IASB proposes ED/2021/1 Regulatory Assets and Regulatory Liabilities

The IASB has today published proposals for a new accounting standard that would require companies subject to rate regulation to give investors better information about their financial performance (further information).

Rate regulation determines the amount a company can charge its customers for goods or services supplied to them and the timing when the company can charge that amount. In some cases, the period when a company supplies goods or services differs from the period when the company can charge customers for those goods or services—and thus differs from the period when the company reports revenue in its income statement.

When those differences in timing occur, the revenue a company reports for a period in its income statement and the assets and liabilities it reports in its balance sheet do not give a complete picture of the amount that the rate regulation entitles the company to charge for goods or services supplied in that period. Currently, there is no specific guidance in IFRSs addressing the accounting for rate-regulated activities and companies apply different accounting models to reflect the effects of rate regulation.

The proposed Standard would introduce a requirement for companies subject to rate regulation to report regulatory assets and regulatory liabilities in their balance sheet, and related regulatory income and regulatory expense in their income statement.

An entity would measure regulatory assets and regulatory liabilities on a modified historical cost basis reflecting updated estimates of future cash flows that will arise from those assets and liabilities.

If finalised as a new IFRS Standard, it would replace IFRS 14 Regulatory Deferral Accounts.

Comments can be submitted to the IASB until 30 June 2021.