EFRAG “welcomes” the IASB’s comprehensive project on rate-regulated activities and the publication of DP/2014/2.  EFRAG believes that it is necessary for the IASB to consider how to account for the effects of rate regulation in the IFRS financial statements not least as it will provide users that cover rate-regulated entities information to assess the effects of rate regulation in the financial statements and how rate regulation affects an entity’s rate-regulated activities.

EFRAG supports the IASB's decision to initially examine a generic type of rate regulation called 'defined rate regulation' in order to understand the economic impact of rate regulation on a limited range of activities before moving to the next stage of the project.  However, EFRAG stresses that the DP can only represent a starting point in the project:

As the IASB progresses the project, we believe it will need to consider in which circumstances an entity’s right to recover an agreed amount of revenue and obligations to perform certain rate-regulated activities create enforceable rights and obligations that should be recognised in the IFRS financial statements. The IASB might also need to consider whether it should eventually widen the scope of any potential future accounting guidance, in order to require disclosures of a wider range of schemes, to enable a necessary understanding of the impact of rate regulation in the IFRS financial statements.

EFRAG supports an accounting approach that is principles-based and “which can be applied to different rate regulatory regimes that evolve over time”.  It believes that the revenue approach “has an important role to play in any future accounting guidance” and remain open” to a ‘cost deferral’ approach recommending that the IASB “explore in more detail cases where such an approach might provide relevant information”. 

Regarding disclosure, EFRAG believes that “the disclosures in IFRS 14 Regulatory Deferral Accounts are a good starting point”.  EFRAG supports the separate presentation of regulatory balances in the IFRS financial statements “on the basis that it will enhance the relevance and usefulness of the information about the financial effects of rate regulation” and notes that it is important for the IASB to “consider a balanced approach” with respect to disclosure requirements, ensuring the disclosures are focused on those that are most useful to users of financial statements.

The press release and full comment letter are available on the EFRAG website.