International Financial Reporting Standard 14
Regulatory Deferral Accounts

 

 

IFRS 14 Regulatory Deferral Accounts is issued by the International Accounting Standards Board (IASB).

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INTERNATIONAL FINANCIAL REPORTING STANDARD 14

REGULATORY DEFERRAL ACCOUNTS

 

OBJECTIVE

SCOPE

RECOGNITION, MEASUREMENT, IMPAIRMENT AND DERECOGNITION

PRESENTATION

DISCLOSURE APPENDICES

A Defined terms

B Application Guidance

C Effective date and transition D Amendments to other IFRSs

APPROVAL BY THE BOARD OF IFRS 14 REGULATORY DEFERRAL

ACCOUNTS ISSUED IN JANUARY 2014

BASIS FOR CONCLUSIONS ON IFRS 14 REGULATORY DEFERRAL

ACCOUNTS

DISSENTING OPINIONS

ILLUSTRATIVE EXAMPLES

International Financial Reporting Standard 14 Regulatory Deferral Accounts (IFRS 14) is set out in paragraphs 1-36 and Appendices A-C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time that they appear in the Standard. Definitions of other terms are

given in the Glossary for International Financial Reporting Standards. The Standard

should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

Introduction

IFRS 14 Regulatory Deferral Accounts (this 'Standard'), describes regulatory deferral account balances as amounts of expense or income that would not be recognised as assets or liabilities in accordance with other Standards, but that qualify to be deferred in accordance with this Standard because the amount is included, or is expected to be included, by the rate regulator in establishing the price(s) that an entity can charge to customers for rate-regulated goods or services.

This Standard permits a first-time adopter within its scope to continue to account for regulatory deferral account balances in its first IFRS financial statements in accordance with its previous GAAP when it adopts IFRS. However, IFRS 14 introduces limited changes to some previous GAAP accounting practices for regulatory deferral account balances, which are primarily related to the presentation of these accounts.

The scope of this Standard is limited to first-time adopters that recognised regulatory deferral account balances in their financial statements in accordance with their previous GAAP, as defined in IFRS 1 First-time Adoption of International Financial Reporting Standards (ie the basis of accounting that a first-time adopter used immediately before adopting IFRS). An entity that is within the scope of, and that elects to apply, this Standard in its first IFRS financial statements continues to apply it in the entity's subsequent financial statements.

This Standard is effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted

Reasons for publishing this Standard

The International Accounting Standards Board (IASB) has developed this International Financial Reporting Standard for regulatory deferral accounts because:

the requirements of some national accounting standard-setting bodies permit or require entities that are subject to rate regulation to capitalise and defer expenditures that non-rate-regulated entities would recognise as expenses. Similarly, these rate-regulated entities are permitted or required to defer income that non-rate-regulated entities would recognise in the statement of profit or loss and other comprehensive

income. The resulting regulatory deferral account balances are

presented in a variety of ways. They are often described as 'regulatory assets' and 'regulatory liabilities' but are sometimes incorporated within other line items in the financial statements, such as property, plant and

equipment;

there is currently no Standard in IFRS that specifically addresses the accounting for rate-regulated activities. Consequently, an entity is required to determine its accounting policy for the financial effects of rate regulation in accordance with paragraphs 10-12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The IASB has not seen evidence of significant diversity in practice within jurisdictions that are

applying IFRS because almost all entities have eliminated regulatory deferral account balances when making the transition to IFRS and thus do not recognise them in IFRS financial statements. However, despite this consistency of treatment within IFRS financial statements, there are different views within jurisdictions that have not yet adopted IFRS, and also within some others that have adopted IFRS, on how the effects of rate regulation should be accounted for. This has resulted in several requests to the IASB for guidance, which have asked whether regulatory deferral account balances might meet the definitions of assets and liabilities in the Conceptual Framework for Financial Reporting (the Conceptual

Framework), depending on the terms of the rate regulation;

the lack of specific guidance in IFRS has resulted in various jurisdictions

that have not yet fully adopted IFRS taking different approaches to reporting the effects of rate regulation, which could reduce

comparability and transparency for users of financial statements; and

income and expenses that are subject to rate regulation are significant to entities that are engaged in rate-regulated activities, such as those in the utilities, telecommunications and transport industries. Consequently, the lack of guidance could be a significant barrier to the adoption of IFRS for those entities.

In September 2012, the IASB started a comprehensive Rate-regulated Activities project, starting with a research phase to develop a Discussion Paper.

In December 2012, the IASB decided to add an additional phase to the Rate-regulated Activities project to develop a limited-scope Standard to provide a short-term, interim solution for rate-regulated entities that had not yet adopted IFRS. This Standard is intended to allow entities that are first-time adopters of IFRS, and that currently recognise regulatory deferral accounts in accordance with their previous GAAP, to continue to do so on transition to IFRS. This will allow those entities to avoid making major changes in accounting policy for regulatory deferral accounts on transition to IFRS until the comprehensive project is completed.

However, by publishing this Standard, the IASB is not anticipating the outcome of the comprehensive Rate-regulated Activities project. The term 'regulatory deferral account balances' has been chosen as a neutral descriptor for the items that arise from rate regulation and that are within the scope of this Standard. In this Standard, such balances are not described as 'regulatory assets' or 'regulatory liabilities' because of differing views as to whether they meet the definitions of assets or liabilities in the Conceptual Framework. Consequently, the

IASB's objectives for this Standard are to:

enhance the comparability of financial reporting by reducing barriers to

the adoption of IFRS by entities with rate-regulated activities until guidance is developed through the IASB's comprehensive Rate-regulated

Activities project; and

ensure that users of financial statements will be able to clearly identify

the amounts of regulatory deferral account balances, and movements in those balances, in order to be able to compare the financial statements of

Main features of this Standard

       This Standard:

permits an entity that adopts IFRS to continue to use, in its first and

subsequent IFRS financial statements, its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances without

specifically considering the requirements of paragraph 11 of IAS 8;

requires entities to present regulatory deferral account balances as separate line items in the statement of financial position and to present movements in those account balances as separate line items in the

statement of profit or loss and other comprehensive income; and

requires specific disclosures to identify the nature of, and risks associated with, the rate regulation that has resulted in the recognition of regulatory deferral account balances in accordance with this Standard.

Objective

    The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

      In meeting this objective, the Standard requires:

limited changes to the accounting policies that were applied in accordance with previous generally accepted accounting principles (previous GAAP) for regulatory deferral account balances, which are primarily related to the presentation of these accounts; and disclosures that:

identify and explain the amounts recognised in the entity's

financial statements that arise from rate regulation; and

help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any regulatory deferral account balances that are recognised.

Scope

The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts IFRS, subject to the limited changes referred to in paragraph 2 above.

In addition, this Standard provides some exceptions to, or exemptions from, the requirements of other Standards. All specified requirements for reporting regulatory deferral account balances, and any exceptions to, or exemptions from, the requirements of other Standards that are related to those balances, are contained within this Standard instead of within those other Standards.

An entity is permitted to apply the requirements of this Standard in its first IFRS financial statements if and only if it:

(a)       conducts rate-regulated activities; and

(b)       recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

     An entity shall apply the requirements of this Standard in its financial  statements for subsequent periods if and only if, in its first IFRS financial statements, it recognised regulatory deferral account balances by electing to apply the requirements of this Standard.

This Standard does not address other aspects of accounting by entities that are engaged in rate-regulated activities. By applying the requirements in this Standard, any amounts that are permitted or required to be recognised as assets or liabilities in accordance with other Standards shall not be included within the amounts classified as regulatory deferral account balances.

   An entity that is within the scope of, and that elects to apply, this  Standard shall apply all of its requirements to all regulatory deferral account balances that arise from all of the entity's rate-regulated activities.

 Recognition, measurement, impairment and derecognition  Temporary exemption from paragraph 11 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of IAS 8 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.

Paragraphs 11-12 of IAS 8 specify sources of requirements and guidance that management is required or permitted to consider in developing an accounting policy for an item, if no relevant Standard applies specifically to that item. This Standard exempts an entity from applying paragraph 11 of IAS 8 to its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, entities that recognise regulatory deferral account balances, either as separate items or as part of the carrying value of other assets and liabilities, in accordance with their previous GAAP, are permitted to continue to recognise those balances in accordance with this Standard through the exemption from paragraph 11 of IAS 8, subject to any presentation changes required by paragraphs 18-19 of this Standard.

Continuation of existing accounting policies

On initial application of this Standard, an entity shall continue to apply

its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances, except for any changes permitted by paragraphs 13-15. However, the presentation of such amounts shall comply with the presentation requirements of this Standard, which may require changes to the entity's previous GAAP presentation policies (see paragraphs 18-19).

An entity shall apply the policies established in accordance with paragraph 11 consistently in subsequent periods, except for any changes permitted by paragraphs 13-15.

Changes in accounting policies

An entity shall not change its accounting policies in order to start to

recognise regulatory deferral account balances. An entity may only change its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable1, or more reliable and no less relevant to those needs. An entity shall judge

relevance and reliability using the criteria in paragraph 10 of IAS 8.

This Standard does not exempt entities from applying paragraphs 10 or 14-15 of IAS 8 to changes in accounting policy. To justify changing its accounting policies for regulatory deferral account balances, an entity shall demonstrate that the change brings its financial statements closer to meeting the criteria in paragraph 10 of IAS 8. However, the change does not need to achieve full compliance with those criteria for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.

Paragraphs 13-14 apply both to changes made on initial application of this Standard and to changes made in subsequent reporting periods.

Interaction with other Standards

Any specific exception, exemption or additional requirements related to

the interaction of this Standard with other Standards are contained within this Standard (see paragraphs B7-B28). In the absence of any such exception, exemption or additional requirements, other Standards shall apply to regulatory deferral account balances in the same way as they apply to assets, liabilities, income and expenses that are recognised in accordance with other Standards.

In some situations, another Standard might need to be applied to a regulatory deferral account balance that has been measured in accordance with an entity's accounting policies that are established in accordance with paragraphs 11-12 in order to reflect that balance appropriately in the financial statements. For example, the entity might have rate-regulated activities in a foreign country for which the transactions and regulatory deferral account balances are denominated in a currency that is not the functional currency of the reporting entity. The regulatory deferral account balances and the movements in those balances are translated by applying IAS 21 The Effects of Changes in Foreign Exchange Rates.

Changes in presentation

This Standard introduces presentation requirements, outlined in paragraphs

20-26, for regulatory deferral account balances that are recognised in accordance with paragraphs 11-12. When this Standard is applied, the regulatory deferral account balances are recognised in the statement of financial position in addition to the assets and liabilities that are recognised in accordance with other Standards. These presentation requirements separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards.

In addition to the items that are required to be presented in the statement of financial position and in the statement(s) of profit or loss and other comprehensive income in accordance with IAS 1 Presentation of Financial Statements, an entity applying this Standard shall present all regulatory deferral account balances and the movements in those balances in accordance with paragraphs 20-26.

Classification of regulatory deferral account balances An entity shall present separate line items in the statement of financial position for:

(a)       the total of all regulatory deferral account debit balances; and

(b)       the total of all regulatory deferral account credit balances.

When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify the totals of regulatory deferral account balances as current or non-current. Instead, the separate line items required by paragraph 20 shall be distinguished from the assets and liabilities that are presented in accordance with other Standards by the use of sub-totals, which are drawn before the regulatory deferral account balances are presented.

Classification of movements in regulatory deferral

account balances

An entity shall present, in the other comprehensive income section of the

statement of profit or loss and other comprehensive income, the net movement in all regulatory deferral account balances for the reporting period that relate to items recognised in other comprehensive income. Separate line items shall be used for the net movement related to items

that, in accordance with other Standards:

(a)       will not be reclassified subsequently to profit or loss; and

(b)       will be reclassified subsequently to profit or loss when specific conditions are met.

     An entity shall present a separate line item in the profit or loss section of  the statement of profit or loss and other comprehensive income, or in the

separate statement of profit or loss, for the remaining net movement in all regulatory deferral account balances for the reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the income and expenses that are presented in accordance with other Standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances.

When an entity recognises a deferred tax asset or a deferred tax liability as a result of recognising regulatory deferral account balances, the entity shall present the resulting deferred tax asset (liability) and the related movement in that deferred tax asset (liability) with the related regulatory deferral account balances and movements in those balances, instead of within the total presented in accordance with IAS 12 Income Taxes for deferred tax assets (liabilities) and the tax expense (income) (see paragraphs B9-B12).

When an entity presents a discontinued operation or a disposal group in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations,

the entity shall present any related regulatory deferral account balances and the net movement in those balances, as applicable, with the regulatory deferral account balances and movements in those balances, instead of within the disposal groups or discontinued operations (see paragraphs B19-B22).

When an entity presents earnings per share in accordance with IAS 33 Earnings per Share, the entity shall present additional basic and diluted earnings per share, which are calculated using the earnings amounts required by IAS 33 but excluding the movements in regulatory deferral account balances (see paragraphs B13-B14).

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