At the February 2010 Board meeting, the Board requested the staff to perform additional research and analysis on the key issue of the recognition of regulatory assets and liabilities. The staff presented the Board with a detailed analysis of the various regulatory environments, an analysis of the scope, a comparison of the rate-regulated activities project to current IFRSs as well as to current IASB projects and a summary of the outreach efforts.

The staff reported back that the results of the additional research and analysis did not provide a clear direction for the project. That is, that all aspects of the staff's efforts resulted in some information that is supportive and some information that is not supportive of the recognition of regulatory assets and liabilities.

The Board was presented with two alternatives with regards to the future direction of the project:

• View 1 - recognition of regulatory assets and liabilities on a 'cost-plus aggregate contract' approach where the time delay required by regulations between incurring the unanticipated costs of the current period goods and services sold (not already included in current period rates) and invoicing the aggregate customers in a future period for this unanticipated variance is reflected as a regulatory asset or liability as at the current period end.
• View 2 - Disclosure only of the impact of regulations on the entity (i.e. no recognition of regulatory assets and liabilities).

Before opening the floor for the deliberation of the presented alternatives, the Chairman noted that key question the Board needs to consider is whether these regulatory activities give rise to assets that meet the definition of an asset as set out in the Framework.

There appeared to be significant confusion amongst the Board members as what the asset would be. A Board member wanted to know whether these 'regulatory assets' would be separately identifiable assets when acquired in a business combination or if they would just be included in goodwill. The staff responded that in North-America, these are likely to be recognised as separate assets, whereas in Europe they are generally included as part of the licence.

A Board member asked what constitutes 'the resource controlled by the entity'. The staff explained that any variance that exists between the beginning of period expected costs and the actual costs incurred in providing the goods or services that have already been delivered, is deemed an 'unbilled receivable'. Another Board member enquired if that would imply that a utility entity that has a recognised regulatory asset, controls the individual customers? The staff responded that although the 'unbilled receivable' technically is an intangible asset, the realisation of the economic benefits is more akin to a financial asset.

One Board member asked why there was an apparent inconsistency between the proposed recognition of regulatory assets and the recognition of the right to charge customers as described in IFRIC 12. Another Board member noted that in some circumstances it may also be possible to analogise the Regulator to an insurer/guarantor and that there is also an inconsistency with that treatment.

In general, the Board members were split between those believing that regulatory assets and liabilities should be recognised and those that don't believe the definitions in the Framework are met. Several Board members felt that the Board has not looked at the elements of a regulatory 'asset' close enough to conclude that an asset meeting the definition in the Framework exists.

The Board had an extended discussion on whether the definition of asset in the Framework is met, only briefly considering whether the definition of a liability would be met. A Board member expressed his surprise with the number of Board members focussing solely on the definitions in the Framework, whereas the Board has decided to recognise various other 'items' as assets or liabilities although the definitions were not clearly met, such as options and participation features.

One Board member summarised the position by concluding that there appears to be general agreement that there are assets that exist through the regulatory system. However, the key question to consider is whether these assets are recognised or not. It was suggested that by analogy to other intangible assets, it could be decided that unless these regulatory assets were acquired directly or through a business combination, they are not recognised.

Other Board members supported this on the basis that if it is decided that regulatory assets should be recognised, it will be very difficult to define the scope as there are other similar situations where entities are governed by regulation where these principles could equally apply. A Board member acknowledged that on the whole, it appears that the definition of an asset could be met, but questioned whether the recognition thereof would provide any decision-useful information for the general users of the financial statements.

One Board member noted that the Regulator in Brazil has issued a statement indicating that it will not influence any accounting decisions relating to the transitioning to IFRS, but that they will maintain and require information for regulatory purposes separately.

Some Board members were of the opinion that the conceptual framework question is being brought into a industry-specific question and that accounting principles should not be forced purely because there are principles under IFRSs that do not fit well with the current practice of a specific jurisdiction.

The Chairman noted that it seems unlikely for the Board to reach a decision that would allow solution to be found in time for the adoption of IFRSs by Canada. He provided the Board with three options to consider with regards to the matter:

• The Board does nothing and leave it put to the Canadian adopters to apply the principles in the Framework. This may result in a precedent being created that cannot be stopped once it has started and will open the door for many such situations by future adopters of IFRSs;
• Develop a short-term Standard to resolve the matter, similar to IFRS 6. It was acknowledged that this will not be a quick solution either;
• Formulate a 'quick-fix' solution for the short-term to assist Canada and Brazil in the transition to IFRSs.

The Chairman instructed the staff to contact the Canadian standard setter to determine what alternatives they may have as a solution.

The matter will be discussed during at a later session once the staff had time to liaise with the Canadian standard setter. The Board also asked the staff to prepare a paper that rationalise the approach adopted for service concessions in relation to regulatory activities.