Interim Standard on Rate Regulated Activities (IFRS 14)
The International Accounting Standards Board (IASB) on Thursday issued an interim standard on rate-regulated activities for use by first-time IFRS adopters while the board works to develop a permanent standard.
Previously, IFRS did not contain any guidance for rate-regulated activities. The IASB has a plan to consider the broad issue of rate-regulated activities and plans to issue a discussion paper on the topic this year.
The interim standard, IFRS 14, Regulatory Deferral Accounts, will guide financial reporting of rate-regulated activities while the permanent standard is developed. The objective of IFRS 14 is to enhance the comparability of financial reporting by entities that engage in rate-regulated activities.
Governments in many countries regulate the supply and pricing of particular types of activities by private entities in certain sectors. Often, this includes utilities such as gas, electricity, and water. Rate regulation can have a significant effect on the timing and amount of an entity’s revenue.
Under IFRS 14, first-time adopters of IFRS are permitted to continue to recognize amounts related to rate regulation in accordance with their previous GAAP requirements, when they adopt IFRS. But to enhance comparability with entities that already apply IFRS and do not recognize such amounts, IFRS 14 requires the effect of rate regulation to be presented separately from other items.
Existing preparers of IFRS financial statements are not eligible to apply the interim standard.
Board members do not want to anticipate the outcome of the broader, permanent project on rate-regulated activities, so they decided to limit the effect of the interim standard until fundamental issues are resolved by the comprehensive project.
The interim standard takes effect Jan. 1, 2016, and early application is permitted.
Article from Journal of Accountancy