Cover note (Agenda Paper 9)

At this meeting, the IASB will redeliberate the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities (ED). The staff prepared papers on the direct (no direct) relationship concept (Agenda Paper 9A) and the boundary of a regulatory agreement (Agenda Paper 9B).

This paper was not discussed.

Survey on the direct (no direct) relationship concept—Additional feedback (Agenda Paper 9A)

This paper complimented Agenda Paper 9B discussed at the September 2023 IASB meeting and set out:

• The staff’s analysis of additional feedback from the survey on the direct (no direct) relationship concept relating to capitalised borrowing costs, inflation and other items included in the regulatory capital base
• The staff’s recommendations on next steps

Staff recommendation

The staff recommended that the final Accounting Standard includes guidance on how an entity accounts for a regulatory asset or regulatory liability arising from regulatory returns on an asset not yet available for use that compensate for capitalised borrowing costs if:

• The entity determines its capitalised borrowing costs at a higher level of aggregation than the individual asset level
• The regulatory returns are determined on a real basis

IASB discussion

Some IASB members suggested that the principles of the standard are set out clearly and the staff should link the principles to the application guidance. The application guidance should not provide detailed guidance to all possible scenarios but should instead be focused on the application of the principles in each scenario. One IASB member commented that additional disclosure on unrecognised regulatory assets and regulatory liabilities will not help entities with the accounting for regulatory assets arising from other items that the regulator may add to the regulatory capital base.

IASB decisions

12 out of the 13 IASB members present (one absent) voted in favour of the staff recommendation.

Boundary of a regulatory agreement (Agenda Paper 9B)

This paper set out the staff’s analysis and recommendations on the proposals on the boundary of a regulatory agreement in the ED.

Staff recommendation

The staff recommended that the final Accounting Standard:

• Specifies the process by which an entity would identify and measure the cash flows that are within the boundary of a regulatory agreement and, hence, are included in the measurement of a regulatory asset (regulatory liability) as described in in Appendix A of the paper (Recommendation 1)
• Retains the proposed guidance on compensation for cancellation of a regulatory agreement in paragraphs B35-B38 of the ED, but clarify that that guidance also applies to other circumstances in which termination occurs and an entity has a right to receive compensation for unrecovered regulatory assets or an obligation to pay compensation for unfulfilled regulatory liabilities (Recommendation 2)
• Includes the principles underlying an entity’s right to payment for performance completed to date, as described in IFRS 15:35(c), to help an entity assess the existence of an enforceable present right to receive compensation (enforceable present obligation to pay compensation) for unrecovered regulatory assets (unfulfilled regulatory liabilities) when the regulatory agreement does not include an explicit right to receive compensation (obligation to pay compensation)(Recommendation 3)
• Retains the proposed guidance on rights to renew or cancel a regulatory agreement in paragraphs B31-B34 of the ED, but clarify that rights to renew or cancel an agreement may be explicit or implicit (Recommendation 4)
• Requires an entity to consider how its current expectations of future conditions would affect its practical ability to renew (and other parties’ practical ability to cancel) a regulatory agreement when determining the boundary of a regulatory agreement (Recommendation 5)
• Retains the proposals in paragraphs B39-B40 of the ED on reassessments and changes to the boundary (Recommendation 6)

IASB discussion

On Recommendation 3, several IASB members agreed that it would be helpful to embed the requirement of IFRS15 into the Standard to help assessing whether the entity has an enforceable right or obligation for compensation. One IASB member asked the staff to recommend a principle-based solution on how the boundary of the economic relationships can be defined.

On Recommendation 5, one IASB member asked for the word “current” to be removed, because when an entity assesses practical ability, the likelihood and the entity’s intention should not be involved. Several IASB members discussed the concepts of ‘enforceable’ and ‘practical ability’ in relation to the new Standard, the need to clarify the ‘practical ability’ definition used in the ED and whether Recommendation 5 was already required in the ED.

On Recommendation 6, there was a discussion surrounding the measurement included in the example and the staff suggested that they will reconsider the measurement requirement in the ED and will prepare a paper on this. No decision was made on Recommendation 6.

IASB decisions

All IASB members present voted in favour of Recommendations 1-4.

Only 2 of the 13 IASB members present voted in favour of Recommendation 5.