The FRC “supports” the IASB’s work on this project, highlighting that it is a “significant issue” for entities with rate-regulated activities, many of whom consider that it is not possible, at present, to reflect the underlying economic reality of their rate-regulated activities in their IFRS financial statements.

The FRC also indicate that the IASB should not be solely focusing on a generic type of rate regulation called 'defined rate regulation' but “should comprehensively address the accounting for rate-regulated activities”.  The FRC comments:

Instead, we consider that the project should focus on identifying the enforceable rights and obligations in rate-regulatory schemes as it is these rights and obligations that could potentially result in amounts meeting the definition of an asset or a liability. A focus on defined rate regulation may result in some rate-regulatory schemes that do not have enforceable rights and obligations being included in the scope of any potential change in existing IFRS recognition requirements. In other words, the focus on defined rate regulation could potentially result in economically dissimilar schemes being accounted for in the same way.

Of the four possible approaches outlined in the DP that the IASB could consider developing, the FRC indicates that “it is too early to consider what approach should be developed further when the enforceable rights and obligations of rate regulatory schemes have not been identified”.  The FRC comments that only once the enforceable rights and obligations of rate-regulatory schemes have been identified then possible approaches can be developed.

Regarding disclosure, the FRC believes that the disclosures in IFRS 14 Regulatory Deferral Accounts “would be a good starting point”.

The full comment letter can be downloaded below. 

Click for:

• Full comment letter (link to FRC website).
• Our UK Accounting Plus news item on DP/2014/2.
• Our UK Accounting Plus project page on rate-regulated activities.