This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

Rate-regulated activities

Date recorded:

Paper 9C: Interim ED: Early feedback from comment letters

The staff began with an update of the numbers from the Paper, noting that by the morning of 18 September, 113 responses from 26 countries have been received on ED Regulatory Deferral Accounts, published in April 2013. The largest number of respondents (49 per cent) are preparers of financial statements and preparer representative bodies. Other respondents are primarily standard-setters (19 per cent) and accounting firms or bodies (13 per cent).

Fifty nine responses support the issue of an interim Standard applicable to first-time adopters only; 30 responses disagree with the issue of an interim Standard and 24 responses disagree with providing an interim Standard only for first time-adopters.

There was high support for the IASB to deal with the broader issue in a timely manner. Some of the supporters of the interim Standard noted that there will be a lack of comparability between those entities who are in the scope and those who are not. However, most of the responses pointed out that comparability will be increased by the Standard as regulatory assets and liabilities can be seen on the face of the balance sheet. Disclosure requirements were well supported.

The support is much higher than for the 2009 ED, where a vast majority disagreed, mainly because the ED had a very narrow scope, being cost of service based regulations.

The Board members discussed the summary of responses especially with regard to the geographical regions where they came from and the types of parties who responded. One Board member pointed out that the request for more flexibility by the respondents could only be fulfilled to a certain extent.

Paper 9A: Rate regulation: User needs

The project manager said that they were looking into the needs of users. They explored, for example, what analysts know about rate-regulated activities and their understanding of rate-regulation. Further points were the features of rate-regulated activities, their distinction from other activities and their presentation in regulatory financial statements. Also, the disclosure requirements in certain jurisdictions were examined.

The project manager explained that the consultative group only helps with the process but makes no decisions. Also, EFRAG has set up a working group who had similar messages to the ones from the consultative group. The input from EFRAG is also heard by the staff.

The project should result in guidance that gives better information about the amount, timing and uncertainty of cash flows.

One board member said that Brazil has already got disclosure requirements for rate-regulated activities and therefore the national standard-setter of Brazil should be consulted.

Several Board members welcomed the widening of the scope compared to the 2009 ED and recognised the users’ needs to know the impact of rate-regulation on cash flows to analyse. However, they raised awareness that the Conceptual Framework might prohibit recognition of regulatory assets or liabilities if they do not fulfil the definition of assets and liabilities. The staff should therefore be cautious to work within the boundaries of IFRSs.

One Board member had great concern with one point in the Paper, being the fact that financial statements in jurisdictions that already have ‘regulatory assets’ and ‘regulatory liabilities’ (USA, Canada) only rarely provide information needed to complete the analysts’ assessments. In his view, this means that the project can go no further as it will not result in useful information. The fact stated in the paper, that the information could instead be found elsewhere, implies that the information is readily available and would therefore be another indication for the abandonment of the project. He therefore strongly recommended exploring in deep detail what information is provided by financial statements in these jurisdictions before going on with the project.

The project manager replied that the information can only be found by highly specialised analysts and is therefore not readily available for common users.

Paper 9B: Rate regulation: Scope issues

The staff pointed out that scoping is crucial for the Standard as this was the problem in the 2009 ED. It is difficult to scope as there are many types of rate-regulation, however, the different schemes show similarities. The main points to the scope are the monopoly status of the supplier, the natural barriers to competition, the source of the rate regulators’ authority and the impact of the rate regulation on the timing of cash flows. It is also important to distinguish between rate regulation and market regulation.

One board member mentioned that this distinction is important and sometimes not easy, for example with capped rates for roaming costs of telecommunication providers or fees for credit card providers.

The project manager said that not all features of rate regulation will be included in the Discussion Paper and that parties will have the chance to add features.

One Board member said that it is vital to make the scope manageable by differentiating features.

It was mentioned by another Board member that IFRIC 12 should also be considered when scoping for the project.

Paper 9B(i): Rate regulation: Sole supplier of essential goods

The project manager said that it is hard to distinguish between essential and non-essential goods or services. For example, is a toll-road essential? Yes, if the alternative is going on dirt roads. No, if there are good roads as an alternative.

One Board member was concerned that the monopoly status will scope out many rate-regulated activities as there is often more than one supplier but still rate regulation applies.

Another Board member said that it should also be examined if social security services should be included.

Paper 9B(ii): Rate regulation: Defining the rate regulator

Several Board members advised the staff that also self-regulation which is sometimes practised by oligopolies should be examined, since there are no legal rights and obligations but maybe constructive rights and obligations. The project manager replied that they are already looking into cooperatives.

One Board member mentioned that there are often cases of part regulation, e.g. rail companies are regulated for their peak-prices but not for their off-peak prices.

It was concluded that the scope needs to be clear as there could be significant diversity in practice if left unclear.

Paper 9B(iii): Rate regulation: The rate-setting mechanism

The project manager said that they examined mechanisms that work ex-ante and mechanisms that work ex-post.

One Board member mentioned that in Italy there is a clearing house for utility companies that charges the utilities provider when the revenue exceeds a certain threshold and gives a credit note to the provider if the revenue is below the threshold. The accounting is fairly easy as there are financial assets or liabilities.

The project manager pointed out that the mechanisms include factors as time periods, volumes, cost, prices and the rate of return. In some jurisdictions the regulatory part needs to be shown on the bill to the customer and also if adjustments will apply in the future.

The Board advised the staff not to go through all mechanisms but to concentrate on the most common.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.