The proposed interim standard is only applicable upon the initial adoption of IFRSs and therefore must be applied at the same time as an entity applies IFRS 1 First Time Adoption of International Financial Reporting Standards. The proposed interim standard cannot be applied by entities that have previously adopted IFRSs and entities applying this interim standard, if approved, must meet specified eligibility criteria. Specifically, there must be an authorised body (i.e. the rate regulator) that restricts the price that the entity can charge its customers for the goods or services that the entity provides and the price established by regulation is designed to recover the entity’s allowable costs of providing the regulated goods or services.

Core principles of the proposed interim standard

The proposed interim standard:

1. permits (but does not require) an entity that adopts IFRS to continue to use its previous GAAP accounting policies as accepted in their local jurisdiction for the recognition, measurement and impairment of regulatory deferral account balances;
2. requires entities to present regulatory deferral account balances as separate line items in the statement of financial position and to present movements in those account balances as a separate line item in the statement of profit of loss and other comprehensive income; and
3. requires specific disclosures to identify clearly the nature of, and risks associated with, the rate regulation that has resulted in the recognition of regulatory deferral account balances.

Key features addressed in the proposed interim standard

Terminology

• The draft interim standard replaces the commonly used phrases “regulatory assets” and “regulatory liabilities” with the terms “regulatory deferral account debit balances” and “regulatory deferral account credit balances” respectively. The longer term rate-regulated activities project is intended to address the issue of whether regulatory balances meet the conceptual definition of assets and liabilities and therefore the draft interim standard refers to the balances as “debit balances” or “credit balances” in the absence of a clear conclusion on whether these balances are assets and liabilities under IFRSs.

Application of other standards

• The draft standard requires that all other IFRS be applied first such that each asset and liability recognised in the statement of financial position, such as property, plant and equipment, income taxes, and employee benefits, comply with the requirements of the other IFRS standards. The regulatory deferral accounts represent incremental amounts that are recognised over and above the assets and liabilities recognised under the other standards.
• The proposed interim standard includes some specific guidance on how other standards such as IAS 12 Income Taxes, IAS 36 Impairment of Assets and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should be applied to regulatory deferral balances.

Presentation

• An entity will be required to present a sub-total representing total assets (and/or liabilities) before regulatory balances and then present regulatory deferral account debit (and/or credit) balances followed by total assets (and/or liabilities).  In summary, the statement of financial position will present assets in the following manner, with similar presentation requirements for liabilities.

   

  Current assets	xxx
  Long term assets	xxx
  Total assets before regulatory deferral debit balances:	xxx
  Regulatory deferral debit balances	xxx
  Total assets	xxx

• Similarly, the presentation requirements for the statement of profit or loss also requires separate presentation of the movements in the regulatory deferral accounts. Therefore, the statement of profit or loss would have to present a sub-total of profit or loss prior to the presentation of a balance representing the net movement in all regulatory deferral accounts.
• An additional measure of earnings per share, both basic and fully diluted, excluding the net movement on regulatory deferral balances must also be presented in addition to the basic and fully diluted earnings per share measurement otherwise required by IAS 33 Earnings per Share. Both measures (including and excluding the movement in regulatory deferral balances) must be shown with equal prominence.

Disclosure

• The proposed interim standard includes specific disclosure requirements to enable users to evaluate the nature of, and the risks associated with, the specific rate regulation regime and the effects of that rate regulation on an entity's financial position, financial performance and cash flows. These disclosures include:
  • specific reconciliations of the carrying amount at the beginning and end of the period for each category of regulatory deferral account that is individually material (and others in aggregate);
  • the rate of return or discount rate allowed by the regulator to reflect the time value of money that is applicable to each regulatory deferral balance; and,
  • the remaining periods over which the entity expects to recover or amortise the carrying amount of each regulatory deferral account debit balance or reverse each regulatory deferral account credit balance.

Other matters

• The proposed interim standard provides guidance on changes in accounting policies for the recognition and measurement of regulatory deferral balances for those entities that were eligible to apply the guidance in this draft interim standard upon the adoption of IFRS and chose to do so.
• The ED identifies consequential amendments to IFRS 1.

Further information

The comment period for the ED ends on 4 September 2013.

Please click for:

• IASB press release
• Access to the exposure draft on the IASB website
• An IASB Snapshot summarising the proposals of the ED
• Our IAS Plus project page on rate-regulated activities interim standard project
• Our IAS Plus project page on rate-regulated activities comprehensive project

The IASB decided with a majority of ten to six votes (official notification outstanding) to follow the model suggested by EFRAG in its letter dated 22 March 2013 (an option of either following the current hedge accounting requirements until the project on macro hedge accounting has been completed or of applying IFRS 9). Furthermore, the IASB decided (12 – 4) that a re-exposure will not be necessary.

More detailed information will be available soon in the IAS Plus meeting notes covering the current meeting.

The sessions affected are:

Friday, 26 April 2013

IASB meeting (09:00-11:30)

• Post-implementation review of IFRS 8 Operating Segments
• IAS 37/IFRIC 6 — Levies charged for participation in a market on a specified date
  • Interpretation
• IFRS Interpretations Committee update
• Annual improvements - 2010-2012 cycle and 2012-2014 cycle
• Update on investor outreach (verbal update)

Issued in July 2012, the DP proposed ways to improve the quality of information in the notes to the financial statements and to reduce immaterial disclosures. After the consultation period, which ended 31 December 2012, the EFRAG, ANC, and FRC reviewed and summarised comments received from respondents, various outreach meeting, and webcasts. The summary notes the following:

• Support for the proposal that a more consistent and rational approach to disclosures should be developed and that it should be developed cooperatively with standard setters, regulators, and auditors.
• Additional discussions may be needed about whether disclosure problems are conceptual or related to application.
• General support for the DP's key principles.
• An absence of clear consensus on users’ needs and indicators to help standard setters assess what disclosure requirements are appropriate; however, there was support for simplifying the requirements.
• Many believed that guidance on the application of materiality could be helpful and that changes to behaviours are necessary.
• Agreement that focusing on communication principles rather than compliance would improve disclosure.

Please click for:

• EFRAG press release
• Feedback Statement on Discussion Paper Towards a Disclosure Framework for the Notes on the EFRAG website.

The comment letter notes that the proposal "places additional emphasis on the definition of a business", and the support for further guidance on this concept is consistent with our earlier views on Exposure Draft ED/2012/6 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.

The IFRS Interpretations Committee is expected to discuss the definition of a 'business' at its forthcoming meeting on 14-15 May 2013.  Whilst an agenda for the meeting is yet to be published, the Committee has published two agenda papers on the issue that are expected to be considered at the meeting (links to the IASB website):

• The first paper provides an overview of the outreach activities undertaken by staff to identify challenges in distinguishing business combinations from asset acquisitions to help in identifying matters for which the IASB might be seeking feedback in any forthcoming Request for Information arising from the post-implementation review of IFRS 3, and asks for the Committee's feedback on whether this experience and information should be contributed to the project
• The second paper provides a detailed analysis of the outreach activities, including liaison with the Financial Accounting Standards Board (FASB) and Financial Accounting Foundation (FAF) (which is undertaking its own post-implementation review on its equivalent business combination requirements in FAS Statement 141R), and feedback received from interested parties across a number of industries including investment property, extractive industries, pharmaceuticals, banking, shipping and solar and wind farms.  It also includes a summary of various issues which could be brought to the attention of the IASB.

Click for access to the full comment letter.

The summary of the meeting includes the following reports:

Report of the Trustees’ Executive session

• First meeting of the newly-formed Accounting Standards Advisory Forum (ASAF)
  The Trustees were encouraged that the meeting had gone well, with a high quality level of debate.
• Funding of the IFRS Foundation
  The Trustees discussed various different approaches to putting in place a more longer-term funding arrangement.
• Recent developments in both the United States and Japan
  The Trustees noted the need to ensure that the question regarding a decision on domestic use in the US remains as an item on the SEC’s work programme. Developments in Japan seemed to indicate to the Trustees a speeding up in a positive way of the Japanese consideration of the adoption of IFRSs.
• Nominations
  The Trustees agreed to extend for a period of 9 months (with an option to extend to up to one year) the term of Tsuguoki (Aki) Fujinuma as Vice-Chairman of the Trustees.
• Education and content services
  The Trustees reviewed progress toward the development of an eIFRS 'app', subject to successful user testing.
• Constitution review
  Staff will begin preparations to complete the next review of the Constitution by 2015.
• Research programme
  The Trustees discussed plans to develop a research capability.

Meeting with the Monitoring Board

• Report of the Chairman of the IASB
  Hans Hoogervorst, Chairman of the IASB, provided the Trustees and the Monitoring Board with an update on the IASB’s activities including international engagement, progress on the four major outstanding convergence projects, and work on the conceptual framework project.
• Report of the Chairman of the Due Process Oversight Committee
  Scott Evans, Chairman of the Due Process Oversight Committee (DPOC) reported on the recent activities of the DPOC. Major projects are the revision of the Due Process Handbook including the development of a Due Process Protocol.
• Regional outreach activity
  As part of the Trustees’ meeting, the IFRS Foundation hosted a joint event with the Institute of Chartered Accountants in England and Wales (ICAEW) at which the Trustees and the leadership of the IASB met with representatives of key stakeholders to discuss issues under the theme The relationship between financial reporting and long-term investing.

The full summary of conclusion of the IFRS Foundation Trustees' meeting is available on the IASB website.

Topics discussed during the DPOC meeting were:

1. Update on technical activities — Updates were given on the progress of the major projects on the IASB’s work plan. Regarding insurance contracts, the DPOC affirmed its view that the IASB had met all the required due process steps for its upcoming exposure draft to be issued in the first half of 2013. Other major projects discussed were impairments, classification and measurement, leases and revenue recognition.

   In addition, the DPOC received updates on newer projects to the agenda, in particular, the conceptual framework project which the Accounting Standards Advisory Forum discussed during its 8-9 April 2013 meeting and will serve as the consultative group. Other newer projects to the agenda discussed were rate-regulated activities, bearer plants, and the research programme.

2. Due process ‘lifecycle’ review of upcoming hedge accounting guidance — a summary was given of the due process steps taken since 2008 on the hedge accounting project. The DPOC noted that it was satisfied with due process steps the IASB has completed, but will need to consider the decision made during the IASB’s April 2013 meeting before the IASB can proceed with the Ballot Draft of a new IFRS 9.
3. Progress on post-implementation review (PIR) of IFRS 8 — the DPOC reviewed the draft agenda papers on PIR that are to be used during discussions at the IASB April 2013 meeting. Topics reviewed were (1) sources of input to the IFRS 8 PIR, due process and next steps, (2) messages received and feedback summary, and (3) lessons learned about the PIR process.
4. Update on consultative groups — the DPOC reviewed (1) the IASB’s proposed composition of a new rate-regulated activities consultative group and (2) proposed change in membership to the financial instruments consultative group. The DPOC also agreed on a proposal to have a DPOC member observe (in person) a meeting of the major groups once a year and submit a report back to the Committee on the attendance and quality.
5. Update on operations
6. Review of correspondence — No new correspondence cases were submitted since the Committee’s previous meeting in January 2013.
7. Any other business

The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB website.

The third issue of the newsletter summarises and comments on the tentative decisions reached at the March 2013 IASB meeting regarding the content of the forthcoming Discussion Paper. In addition, the newsletter summarises some initial views expressed by National Standard Setters in the EFRAG CFSS meeting of 3 April 2013, which was devoted to the preparation of the first meeting of the IFRS Accounting Standards Advisory Forum (ASAF) where the conceptual framework was the dominating topic.

Conceptual framework topics discussed in this issue of the newsletter are:

• the scope of the project,
• definition and recognition of elements,
• measurement,
• development and content of the Discussion Papern and
• debt/equity.

The joint European strategy on the conceptual framework includes issuing specific newsletters as new developments become available issuing bulletin reports on specific issues during the course of the project in an effort to stimulate debate that may be used in discussions with the IASB.

The new issue of the newsletter is available on the EFRAG website.

Issued July 2010, the exposure draft on insurance contracts provides guidance on a comprehensive framework, removes issues with existing practices (IFRS 4), and provides comparability across various markets.

The ‘reporting back’ documents cover the following proposals:

• Contracts with cash flows that vary with the returns on underlying items (including ‘participating’, ‘universal life’, ‘with profits’ and ‘unit-linked’ contracts)
• Accounting for reinsurance contracts

The ‘reporting back’ documents, along with other resources related to the exposure draft, are available on the IASB website.

In addition, click to view our:

• Insurance contract project page.
• Insurance webcasts.