The International Accounting Standards Board (IASB) has issued IFRS 14 Regulatory Deferral Accounts as an interim Standard while it considers how the issues will be resolved over a longer term. IASB states that the “Standard is to enhance the comparability of financial reporting by entities that are engaged in rate-regulated activities.” They highlight that “many countries have industry sectors that are subject to rate regulation, whereby governments regulate the supply and pricing of particular types of activity by private entities”. Utility companies are typical examples of where this occurs.
IFRS 14 allows first-time adopters to “continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS.” It is important to note that the Standard can only be applied by first-time adopters of IFRS and that they must elect to do so in their first IFRS financial statements. If they do not, an “entity will not be eligible to apply the Standard in subsequent periods.”
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