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Regulatory assets and liabilities

Date recorded:

The IFRIC held an educational session devoted to accounting for the effects of rate regulation in the context of reporting under IFRS. Although many rate-regulated entities already report using IFRS, several jurisdictions considering or already committed to adopting IFRS have local GAAP requirements that are different to IFRS. Preparers in those jurisdictions, in Europe and North America, have raised questions about the appropriate application of IFRS in their situations.

The IFRIC held a wide-ranging and interesting debate, but it did seem that their initial point of view was that non-IFRS accounting treatments, such as those in FAS 71 Accounting for the Effects of Certain Types of Regulation, were not consistent with IFRS. Although that conclusion might be uncomfortable, there was little to suggest that it was an incorrect analysis of the issue. IFRIC members noted that similar issues had be addressed in the development of IFRIC 12 Service Concession Arrangements but had not led to assets and liabilities being recognised in the financial statements that did not meet the IASB Framework definitions of those items. During the discussion, an observer noted that there were some similarities between 'cost-plus' contract accounting (IAS 11 Construction Contracts) and rate-regulated activities. However, it was noted that the critical difference between the two was that the IAS 11 relationship was a contractual right to recover the 'plus' bit, something that was usually absent in rate-regulated utilities.

The IFRIC staff will continue its data gathering and analysis of issues and will return to a subsequent meeting with an agenda proposal.

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