Cover note (Agenda Paper 9)

At this meeting, the staff updated the IASB on the status of the project and continued redeliberating the proposals in the Exposure Draft (ED) Regulatory Assets and Regulatory Liabilities. For that, the staff prepared a paper on the proposals relating to initial recognition of regulatory assets and liabilities.

The paper included a project update highlighting the areas still in need of redeliberation and in particular the proposals on the minimum interest rate and transition. Additional analysis is also planned on the interaction of the Standard with IFRS 17, responses to the direct relationship concept and the expected effects of the final Standard.

IASB discussion

Some IASB members acknowledged that it would be good to gain efficiencies where possible to speed up the timeline for the project, which would allow preparers to utilise the standard. However, it was also noted that the issues in the paper will take time to resolve and this should be done diligently. They highlighted that the interaction with IFRS 17 may not be a focus given that this does not appear to be a widespread issue.

The staff clarified that there will be a separate Exposure Draft for amending the Subsidiaries without Public Accountability Standard (and the reduced disclosures required for rate-regulated activities) which will not form part of this project.

Timing of initial recognition (Agenda Paper 9A)

This paper set out the staff analysis and recommendations on the proposals relating to initial recognition of regulatory assets and liabilities in the ED.  

The staff analysis considered two topics:

• Timing of initial recognition—The ED proposed that regulatory assets and liabilities would be recognised if they exist at the end of the reporting period. Respondents asked for clarification on whether initial recognition should also occur during the reporting period as this has implications for the application of IAS 21. The paper considers three options for timing of initial recognition including requiring applying the recognition criteria during the reporting period, requiring applying the recognition criteria at the period end or a choice. The staff concluded that applying the recognition criteria at the period end was the recommended approach
• Application of IAS 21—The ED proposed that regulatory assets and liabilities should be treated as monetary items when applying IAS 21. This was on the basis that requiring this treatment simplifies the application of the subsequent measurement requirements in IAS 21 and the staff have recommended that the rationale be added to the final Accounting Standard

Staff recommendation

The staff recommended that the final Accounting Standard:

• Retain the proposal to require recognition of all regulatory assets and all regulatory liabilities existing at the end of the reporting period
• Clarify that initial recognition of a regulatory asset or a regulatory liability occurs at the end of a reporting period
• Retain the proposal to treat any regulatory assets or regulatory liabilities arising from regulated rates denominated in a foreign currency as monetary items when applying IAS 21

IASB discussion

No IASB member expressed concerns on the proposal to retain the requirement to recognise all regulatory assets and all regulatory liabilities existing at the end of the reporting period.

In relation to the proposal to clarify that initial recognition of a regulatory asset or a regulatory liability occurs at the end of a reporting period, a majority of IASB members raised concerns. In particular, there were concerns that some entities may track regulatory assets and liabilities throughout the period and may wish to recognise these during the period, in line with requirements of other standards.

Additionally, several IASB members highlighted that given the difference between recognising assets and liabilities during the period or at the end of the period only affects disclosures, there was no benefit to being prescriptive on how this should be done.

Some IASB members suggested a solution where recognition is required when the event giving rise to a regulatory asset or liability occurs, in line with other standards, but with a practical exception that this could be done at the end of the period if the information was not available. However, the majority of IASB members agreed that this was not necessary, and clarification could result in an overly restrictive Standard.

In relation to the final proposal to treat any regulatory assets or regulatory liabilities arising from regulated rates denominated in a foreign currency as monetary items when applying IAS 21, all of the IASB members who spoke expressed support. One IASB member highlighted that this practical approach of stating whether an item should be treated as monetary or non-monetary had been previously applied in IFRS 17.

IASB decision

All IASB members voted in favour of the first proposal.

Only four IASB members voted in favour of the proposal to provide clarification on when initial recognition occurs.

All IASB members voted in favour of the final proposal.