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Rate-regulated activities

Date recorded:

The Chairman introduced the session by indicating that the Board had a substantive educational session on 18 May 2015. Then the Project manager introduced the agenda paper and said there would be a short session to clarify some of the points raised by the Board during the educational session. She said that the staff recommendation was to retain rate regulation within the research programme and move to a second discussion paper. The project would involve looking at a new standard rather than amending existing standards. She said that the staff had responded to users’ feedback; particularly with some of the definitions of IFRS 15. She said that the approach that would be taken was consistent with IFRS 14 by which entities would apply existing standards and then reflect the overlay of rate regulated agreement in separate line items. She said the approach would have similarities with the USGAAP approach. She said that under USGAAP regulated operations first apply general USGAAP requirements to non- regulated activities and then apply particular requirements to the rate regulated activities; however the staff did not recommend replicating USGAAP. She said that based on the comments received, the staff would develop its own model around the rights and obligations created by the rate regulated agreement. She said that discussions had also covered the relationship between a) an entity and its customer which was already dealt with in existing revenue standards; b)the regulator and the entity and c)customers and the regulator. She said that the last two relationships were reflected in the rate regulated agreement and were those on which it would focus. She then opened the discussion to the Board.

There was general support for the staff recommendation although there were some concerns raised during the discussion.

One Board member said that he was concern about giving a message that IFRS 14 was not a temporary standard. He recalled having discussions about due process when IFRS 14 was developed and the main message delivered was that IFRS 14 was a temporary standard which would be replaced. He said that he was not sure whether it was possible to move to a discussion paper under a standard project instead of maintaining a research project. The Project manager clarified that it would be necessary to have a discussion paper to discuss the accounting model, as there were still users trying to apply IFRS 15 to the regulatory overlay; the message should be that the Board would expect the result of this project to be a new standard.  Both the Senior Director of technical activities and the Chairman agreed that there was a need to have a clear message that it was moving towards a new standard.

Another Board member pointed out that IFRS 14 needed to be replaced as quickly as possible, he said that there was strong support for replacing IFRS 14. He also said that a second DP was necessary because of the need to explore an accounting model.

One Board member was concern about the proposal because in China the project was not being well received. He said that China was one of the most regulated countries and there were a lot of complexities given by different levels of regulations at national, state and county level, all those regulations created rights and obligations. Many regulatory decisions derived from political pressures and regulators did not take into consideration the accounting implications. He said that it would be difficult to identify separate identifiable items that could be measured and presented. On the other hand, another Board member from Brazil said that in his jurisdiction there was lot of support for the project including support from regulators.

Some Board members also pointed out the fact that it was moving to a separate standard which would incorporate some features of IFRS 15 but that would not mean it was an interpretation of that standard.

The Chairman concluded there was strong support on proceeding with a Discussion Paper as a part of a standard setting project.

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