Cover note (Agenda Paper 9)

At this meeting, the IASB continued redeliberating the proposals in Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities relating to total allowed compensation.

Proposed definition of allowable expense and benchmark expenses (Agenda Paper 9A)

This paper set out staff analysis and recommendations about the proposals for allowable expense in the ED.

In particular, this paper focused on the proposed definition of allowable expense and on benchmark expenses.

Staff recommendation

The staff recommended that the final Accounting Standard:

• Retains the definition of allowable expense proposed in the ED
• Clarifies that a regulatory agreement may determine the amount that compensates for an allowable expense using the same or a different basis from the basis an entity uses for measuring the allowable expense in accordance with IFRS Accounting Standards
• Clarifies the treatment of allowable expenses based on benchmarks and includes examples to help entities identify differences in timing in those cases

IASB discussion

The main discussion focused on whether to retain the definition of allowable expense. Most IASB members favoured this approach, while one IASB member said that if the definition is causing confusion, he would prefer it is changed rather than publishing application guidance to explain the definition. The Chair and another IASB member understood the concern but said it would be very difficult to draft a definition that would remove all confusion. Such a definition would be complex and lengthy and the approach to clarify in the application guidance was therefore the better approach. The IASB member with a preference to change the definition said that he would accept a complex and lengthy definition as it was a complex topic. The staff reassured the IASB that it had not been many respondents to the ED who expressed concerns about the definition.

IASB decision

All IASB members voted in favour of the staff recommendation.

Regulatory assets and regulatory liabilities arising from differences between the regulatory recovery period and the assets’ useful lives (Agenda Paper 9B)

This paper set out staff analysis and recommendations on the proposals for accounting for regulatory assets and regulatory liabilities arising from differences between the regulatory recovery period and the assets’ useful lives in the ED.

Staff recommendation

The staff recommended the final Accounting Standard:

• Retains the proposals in the ED for entities to account for regulatory assets or regulatory liabilities arising from differences between the regulatory recovery period and assets’ useful lives when there is a direct relationship between an entity’s regulatory capital base and its property, plant and equipment
• Provides guidance to help entities determine when there is no direct relationship between their regulatory capital base and their property, plant and equipment
• Requires entities that have concluded that there is no direct relationship between their regulatory capital base and their property, plant and equipment to provide disclosures to enable users of financial statements to understand the reasons for their conclusion

IASB discussion

IASB members generally agreed with the staff recommendation. There was consensus that the Standard would not be operational without the additional guidance. It is crucial for an entity to determine whether there is a direct relationship between its regulatory capital base and its property, plant and equipment. IASB members said that application guidance as to how to make that determination is required. It should be clear that the determination is based on facts and circumstances and is not an accounting policy choice. One IASB member said drafting the application as openly as possible would be key as there should be room for judgement.

IASB decision

All IASB member supported the staff recommendation.

Consultative Group for Rate Regulation meeting (Agenda Paper 9C)

This paper included the summary notes and the material prepared for the Consultative Group for Rate Regulation (CGRR) meeting held on 28 March 2022. At that meeting the CGRR discussed how the IASB could respond to feedback on its proposals on the accounting for regulatory assets and regulatory liabilities arising from differences between the recovery pace of the regulatory capital base and the assets’ useful lives.

These notes and the material are for information only and the staff did not ask the IASB to make decisions on this paper. There was also no discussion on this paper.