A proposed new standard, ED/2021/1 Regulatory Assets and Regulatory Liabilities, was published by the International Accounting and Standards Board (IASB) in January 2021.  When issued by the IASB, the new Standard would replace IFRS 14 Regulatory Deferral Accounts.

The study concludes that the IASB's accounting proposals in the ED, as amended by tentative decisions up to December 2023, are not expected to lead to any major macroeconomic effects in the UK.  It concludes that overall, the proposals are expected to lead to some improvement in financial reporting for companies within scope. 

However, it also highlights that in certain circumstances the proposals may not lead to an improvement in UK companies’ financial reporting, due to: the non-recognition of regulatory assets/liabilities in the absence of a direct relationship between an entity’s property, plant and equipment and its regulatory capital base; the treatment of inflation indexation; and the treatment of deferred tax. As a result:  

• generalist investors may not benefit from the intended improvements in accounting for companies undertaking rate regulated activities;
• comparability between companies and jurisdictions may be impaired; and
• any anticipated cost of capital reductions may be smaller than if the proposed accounting fully reflected the underlying economics.

The UKEB notes that the preliminary assessment is subject to change as the IASB deliberates on additional topics in anticipation of a standard being published in 2025.

The final report is available on the UKEB website.