The IASBs Exposure Draft (ED) Regulatory Deferral Accounts 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. 

ESMA does not agree with the interim standard because: 

• It will create an interim standard which increases diversity in practice as deferral accounts “do not meet the definitions of assets and liabilities as set out in the IASB's Conceptual Framework.  ESMA comment that whether regulatory deferral accounts meet the definitions of assets and liabilities is one of the issues to be resolved in the comprehensive project of rate-regulated activities and until this project is finalised, the “IASB should not allow recognition of deferral accounts in IFRS financial statements”.
• Interim standards IFRS 4 Insurance Contracts and IFRS 6 Exploration for and Evaluation of Mineral Resources have demonstrated that “an interim standard is not a guarantee for a quick solution”.
• It will “seriously impair comparability among preparers depending on their timing of adoption to IFRS”. 
• It “will not contribute to better understandability of financial information as it will allow entities to recognise, measure and impair deferral accounts in their financial statements according to principles, policies and basis of preparation that are defined according to local GAAP which may not be in compliance with the principles, policies and basis of preparation that are set out in IFRS”.  ESMA believes that this will “impair investor confidence in IFRS”.
• There may be implications of applying the principles from the interim standard on other standards that are currently in place such as IFRS 3 Business Combinations and IAS 36 Impairment of Assets. 

Please click for access to the final comment letter on the ESMA website.