IFRS 14 | Regulatory Deferral Accounts

1

Objective

The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

2

Meeting the Objective

The Standard requires limited changes to accounting policies applied under previous GAAP (primarily related to presentation) and requires disclosures to identify and explain amounts arising from rate regulation and to help users understand future cash flows associated with those balances.

3

Permitted Application

The Standard permits an entity within its scope to continue to account for regulatory deferral account balances in accordance with its previous GAAP when it adopts IFRS, subject to limited changes.

4

Exceptions

This Standard provides specific exceptions to, or exemptions from, the requirements of other Standards regarding regulatory deferral account balances. All relevant requirements are contained within this Standard.

5

Scope

An entity is permitted to apply this Standard in its first IFRS financial statements if and only if it conducts rate-regulated activities and recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

6

Subsequent Application

An entity shall apply this Standard in subsequent periods if and only if, in its first IFRS financial statements, it recognised regulatory deferral account balances by electing to apply this Standard.

7

Other Aspects

This Standard does not address other aspects of accounting by entities engaged in rate-regulated activities. Amounts permitted or required to be recognised by other Standards shall not be included in regulatory deferral account balances.

8

All Activities

An entity that elects to apply this Standard shall apply it to all regulatory deferral account balances arising from all of its rate-regulated activities.

9

Temporary Exemption

An entity within the scope that elects to apply this Standard is exempt from paragraph 11 of IAS 8 (which sets out the hierarchy of sources for accounting policies) when developing policies for regulatory deferral account balances.

11

Continuation of Policies

On initial application, an entity shall continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment, and derecognition of regulatory deferral account balances, except for permitted changes. Presentation must comply with this Standard.

12

Consistent Application

Policies established under paragraph 11 shall be applied consistently in subsequent periods.

13

Changes in Policy

An entity shall not change accounting policies to start recognising regulatory deferral account balances. It may only change policies if the change makes the financial statements more relevant and no less reliable, or more reliable and no less relevant.

14

Justification of Change

The Standard does not exempt entities from IAS 8 requirements regarding changes in accounting policy. To justify a change, the entity must demonstrate that it brings the statements closer to meeting the criteria in IAS 8.

16

Interaction with Standards

Specific exceptions or exemptions regarding other Standards are contained in this Standard. Otherwise, other Standards apply to regulatory deferral account balances in the same way they apply to assets, liabilities, income, and expenses.

17

Application of Others

In some situations, another Standard might need to be applied to a balance measured under previous GAAP to reflect it appropriately (e.g., IAS 21 for foreign currency translation).

18

Presentation Changes

This Standard introduces presentation requirements that separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards.

19

Mandatory Presentation

An entity applying this Standard shall present all regulatory deferral account balances and movements in accordance with paragraphs 20-26, notwithstanding the requirements of IAS 1.

20

Balance Sheet Classification

An entity shall present separate line items in the statement of financial position for the total of all regulatory deferral account debit balances and the total of all regulatory deferral account credit balances.

21

Current/Non-Current

Totals of regulatory deferral account balances shall not be classified as current or non-current. They are presented separately using sub-totals drawn before these balances are presented.

22

OCI Movements

An entity shall present, in the other comprehensive income section, the net movement in all regulatory deferral account balances that relate to items recognised in other comprehensive income. Separate line items are used for movements related to items that will and will not be reclassified to profit or loss.

23

Profit or Loss Movements

An entity shall present a separate line item in the profit or loss section for the remaining net movement in all regulatory deferral account balances, excluding movements not reflected in profit or loss (e.g., acquired amounts). This is distinguished by a sub-total drawn before this line item.

24

Deferred Tax

Deferred tax assets or liabilities arising from these balances, and their movements, are presented with the related regulatory deferral account balances and movements, rather than within the total deferred tax or tax expense lines required by IAS 12.

25

Discontinued Operations

Regulatory deferral account balances and movements related to discontinued operations or disposal groups are presented with the regulatory deferral balances/movements, not within the disposal group or discontinued operation lines required by IFRS 5.

26

Earnings Per Share

An entity shall present additional basic and diluted earnings per share amounts that exclude the movements in regulatory deferral account balances.

27

Disclosure Objective

An entity shall disclose information that enables users to assess the nature of, and risks associated with, the rate regulation and the effects of that regulation on its financial position, financial performance, and cash flows.

30

Activity Explanation

For each type of rate-regulated activity, disclose: a brief description of the nature and extent of the activity and rate-setting process; the identity of the rate regulator (and related party status); and risks/uncertainty affecting future recovery or reversal of balances (e.g., demand risk, regulatory risk).

32

Amounts Explanation

Disclose the basis on which balances are recognised, derecognised, and measured (initially and subsequently), including assessment for recoverability and impairment allocation.

33

Reconciliation

For each type of activity, disclose a reconciliation of the carrying amount at the beginning and end of the period, showing amounts recognised in the period, amounts recovered/reversed, and other separate amounts (e.g., impairments, business combinations).

34

Rate and Period

Disclose the rate of return or discount rate applicable to each class of balance and the remaining periods over which the entity expects to recover or reverse the carrying amounts.

35

Subsidiary Disclosures

When providing IFRS 12 disclosures for an interest in a subsidiary, associate, or joint venture with rate-regulated activities, disclose the amounts included for regulatory deferral account balances and movements.

36

Recoverability

If a balance is no longer fully recoverable or reversible, disclose that fact, the reason, and the amount by which the balance has been reduced.

37

Defined Terms

Appendix A

• first IFRS financial statements: The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRS), by an explicit and unreserved statement of compliance with IFRS.
• first-time adopter: An entity that presents its first IFRS financial statements.
• previous GAAP: The basis of accounting that a first-time adopter used immediately before adopting IFRS.
• rate-regulated activities: An entity's activities that are subject to rate regulation.
• rate regulation: A framework for establishing the prices that can be charged to customers for goods or services and that framework is subject to oversight and/or approval by a rate regulator.
• rate regulator: An authorised body that is empowered by statute or regulation to establish the rate or a range of rates that bind an entity. The rate regulator may be a third-party body or a related party of the entity, including the entity's own governing board, if that body is required by statute or regulation to set rates both in the interest of the customers and to ensure the overall financial viability of the entity.
• regulatory deferral account balance: The balance of any expense (or income) account that would not be recognised as an asset or a liability in accordance with other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers.