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Rate-regulated activities - IASB Comprehensive Project

Description

What is the problem with rate-regulated activities?

Existing IFRS Standards do not provide guidance on the recognition and measurement of regulatory assets and regulatory liabilities. In most instances, companies do not  recognise regulatory rights and obligations arising from rate-regulated activities. Over the years, stakeholders have argued that this makes the statement of financial performance and the balance sheet of rate-regulated companies incomplete, and distorts the performance of entities subject to rate regulation.

 

Project history

In March 2009, the IASB published an Exposure Draft to address the accounting for rate-regulated activities and whether IFRS Standards should require entities operating in rate-regulated environments to recognise assets and liabilities arising from the effects of rate regulation. Some national GAAP (like US GAAP) provide specific guidance on this matter, but there is no equivalent guidance in IFRS.

whether IFRSs should require entities operating in rate-regulated environments to recognise assets and liabilities arising from the effects of rate regulation. Some national GAAP provides specific guidance on this matter, but there is no equivalent guidance in IFRSs.
The issue to be addressed by this project is whether IFRSs should require entities operating in rate-regulated environments to recognise assets and liabilities arising from the effects of rate regulation. Some national GAAP provides specific guidance on this matter, but there is no equivalent guidance in IFRSs.
The issue to be addressed by this project is whether IFRSs should require entities operating in rate-regulated environments to recognise assets and liabilities arising from the effects of rate regulation. Some national GAAP provides specific guidance on this matter, but there is no equivalent guidance in IFRSs.

Feedback from the IASB 2009 consultation identified a number of key concerns with the proposals. In 2010 the IASB decided to suspend the project. The IASB reactivated this project as part of its response to the Agenda Consultation 2011.

In reactivating this project, the IASB indicated that it would consider an interim standard for entities adopting IFRS that would allow entities adopting IFRS to continue to use their local GAAP requirements for rate-regulated activities until the comprehensive project is completed. IFRS 14 Regulatory Deferral Accounts was published in January 2014 and is effective from 1 January 2016.

In March 2013, the IASB launched a Request for Information to obtain a high-level overview of the types of rate regulation regimes across different jurisdictions.  

EFRAG responded the the IASB's request and reported the results of the outcome conducted with stakeholders.

IASB Discussion Paper 2014

 

​The IASB published a Discussion Paper on 17 September 2014 and requested for comments by 15 January 2015. the Discussion Paper  explored whether rate regulation has distinguishing features that create rights and obligations.

On 27 October 2014, EFRAG published its draft comment letter and welcomed the IASB's comprehensive project on rate-regulated activities.

EFRAG published its final comment letter in January 2015 and considered that the DP represented a good starting point for the project. EFRAG also supported the IASB's decision to initially focus the debate on accounting for rate-regulated activities on a particular type of rate regulation referred to as defined rate regulation. 

In February 2015, EFRAG published a feedback statement and a summary report that summarised the feedback received during the outreach activities it held with European users on rate regulation. On 2 April 2015, EFRAG published a feedback statement following the publication of its final comment letter on the IASB's DP. 

During the course of  2016, 2017 and 2018 and 2019 the IASB discussed several aspects of the project and developed its preliminary views on the accounting for regulatory assets and regulatory liabilities.

Scope of the accounting model (the model)

The  model focuses on the accounting for activities that are subject to  ‘defined rate regulation’.

Defined rate regulation is established through a formal regulatory framework that is binding on both the entity and the regulator and establishes a basis for setting the rate to be charged to the entity’s customers for goods or services that give rise to enforceable rights and obligations. It is therefore necessary that a tripartite relationship exists (regulator, entity and customer) for an activity to be within the scope of the model. 

​​The model is a ‘supplementary approach’, which means it will supplement the requirements of existing IFRS Standards. 

​Recent developments

 

In September 2019, the IASB completed its discussions on the accounting for regulatory assets and regulatory liabilities. The accounting model covers the following aspects:

  1. scope and definition of regulatory assets and liabilities;  
  2. ​recognition and derecognition (including regulatory agreement boundary); 
  3. measurement of regulatory assets and regulatory liabilities;
  4. interaction with IFRS Standards;  
  5. presentation and disclosures; and 
  6. transition requirements. ​ 
The EFRAG Rate-regulated Working Group discussed the accounting model at its meeting in October 2019.  EFRAG TEG received an update on the IASB developments at its meeting in January 2019. At its meeting in November 2019, EFRAG TEG started preliminary discussions on the accounting model.  EFRAG TEG will continue to discuss remaining aspects of the model at its meeting in January 2020.
 
The IASB  expects to publish an exposure draft in the second quarter of 2020. The comment period is expected to be 120 days.  ​
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