The IASB issued its Discussion Paper in September 2014. To respond to the Discussion Paper, EFRAG has conducted interviews with investors and analysts to understand users' information needs in respect of an entity's rate-regulated activities.

Of the 19 users that were interviewed, most broadly favoured the inclusion of the financial effects of rate-regulated activities in the primary financial statements as this would enhance the usefulness of the information provided. They believed that recognising the economic effects of rate regulation in the primary statements would:

• result in a measure of performance that reflects what an entity is entitled to earn;
• result in useful financial information to assess prospects of future cash flows; and
• portray the economic reality of entities operating rate-regulated activities.

These users supported separate presentation of the effects of rate regulation on rate-regulated activities as they assess different risks profiles when entities also operate in areas that are not rate-regulated. They also supported note disclosure that includes a qualitative description of the rate-regulated regimes in which the entity operates, information regarding the regulatory asset base and the factors affecting the rate-regulated revenue requirement agreed by the rate regulator.

However, some users interviewed noted that there are drawbacks to the recognition of the effects of rate regulation because most rate-regulated regimes are very complex and continually changing. In the view of theses users, recognition of the effects of rate regulation at the expense of reliability and relevance would increase complexity and therefore reduce the understandability of financial statements.

Please click to access the full feedback statement on the EFRAG website.

Note: On 24 February, EFRAG complemented this feedback with a summary of a joint outreach event on rate-regulated activities held in Brussels on 18 December 2014.