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Rate-regulated activities

Date recorded:

The project manager began by saying that in the February 2014 meeting the IASB continued its discussions on rate-regulated activities. She said that during that meeting the description of the distinguishing features of rate regulation was refined and that the Board had also discussed a revenue recognition approach to address the accounting issues around rate-regulated entities. She explained that this approach was different from the previous discussions. Furthermore, the Board had also discussed the current accounting (i.e. no special treatment of rate-regulated assets and liabilities) and the possibility of treating rate-regulated rights and obligations as one intangible asset. In addition the Board had talked about identifying assets and liabilities from the perspective of the Conceptual Framework and the cost-deferral approach that was currently used in US-GAAP and other GAAPs around the world. She summarised that the Board’s discussions on each of those topics had been inconclusive as to which model to take forward.

The project manager said that based on this, agenda paper 9A of the IASB’s February 2014 meeting listed the proposed contents of the forthcoming discussion paper, especially the focus on the distinguishing features of rate regulation. The discussion paper would then continue analysing the advantages and disadvantages of several accounting models. She also said that the discussion paper would acknowledge that some of the distinguishing features might need to be refined when developing an accounting model. She conceded that the discussion paper would not contain a detailed accounting model and that she rather hoped for feedback from constituents. Also, the discussion paper would not contain any preliminary views. She asked the Board whether they agreed that the necessary due process steps had been taken and that the comment period was 150 days instead of 120 days. This would allow enough time to do formal outreach on this topic and would also take into account the holiday season of the Northern hemisphere.

One Board member said he agreed with going forward. However, he said that the staff had said in the agenda papers of the February 2014 meeting that they would bring further papers to the Board. The following IASB Update also said that discussions would continue at future Board meetings. The project manager replied that she probably had the due process paper in mind when saying there would be further papers. She had the feeling in the February 2014 meeting, the Board concluded that further discussions would not bring them any closer to a preferred option. The following ASAF meeting had given the same impression, i.e. there was no clear path through the load of information gathered in the discussions. The Board member then said that with a look to the presentation given by the Senior Director for Technical Activities the day before regarding the research programme, the staff would propose whether to stop a project or to go forward with an exposure draft. He asked whether this would also be a part of the discussion paper. The Director of Implementation Activities replied that, generally, this question would not be part of the discussion paper but would be something the Board was to discuss after receiving feedback on the paper.

Another Board member said that he was concerned that the project would not be at a stage where a discussion paper could be published as it would not be a solid foundation for the next stage (i.e. publication of an exposure draft). He said that it would only be acceptable if it were a mere request for information or if the Board planned to publish a second, and perhaps a third, discussion paper. He felt that the definitions had not been discussed enough, and also the revenue recognition approach had been discussed only once and the staff had said during the discussion that there were many problems that had not been looked at. Furthermore, the staff had mentioned that the discussion paper would focus on a very simplistic case. He was afraid that the feedback would therefore concentrate on scope issues, which would then have to be discussed again. The project manager replied that the lack of certainty with regard to the description of rate regulation had led to the indecisiveness of some Board members. She said that the description should therefore capture as many schemes as possible throughout different industries. She hoped that the feedback on the discussion paper would help understand whether the population would be big enough and that this was vital for the question if the project should be continued on that basis. She also said that the feedback on the discussion paper would confirm whether the Board had the right understanding of the features of rate regulation.

One Board member said that the project should be continued as expeditiously as possible. He said that the Board made precedence with an interim Standard that was not available to jurisdictions that had already adopted IFRSs. Those jurisdictions would be keen on seeing a discussion paper.

Another Board member asked whether he understood correctly that the discussion paper was more about the scope than about possible accounting models. He said that this would be unusual for a discussion paper. The project manager confirmed that, saying that this would fit the new style of a discussion paper which did not necessarily contain a detailed accounting model. However, she said, that a high-level description of the accounting models could be included.

One Board member shared the concerns around the table and said that the discussion paper would try to define scope without knowing the accounting. He said that he could imagine a research paper that describes different kinds of rate regulation but not a discussion paper. He asked whether the discussion paper would contain any preliminary views. The project manager negated that, saying that the only preliminary view was to use the distinguishing features as a starting point. The Board member replied that he could not recall the IASB ever having issued a discussion paper without providing any preliminary views. The project manager said that this was also in line with the new style of discussion paper looking more into the problem than into solutions. However, she agreed that the title of the paper might need to be changed to ‘research paper’.

Another Board member said that if the purpose of the discussion paper was to gather information, the approaches should be described very clearly. She was concerned that general descriptions led to general feedback which would not be helpful. She said, if the purpose of the paper was however to see whether the IASB had the correct understanding of rate regulation, this would be a different case. She also asked that if the paper was only about scope whether 150 days would not be too long for a comment period. The project manager said that the time was needed to perform the outreach activities. The Board member replied that if the comment period was 150 days, the paper should be as comprehensive as possible.

One Board member said that she had thought the narrow scope of the paper was only for illustrative reasons and that input would not be solicited for the scope but more for the issues that arose in the rate-regulated environment. She said that she would be fine if the staff began drafting, however she asked whether it would be helpful if the Board had a look at the draft before balloting. The Chairman asked whether that meant that the Board should have another plenary session on rate regulation. The Board member confirmed that saying that the Board could then decide whether it wanted to go forward with the draft and determine the comment period.

Another Board member suggested continuing with the project as proposed and focussing on the information that users look at and then decide whether those were assets and liabilities. The discussion paper should therefore contain the characteristics and an analysis whether those characteristics constitute assets or liabilities. He said that without that it would not be a discussion paper to him.

The Chairman asked whether the Board members agreed that the staff should prepare a draft and discuss the draft in a future Board meeting. The Board agreed.

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