Rate-regulated activities - IASB Comprehensive Project
- Second discussion paper consultation
- Isabel Batista, Joachim Jacobs, Ioana Kiss
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.
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.
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.
In September 2019, the IASB completed its discussions on the accounting for regulatory assets and regulatory liabilities. The accounting model covers the following aspects:
- scope and definition of regulatory assets and liabilities;
- recognition and derecognition (including regulatory agreement boundary);
- measurement of regulatory assets and regulatory liabilities;
- interaction with IFRS Standards;
- presentation and disclosures; and
- transition requirements.
Publications open for comments
28/10/2020 - EFRAG seeks views of users of the financial statements of rate-regulated entities by 7 December 2020
The IASB has an active project on the accounting for regulatory assets and regulatory liabilities. The objective is to improve the information that is available to users covering rate-regulated entities. These entities may have incremental rights and obligations arising from their regulatory agreements. The IASB will be issuing an exposure draft in early 2021.
EFRAG is inviting users that undertake the fundamental analysis of rate-regulated entities to participate in an early-stage analysis of the likely impacts of possible changes to IFRS requirements. This will enable a better understanding of users' information needs. Expressions of interest in participating in this outreach are requested by close of business 7 December 2020.
01/04/2015 - Feedback statement on the IASB's Discussion Paper DP/2014/2 Reporting the Financial Effects of Rate Regulation
EFRAG has published a feedback statement following the publication of its final comment letter on Reporting the Financial Effects of Rate Regulation
23/02/2015 - Summary report of EFRAG - EFFAS/ABAF - IASB Joint User Event on Rate-regulated Activities
EFRAG, EFFAS/ABAF and the IASB are pleased to publish a summary report of their fourth user event held on 18 December 2014. The joint user event discussed the IASB Discussion Paper Reporting the Financial Effects of Rate Regulation.
11/02/2015 - EFRAG has published a feedback statement on input received during outreach activities conducted with European users on the IASB's Discussion Paper Reporting the Financial Effects of Rate Regulation
EFRAG has issued a feedback statement that summarises the views expressed by European users during the outreach activities on the IASB's Discussion Paper Reporting the Financial Effects of Rate Regulation.
15/01/2015 - EFRAG's comment letter on the IASB's Discussion Paper Reporting the Financial Effects of Rate Regulation
EFRAG has published its comment letter in response to the IASB's Discussion Paper Reporting the Financial Effects of Rate Regulation.
06/11/2014 - EFRAG - EFFAS/ABAF - IASB User Event: Rate-regulated activities: is there anything missing from the balance sheet?
EFRAG, EFFAS/ABAF and the IASB announce a new joint event for the User Community, taking place on 18 December in Brussels.