The IASB met on September 20, 2023, to redeliberate the proposals in the Exposure Draft relating to credit and other risks affecting the estimates of future cash flows arising from a regulatory asset or a regulatory liability and to discuss how to use the responses to a survey on the direct (no direct) relationship concept to develop guidance in the prospective Accounting Standard.

The IASB tentatively decided that the prospective Accounting Standard would retain the requirement proposed in the Exposure Draft about the estimated future cash flows arising from a regulatory asset or a regulatory liability; specify that if an entity bears credit risk, the entity estimates uncollectible amounts considering the net cash flows that will arise from the recovery of regulatory assets and the fulfilment of regulatory liabilities; and allocates the estimates of uncollectible amounts to regulatory assets only; provide no additional guidance on how an entity accounts for credit risk if the entity is compensated for this risk; and demand risk; and retain the requirement proposed in the Exposure Draft that an entity’s estimates of future cash flows arising from a regulatory liability do not reflect the entity’s own non-performance risk.

The IASB tentatively decided that the prospective Accounting Standard would include the direct (no direct) relationship concept to help an entity identify differences in timing arising from the regulatory compensation the entity receives on its regulatory capital base; specify that an entity’s ability to trace differences between the regulatory capital base and the property, plant and equipment at an asset level is a strong indicator that they have a direct relationship; specify that, in the case of service concession arrangements, an entity determines whether the regulatory capital base has a direct (no direct) relationship with the intangible asset that arises from the service concession arrangement; and include examples to illustrate how an entity determines the direct (no direct) relationship using specific fact patterns.

Review the IASB Update and podcast on the Board's Web site.