IASB exposes guidance on regulatory deferral accounts

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25 Apr 2013

The International Accounting Standards Board (IASB) has published ED/2013/5 'Regulatory Deferral Accounts'. This proposed interim standard is intended to allow entities that currently recognise regulatory assets and regulatory liabilities in accordance with their previous GAAP to continue to recognise the effects of rate regulation under IFRSs until the longer term rate-regulated activities project is completed.

The proposed interim standard is only applicable upon the initial adoption of IFRSs and therefore must be applied at the same time as an entity applies IFRS 1 First Time Adoption of International Financial Reporting Standards. The proposed interim standard cannot be applied by entities that have previously adopted IFRSs and entities applying this interim standard, if approved, must meet specified eligibility criteria. Specifically, there must be an authorised body (i.e. the rate regulator) that restricts the price that the entity can charge its customers for the goods or services that the entity provides and the price established by regulation is designed to recover the entity’s allowable costs of providing the regulated goods or services.


Core principles of the proposed interim standard

The proposed interim standard:

  1. permits (but does not require) an entity that adopts IFRS to continue to use its previous GAAP accounting policies as accepted in their local jurisdiction for the recognition, measurement and impairment of regulatory deferral account balances;
  2. requires entities to present regulatory deferral account balances as separate line items in the statement of financial position and to present movements in those account balances as a separate line item in the statement of profit of loss and other comprehensive income; and
  3. requires specific disclosures to identify clearly the nature of, and risks associated with, the rate regulation that has resulted in the recognition of regulatory deferral account balances.


Key features addressed in the proposed interim standard


  • The draft interim standard replaces the commonly used phrases “regulatory assets” and “regulatory liabilities” with the terms “regulatory deferral account debit balances” and “regulatory deferral account credit balances” respectively. The longer term rate-regulated activities project is intended to address the issue of whether regulatory balances meet the conceptual definition of assets and liabilities and therefore the draft interim standard refers to the balances as “debit balances” or “credit balances” in the absence of a clear conclusion on whether these balances are assets and liabilities under IFRSs.

Application of other standards

  • The draft standard requires that all other IFRS be applied first such that each asset and liability recognised in the statement of financial position, such as property, plant and equipment, income taxes, and employee benefits, comply with the requirements of the other IFRS standards. The regulatory deferral accounts represent incremental amounts that are recognised over and above the assets and liabilities recognised under the other standards.
  • The proposed interim standard includes some specific guidance on how other standards such as IAS 12 Income Taxes, IAS 36 Impairment of Assets and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should be applied to regulatory deferral balances.


  • An entity will be required to present a sub-total representing total assets (and/or liabilities) before regulatory balances and then present regulatory deferral account debit (and/or credit) balances followed by total assets (and/or liabilities).  In summary, the statement of financial position will present assets in the following manner, with similar presentation requirements for liabilities.


    Current assets  xxx
    Long term assets  xxx
    Total assets before regulatory deferral debit balances: xxx
    Regulatory deferral debit balances      xxx
    Total assets xxx
  • Similarly, the presentation requirements for the statement of profit or loss also requires separate presentation of the movements in the regulatory deferral accounts. Therefore, the statement of profit or loss would have to present a sub-total of profit or loss prior to the presentation of a balance representing the net movement in all regulatory deferral accounts.
  • An additional measure of earnings per share, both basic and fully diluted, excluding the net movement on regulatory deferral balances must also be presented in addition to the basic and fully diluted earnings per share measurement otherwise required by IAS 33 Earnings per Share. Both measures (including and excluding the movement in regulatory deferral balances) must be shown with equal prominence.


  • The proposed interim standard includes specific disclosure requirements to enable users to evaluate the nature of, and the risks associated with, the specific rate regulation regime and the effects of that rate regulation on an entity's financial position, financial performance and cash flows. These disclosures include:
    • specific reconciliations of the carrying amount at the beginning and end of the period for each category of regulatory deferral account that is individually material (and others in aggregate);
    • the rate of return or discount rate allowed by the regulator to reflect the time value of money that is applicable to each regulatory deferral balance; and,
    • the remaining periods over which the entity expects to recover or amortise the carrying amount of each regulatory deferral account debit balance or reverse each regulatory deferral account credit balance.

Other matters

  • The proposed interim standard provides guidance on changes in accounting policies for the recognition and measurement of regulatory deferral balances for those entities that were eligible to apply the guidance in this draft interim standard upon the adoption of IFRS and chose to do so.
  • The ED identifies consequential amendments to IFRS 1.


Further information


    The comment period for the ED ends on 4 September 2013.

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