reporting Standards (IFRS).
However, the official admitted that the new format "does not match IFRS standards precisely, but it could be trusted with as far as banks financial statements are concerned. "But to use it in other areas like tax accounting, more time is required to expand the system."
Opacity No More
According to Divandari, one of the advantages of the new format is that bank CEOs and board members' salaries and benefits will no longer be shrouded in mystery and controversy, as it has been in the recent weeks.
"As per a CBI decree, banks must publish their financial statements based on the new format and also list the salaries of executives and board members," he said. That being said, disclosing salaries should "not be limited to the government or the private sector since all public institutions such as banks need to operate with sufficient clarity and transparency."
Unclear and faulty financial statements have given rise to suspicions that the banking system is plagued by usury, says Divandari.
"How is it that deposit returns are always paid as predicted, while banks normally face both losses and gains?" he asked referring to Islamic banking rules that call for financial partnerships to be subject to both profit and loss.
Branding the CBI's efforts regarding the new financial statements "brave", the MBRI head noted that experts at the international level believe this to be a step toward transparency, adding that some had criticized the new statements because they would entail more work and effort.
"But the CBI is holding its ground concerning the application of new financial statements from the current fiscal year that started in March."
Some had also opposed the new development saying that foreign banks will be scared away once they notice the real extent of risk that working with Iranian banks would entail, he said. "But the CBI believes that even with foggy reports, the international community will not downplay the risks because global standards have grown exponentially in the past decade."
