Many large public and private entities operate in industries such as utilities, energy, and infrastructure, where pricing is set by regulatory authorities to balance the interests of consumers and service providers. These regulations aim to promote orderly growth, protect consumers, ensure fair competition, and address social and environmental considerations. Such arrangements frequently result in timing differences where part or all of the total allowed compensation for regulatory goods or services supplied by the entity in a reporting period is charged to customers through regulated rates in a different period. This gives rise to a key accounting consideration - whether these rights and obligations arising from such regulatory agreements meet the definition of assets and liabilities and if yes, when should they be recognised.
Currently, International Financial Reporting Standards (IFRS) provides limited guidance on how to account for the financial effects of rate regulation. Because of this, companies have followed different approaches. Some companies used IFRS 14, Regulatory Deferral Accounts. IFRS 14 was a temporary standard that allowed first-time adopters of IFRS to continue using their previous Generally Accepted Accounting Principles (GAAP) to account for regulatory deferral balances. Other companies developed their own accounting policies to recognise regulatory balances in line with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, which explains how to prepare and apply accounting policies in financial statements.
IFRS 20, Regulatory Assets and Regulatory Liabilities (the Standard) addresses this gap by introducing a comprehensive framework for recognising, measuring, and presenting regulatory assets and liabilities. By doing so, it aims to enhance the transparency and comparability of financial statements and provide stakeholders with a clearer understanding of how regulation influences an entity’s financial performance and financial position. Importantly, IFRS 20 replaces IFRS 14 and is effective for annual periods beginning on or after 1 January 2029, with early adoption permitted.
This First Notes aims to provide an overview of IFRS 20.
IASB issues IFRS 20: A new era in accounting for rate-regulated activities
This first notes provides an overview of IFRS 20, Regulatory Assets and Regulatory Liabilities
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