Rate-regulated activities

Date recorded:

The IASB staff presented an overview of why it had been decided to re-activate the IASB’s project on whether and, if so, how IFRSs should reflect the effects of rate regulation. The Council was presented with a list of potential choices facing the IASB, which ranged from maintaining the status quo to some sort of standard-setting activity.  This latter group was distributed from a disclosure-only standard at one extreme, through some sort of ‘interim standard’, based on the precedents of IFRSs 4 and 6, through to providing more detailed guidance on what assets and liabilities should be recognised and under what circumstances. The Council then broke to discuss these choices in small groups.

In the subsequent reports from the discussion groups, it was evident that the Council was divided.  Some supported developing an interim solution that accepted some degree of ‘grandfathering’ existing practice.  However, others did not support this approach.  Some noted the recent experience in Brazil, which, when implementing IFRSs, had determined that the existing regulatory items in Brazilian financial statements did not meet the recognition criteria in the IASB’s Conceptual Framework, as being persuasive evidence against an interim project.  Others noted that any interim standard could or would pre-judge the main IASB project, which was projected to trail the Discussion Paper on the Conceptual Framework by a very short period.  Others would only accept an interim standard if it contained a relatively short ‘sunset clause’.

All agreed that the timing of the Conceptual Framework Discussion Paper was critical to their decisions.  If the IASB is able to deliver against the tight timetable given by Mr Hoogervorst (a DP by the end of 2013), then the benefit from an interim standard was less obvious, even more so if the DP tended to support concepts of assets (in particular) and liabilities that would not support the current notions of regulatory assets and regulatory liabilities.  If it became evident that the Conceptual Framework was taking longer to develop, the arguments for an interim standard became stronger.

The Council Chairman noted that the IASB might find a ‘disclosure only’ standard more challenging to complete than might be expected, given the variety of regulatory regimes in existence.

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