must, of course, be consistent from period to period unless there is an appropriate
change in accounting policies. [IFRS 14.12].
5.20.4
Recognition as regulatory deferral account balances
The regulatory deferral account balances to be recognised are restricted to the
incremental amounts from what are permitted or required to be recognised as assets
and liabilities under other IFRS. [IFRS 14.7]. Therefore, the measurement of these balances
effectively entails a two-step process:
(a) An entity would first determine the carrying amount of its assets and liabilities
under IFRS, excluding IFRS 14.
(b) These amounts would then be compared with the assets and liabilities determined
under the entity’s previous GAAP (i.e. its rate-regulated balances).
The differences would represent the regulatory deferral account debit or credit
balances to be recognised by the entity under IFRS 14.
Some items of expense (income) may be outside the regulated rate(s) because, for example,
the amounts are not expected to be accepted by the rate regulator or because they are not
within the scope of the rate regulation. Consequently, such an item is recognised as income
when earned or expense as incurred, unless another standard permits or requires it to be
included in the carrying amount of an asset or liability. [IFRS 14.B3].
The following are examples of the types of costs that rate regulators might allow in rate-
setting decisions and that an entity might, therefore, recognise in regulatory deferral
account balances: [IFRS 14.B5]
• volume or purchase price variances;
• costs of approved ‘green energy’ initiatives (in excess of amounts that are capitalised
as part of the cost of property, plant and equipment in accordance with IAS 16);
• non-directly-attributable overhead costs that are treated as capital costs for rate
regulation purposes (but are not permitted, in accordance with IAS 16, to be
included in the cost of an item of property, plant and equipment);
• project cancellation costs;
• storm damage costs; and
• deemed interest (including amounts allowed for funds that are used during
construction that provide the entity with a return on the owner’s equity capital as
well as borrowings).
5.20.5
Changes in accounting policies
An entity should not change its accounting policies in order to start to recognise regulatory
deferral account balances. [IFRS 14.13]. Also, changes in its accounting policies for the
recognition, measurement, impairment and derecognition of regulatory deferral account
balances are only allowed if it would result in financial statements that are more relevant to
the economic decision-making needs of users and no less reliable, or more reliable and no
less relevant to those needs. The judgement of relevance and reliability is made using the
criteria in IAS 8. [IFRS 14.13, IAS 8.10]. It should be noted that IFRS 14 does not exempt entities
from applying paragraphs 10 or 14-15 of IAS 8 to changes in accounting policy. [IFRS 14.14].
First-time
adoption
307
The application guidance in IFRS 14 clarifies that regulatory deferral account balances
usually represent timing differences between the recognition of items of income or
expenses for regulatory purposes and the recognition of those items for financial reporting
purposes. When an entity changes an accounting policy on the first-time adoption of IFRS
or on the initial application of a new or revised standard, new or revised timing differences
may arise that create new or revised regulatory deferral account balances. The prohibition
in paragraph 13 of this standard that prevents an entity from changing its accounting policy
in order to start to recognise regulatory deferral account balances does not prohibit the
recognition of the new or revised regulatory deferral account balances that are created
because of other changes in accounting policies required by IFRS. This is because the
recognition of regulatory deferral account balances for such timing differences would be
consistent with the existing recognition policy and would not represent the introduction
of a new accounting policy. Similarly, paragraph 13 of this standard does not prohibit the
recognition of regulatory deferral account balances arising from timing differences that
did not exist immediately prior to the date of transition to IFRS but are consistent with
the entity’s accounting policies established in accordance with paragraph 11 of IFRS 14,
for example, storm damage costs. [IFRS 14.B6].
5.20.6
Presentation and disclosures
5.20.6.A Presentation
This standard requires an entity to present regulatory deferral account debit balances and
credit balances and the net movement in those balances as separate line items in the
statement of financial position and the statement(s) of profit or loss and other
comprehensive income respectively. The totals of regulatory deferral account balances
should not be classified as current or non-current. The separate line items should be
distinguished from other items that are presented under other IFRSs by the use of sub-totals,
which are drawn before the regulatory line items are presented. [IFRS 14.20, 21, 23, IFRS 14.IE1].
The net movements in all regulatory deferral account balances for the reporting period
that relate to items recognised in other comprehensive income should be presented in
the other comprehensive income section of the statement of profit or loss and other
comprehensive income. Also, paragraph 22 of IFRS 14 also requires separate line items
to be used for the net movement related to items that, in accordance with other
standards, either will not or will be reclassified subsequently to profit or loss when
specific conditions are met. [IFRS 14.22, IFRS 14.IE1].
I
Presentation of deferred tax balances
In relation to a deferred tax asset or deferred tax liability that is recognised as a result
of recognising regulatory deferral account balances, the entity should not include that
deferred tax amount within the total deferred tax asset (liability) balances. Instead, an
entity is required to present the deferred tax asset or liability either:
(a) with the line items that are presented for the regulatory deferral account debit
balances and credit balances; or
(b) as a separate line item alongside the related regulatory deferral account debit
balances and credit balances. [IFRS 14.24, IFRS 14.B11].
308 Chapter
5
Similarly, when an entity recognises the movement in a deferred tax asset (liability) that
arises as a result of recognising regulatory deferral account balances, the entity should not
include the movement in that deferred tax amount within the tax expense (income) line
item that is presented in the statement(s) of profit or loss and other comprehensive income
under IAS 12. Instead, the entity should present the movement in the deferred tax asset
(liability) that arises as a result of recognising regulatory deferral account balances either:
(a) with the line items that are presented in the statement(s) of profit or loss and other
comprehensive income for the movements in regulato
ry deferral account
balances; or
(b) as a separate line item alongside the related line items that are presented in the
statement(s) of profit or loss and other comprehensive income for the movements
in regulatory deferral account balances. [IFRS 14.24, IFRS 14.B12].
II
Presentation of earnings per share amounts
IFRS 14 requires additional earnings per share amounts to be presented. When an entity
presents earnings per share in accordance with IAS 33 – Earnings per Share – the entity
has to present additional basic and diluted earnings per share calculated using earnings
amount required by IAS 33 but excluding the movements in regulatory deferral account
balances. Furthermore, the earnings per share amount under IFRS 14 has to be
presented with equal prominence to the earnings per share required by IAS 33 for all
periods presented. [IFRS 14.26, IFRS 14.B14].
III
Presentation of discontinued operations and disposal groups
When an entity applying IFRS 14 presents a discontinued operation, paragraph B20 of
IFRS 14 requires the movement in regulatory deferral account balances that arose from
the rate-regulated activities of the discontinued operation to be excluded from the line
items required by paragraph 33 of IFRS 5. Instead, the movement in regulatory deferral
account balances that arose from the rate regulated activities of the discontinued
operation should be presented either within the line item that is presented for movements
in the regulatory deferral account balances related to profit or loss; or as a separate line
item alongside the related line item that is presented for movements in the regulatory
deferral account balances related to profit or loss. [IFRS 14.25, IFRS 14.B20].
Similarly, notwithstanding the requirements of paragraph 38 of IFRS 5, when an entity
presents a disposal group, the total of the regulatory deferral account debit balances and
credit balances that are part of the disposal group are presented either within the line
items that are presented for the regulatory deferral account debit balances and credit
balances; or as separate line items alongside the other regulatory deferral account debit
balances and credit balances. [IFRS 14.25, IFRS 14.B21].
First-time
adoption
309
If an entity chooses to include the regulatory deferral account balances and movements
in those balances that are related to the disposal group or discontinued operation within
the related regulated deferral account line items, it may be necessary to disclose them
separately as part of the analysis of the regulatory deferral account line items described
by paragraph 33 of IFRS 14. [IFRS 14.B22].
5.20.6.B Disclosures
The standard requires an entity to disclose information that enables users to assess:
• the nature of, and risks associated with, the rate regulation that establishes the price(s)
that the entity can charge customers for the goods or services it provides; and
• the effects of that rate regulation on the entity’s financial position, financial
performance and cash flows. [IFRS 14.27].
I
Explanation of activities subject to rate regulation
In order to help users of the financial statements assess the nature of, and the risks
associated with, an entity’s rate-regulated activities, an entity is required to disclose the
following for each type of rate-regulated activity: [IFRS 14.30]
(a) a brief description of the nature and extent of the rate-regulated activity and the
nature of the regulatory rate-setting process;
(b) the identity of the rate regulator(s). If the rate regulator is a related party (as defined
in IAS 24 – Related Party Disclosures), the entity should disclose that fact, together
with an explanation of how it is related;
(c) how the future recovery of each class (i.e. each type of cost or income) of
regulatory deferral account debit balance or reversal of each class of regulatory
deferral account credit balance is affected by risks and uncertainty, for example:
• demand risk (for example, changes in consumer attitudes, the availability of
alternative sources of supply or the level of competition);
• regulatory risk (for example, the submission or approval of a rate-setting
application or the entity’s assessment of the expected future regulatory
actions); and
• other risks (for example, currency or other market risks).
The disclosures required above may be provided in the notes to the financial statements
or incorporated by cross-reference from the financial statements to some other
statement such as a management commentary or a risk report that is available to users
of the financial statements on the same terms as the financial statements and at the same
time. [IFRS 14.31].
310 Chapter
5
II
Explanation of recognised amounts
IFRS 14 also requires entities to explain the basis on which regulatory deferral account
balances are recognised and derecognised, and how they are measured initially and
subsequently, including how regulatory deferral account balances are assessed for
recoverability and how impairment losses are allocated. [IFRS 14.32].
Furthermore, for each type of rate-regulated activity, an entity is required to disclose
the following information for each class of regulatory deferral account balance:
(a) a reconciliation of the carrying amount at the beginning and the end of the period,
in a table unless another format is more appropriate. The entity should apply
judgement in deciding the level of detail necessary, but the following components
would usually be relevant:
• the amounts that have been recognised in the current period in the statement
of financial position as regulatory deferral account balances;
• the amounts that have been recognised in the statement(s) of profit or loss and
other comprehensive income relating to balances that have been recovered
(sometimes described as amortised) or reversed in the current period; and
• other amounts, separately identified, that affected the regulatory deferral
account balances, such as impairments, items acquired or assumed in a
business combination, items disposed of, or the effects of changes in foreign
exchange rates or discount rates;
(b) the rate of return or discount rate (including a zero rate or a range of rates, when
applicable) used to reflect the time value of money that is applicable to each class
of regulatory deferral account balance; and
(c) the remaining periods over which the entity expects to recover (or amortise) the
carrying amount of each class of regulatory deferral account debit balance or to
reverse each class of regulatory deferral account credit balance. [IFRS 14.33].
It is also important to note that when an entity provides disclosures in accordance with
IFRS 12 – Disclosure of Interests in Other Entities – for an interest in a subsidiary,
associate or joint venture that has rate-regulated activities and for which regulatory
deferral account balances are recognised in accordance with IFRS 14, the entity must
disclose the amounts that are included for the regulatory deferral account debit and
<
br /> credit balances and the net movement in those balances for the interests disclosed under
IFRS 12. [IFRS 14.35, IFRS 14.B25-B28].
5.20.7
Interaction with other standards
Any specific exception, exemption or additional requirements related to the interaction
of IFRS 14 with other standards are contained within IFRS 14. In the absence of any
such exception, exemption or additional requirements, other standards must apply to
regulatory deferral account balances in the same way as they apply to assets, liabilities,
income and expenses that are recognised in accordance with other standards. The
following sections outline how some other IFRSs interact with the requirements of
IFRS 14. In particular, the following sections clarify specific exceptions to, and
exemptions from, other IFRSs and additional presentation and disclosure requirements
that are expected to be applicable. [IFRS 14.16, IFRS 14.B7-B28].
First-time
adoption
311
5.20.7.A
Application of IAS 10 – Events after the Reporting Period
An entity may need to use estimates and assumptions in the recognition and
measurement of its regulatory deferral account balances. For events that occur between
the end of the reporting period and the date when the financial statements are
authorised for issue, an entity has to apply IAS 10 to identify whether those estimates
and assumptions should be adjusted to reflect those events. [IFRS 14.B8].
5.20.7.B
Application of IAS 12 – Income Taxes
Entities are required to apply the requirements of IAS 12 to rate-regulated activities, to
identify the amount of income tax to be recognised. [IFRS 14.B9]. In some rate-regulatory
schemes, rate regulators may permit or require an entity to increase its future rates in
order to recover some or all of the entity’s income tax expense. In such circumstances,
this might result in the entity recognising a regulatory deferral account balance in the
statement of financial position related to income tax, in accordance with its accounting
policies established in accordance with paragraphs 11-12 of IFRS 14. The recognition of
this regulatory deferral account balance that relates to income tax might itself create an
additional temporary difference for which a further deferred tax amount would be
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 62
