ifrs 14: regulatory deferral accounts

OVERVIEW


IFRS 14 sets out the requirements for the reporting of the deferral account balances in the financial statements when an entity provides the goods or services at a price that is subject to the rate regulations.


Following are the example of types of costs that rate regulators might allow in the rate decisions and then an entity may recognize it in the regulatory deferred account balances:



=> The purchase price or volume variances.

=> The cost of approved green energy initiatives.

=> Non directly attributable direct overhead costs and such costs are treated as the capital cost for the purpose of the rate regulation.

=> The project cancellation costs

=> Costs that arise due to storm

=> Deemed interest costs

Key Takeaway Points


=> IFRS 14 sets out the requirements for the reporting of the deferral account balances in the financial statements when an entity provides the goods or services at a price that is subject to the rate regulations.



=> An entity that carried out the rate-regulated activities and which falls within the scope of this standard and also elect to apply this standard in the preparation of the financial statements shall seek guidance from the IAS 8 – Accounting policy, changes in accounting estimates, and errors for the recognition, measurement, impairment and DE recognition of the regulatory deferred account balances while preparing the financial statements.



=> An entity shall not change its accounting policies while reporting the regulatory deferred account balances in the financial statements. However, it can change the accounting policy only when such changes provide more accurate and reliable information to the users of the financial statements about the financial information and about such transactions. To judge what could be relevant for the users of the financial statements, an entity shall seek guidance from the IAS 8 – Accounting policy, changes in accounting estimates, and errors.



=> An entity shall not present the regulatory deferred account balances in the statement of financial position as current items or non-current items but they should be presented as separate line items by adding the total of debit balances and credit balances of the regulatory deferred account balances.



=> An entity shall present the net movement in the regulatory deferred account balances in the statement of profit or loss and other comprehensive income as separate line items.


SCOPE


Entities are required to apply the requirements of this standard in the first IFRS financial statements if and only the following conditions are fulfilled:



=> Entity conducted the rate-regulated activities

=> Recognized amounts in the financial statements as per previous GAAP and such amounts are qualified as deferred account balances.


An entity shall apply the requirements of this standard to the subsequent financial statements also when the first IFRS financial statements continue the regulated rated activities practice for the subsequent periods too.


If any entity falls within the requirements of this standard and it carries out the rate-regulated activities then it is required to follow the requirements of the IFRS 13 while preparing the financial statements.


RECOGNITION, MEASUREMENT, IMPAIRMENT, AND DE RECOGNITION


An entity that carried out the rate-regulated activities and which falls within the scope of this standard and also elect to apply this standard in the preparation of the financial statements shall seek guidance from the IAS 8 – Accounting policy, changes in accounting estimates, and errors for the recognition, measurement, impairment and DE recognition of the regulatory deferred account balances while preparing the financial statements.


On the initial application of this standard for the preparation of the financial statements, an entity may continue to use the previous GAAP for the presentation of the regulatory deferred account balance. However, if there is any difference regarding any point on the regulatory deferred account balances then an entity is required to change or adjust the requirements of the previous GAAP  to bring it into conformity with the IFRS 14, for the presentation of the regulatory of the deferred account balances in the financial statements.


CHANGES IN ACCOUNTING POLICIES


An entity shall not change its accounting policies while reporting the regulatory deferred account balances in the financial statements. However, it can change the accounting policy only when such changes provide more accurate and reliable information to the users of the financial statements about the financial information and about such transactions. To judge what could be relevant for the users of the financial statements, an entity shall seek guidance from the IAS 8 – Accounting policy, changes in accounting estimates, and errors.


PRESENTATION


An entity is required to present separate line items in the statement of the financial position for:



=> The total of all debit balances of regulatory deferred account balances.

=> The total of all credit balances of regulatory deferred account balances.


An entity shall not present the regulatory deferred account balances in the statement of financial position as current items or non-current items but they should be presented as separate line items by adding the total of debit balances and credit balances of the regulatory deferred account balances.


An entity shall present the net movement in the regulatory deferred account balances in the statement of profit or loss and other comprehensive income as separate line items.


DISCLOSURES


IFRS 14 requires the following disclosures at minimum regarding the regulatory deferred account balances:

 


=> The nature and risk associated with the rate regulation that established the prices.

=> The effect of the rate regulation on the financial position of an entity.