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EFRAG final comment letter on the IASB's proposed new standard on rate-regulated activities

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

10 Sep 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter in response to the International Accounting Standard Board’s (IASB's) Exposure Draft 'ED/2021/1 Regulatory Assets and Regulatory Liabilities' ("the ED").

The proposed new standard is intended to replace IFRS 14 Regulatory Deferral Accounts.

EFRAG supports the overall objective of the ED but has identified a number of concerns with the proposals which it suggests that the IASB should address before finalising the proposed Standard:

  • ​​Whilst EFRAG considers that there is clarity on the scope of the proposed standard within the utilities sector, it considers that there is less clarity for other sectors.  EFRAG highlights that there is a need for further clarification on entities' scope eligibility and recommends that the IASB consider specific scope exclusions.
  • EFRAG notes some instances where the recognised regulatory assets and regulatory liabilities might not meet the definitions provided in the ED.
  • EFRAG disagrees with paragraph B15 of the ED and recommends that the accounting regulatory returns earned on assets not yet available for use should depend on the economic substance of the regulatory agreement. 
  • EFRAG is aware of situations where the proposed requirements on total allowed compensation under paragraphs B3-B9 related to allowable expenses will not reflect the economic substance of the regulatory agreement and recommends that the IASB further analyses whether the requirements in those paragraphs can be applied across diverse regulatory regimes.
  • EFRAG generally supports the proposed recognition criteria but highlights concerns of its stakeholders regarding high levels of uncertainty and indicates that such stakeholders recommend that the IASB considers a higher recognition threshold for cases of high existence uncertainty.
  • EFRAG supports the proposed cash-flow measurement technique, but disagrees with the proposed new concept of a minimum adequate rate as the discount rate for regulatory assets, when the regulatory interest rate provided is insufficient. EFRAG also disagrees with having different discounting approaches for regulatory assets and regulatory liabilities.
  • ​Whilst EFRAG generally agrees with proposed overall disclosure objective and the proposals for presenting regulatory income and regulatory expense, it recommends that the IASB focus more on the usefulness of the information provided and adopt a more balanced disclosure approach.
  • EFRAG recommends modified retrospective application with exemptions or practical expedients for assets with long useful lives and where backdated CWIP regulatory returns will need to be deferred (should the IASB decide to retain ​this proposal).
  • EFRAG recommends that the effective date should be 24-36 months after the publication of the final standard to allow effective implementation.
  • ​EFRAG recommends the formation of a transition resource group to help with the  implementation of the proposed Standard.

The press release and the final comment letter are available at the EFRAG website.

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