17 September 2014
The International Accounting Standards Board (IASB) today published for public comment the Discussion Paper Reporting the Financial Effects of Rate Regulation.
Many governments regulate the supply and pricing of particular types of activity by entities. These activities usually involve providing goods or services that are considered in that jurisdiction to be essential to customers, including transport services, some types of insurance policies, and utilities such as gas, electricity and water. Some forms of rate regulation can significantly affect not only the amount of revenue and profit that a rate rate-regulated entity can earn, but also the timing of the related cash flows.
The Discussion Paper describes a type of rate regulation that contains elements of both cost recovery and incentive approaches—this type of rate regulation is termed defined rate regulation. The Discussion Paper seeks comments on whether or not the distinguishing features of defined rate regulation, as identified by the IASB, sufficiently capture the type(s) of rate regulation that have the most significant financial effects.
The Discussion Paper does not include any specific accounting proposals. Instead, it explores what information about rate-regulated activities is most useful to users of financial statements and outlines possible approaches (and the accompanying advantages and disadvantages) that the IASB could consider in deciding how best to report the financial effects of rate regulation.
The Discussion Paper also seeks comments on whether the presentation and disclosure requirements of IFRS 14 Regulatory Deferral Accounts should form the basis of any future proposals that the IASB may develop as a result of feedback from this consultation. IFRS 14 was issued in January 2014 as a temporary measure until the IASB concludes this project.
The Discussion Paper Reporting the Financial Effects of Rate Regulation is available for comment until 15 January 2015. A high level ‘Snapshot’ summary of the Discussion Paper is available here.
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