The staff outlined the proposed project timetable for the Board. The publication of the exposure draft is currently scheduled to occur in late July 2009. The Board agreed with the project timetable.

The staff the introduced the first issue for discussion which is the measurement and expected cash flows for rate-regulated activities.

The staff detailed the cause and effect relationship between the entity's costs and its rate based revenue stream. The staff noted that the cause and effect relationship between an entity's costs and its rate based revenue stream provides evidence of the existence of an asset in accordance with the definition of an asset as set out in paragraph 49(a) of the Framework. A regulatory asset is a right to recover previously incurred costs through rates over future periods as a result of action by a regulator. Thus, the asset is the right to identifiable cash flows to be received from the customer base. The staff believes that this cause and effect relationship is important to the conclusion that a recognisable asset exists.

The staff then went on to outline issues relating to a discount rate being applied to the cash flows. The staff noted that at the Board meeting in April 2009 the Board agreed with the staff's recommendation that the risk of disallowance of incurred costs should be captured by the probability-weighted average of all possible outcomes. Consequently, this risk would not be one that is considered as part of the risk specific to the asset for which the future cash flow estimates have not been adjusted.

One Board member noted that he had heard scepticism from others as to how these items are assets and liabilities in keeping with the Framework. There needs to be discussion of this in the exposure draft. In particular, concerns had been noted as to what the resource was. Is it a promise by the regulator or the customer? The staff responded by saying that they though the resource was a promise from the regulator to include costs in future rates. So the resource is a right - more specifically, the believed that the resource is the expected future cash flows arising from that right.

Another Board member stated that this was similar to buying an intangible right such as a phone license where the right is to charge customers.

The Board then moved on to discuss what it was they were actually capitalising. One Board member summed up the rather confused discussion by saying that his understanding was that if something is already permitted to be capitalised under other IFRSs then they don't need to identify this separately as a rate-regulated asset. Rate-regulated assets are only relevant for amounts that are not otherwise capitalised. The staff agreed. This was further reiterated by another Board member who noted that they were only dealing with costs that are incurred that would otherwise be charged as an expense. The staff noted that this affects the timing of when these amounts are recognised through income, and amounts are expensed in a different period than would otherwise be the case.

Another board member then asked the staff if regulatory approval is generally performed on each individual item (or cost) or as a package. The staff responded by saying that practically this was normally dome as a package. The staff also noted that companies affected by this type of regulation keep very detailed records as the regulators can request look at individual items.

The same Board member also asked if the rate-regulation was referring to actual or estimated expenses. The staff responded by saying that the only way that these companies can come up with a rate for 2009 in December 2008 is to make estimates of costs. There will always be estimates in the rates, although these estimates will be trued up to actual in subsequent periods.

Another Board member asked if the company needed to wait until approval before an asset could be recognised? The staff responded by saying that this was not the case - it may be that a past track record of approvals would be sufficient. This is why the model they have developed is a probability weighted model.

A further Board member said that a lot of judgement is involved to determine if something is probable in some jurisdictions. The Board then returned to the recommendation of the staff that the discount rate be determined on the same basis as in IAS 36 and IAS 37. The Board agreed.

The Board then moved on to discuss the effect of including amounts permitted by regulation in the cost of self-constructed assets. Allowable costs are usually defined as the actual or estimated costs for which revenue is intended to provide recovery. The staff presented two alternatives to the Board:

• Alternative 1: The new standard permits an entity to recognise assets in accordance with other IFRSs and for specific costs incurred that meet the standard's criteria to be recognised.
• Alternative 2: The new standard permits an entity to recognise assets in accordance with other IFRSs and for identifiable amounts the regulator specifically permits to be included in the determination of rates.

The majority of the Board agreed with Alternative 2. it was noted that this view is also consistent with the existing US GAAP guidance.

The Board then discussed illustrative examples on presentation and disclosure. The staff included recommendations for minimum disclosure in the financial statements, including a recommendation that such information should be presented in a tabular format. The Board agreed with the staff recommendations; however, the staff noted that they would be removing a recommendation to disclose costs being amortised in accordance with the actions of a regulator, but which are not being allowed to earn a return during the recover period as well as the remaining amounts being amortised and the remaining recovery period. The Board agreed that the tabular format should be required unless an alternative presentation method is more appropriate.

The staff will proceed with drafting the exposure draft. In response to a question from the staff, one Board member indicated they were considering dissenting.