Interim Standard Issued by IASB on Activities that are Rate Regulated

Tuesday, February 4, 2014 Print Email

The International Accounting Standards Board (IASB) has recently issued an interim standard which is the IFRS 14 known as the Regulatory Deferral Accounts. Enhancing the comparability of financial reporting by organizations who deal with activities that are rate regulated is the objective of the interim standard.

There are many industrial sectors that are subjected to rate regulation in most countries. This is where the governments are the ones who regulate pricing and supply of specific activities by the private organizations. Gas, water and electricity are the utilities that are rate regulated which would have a major impact on the organization’s timing as well as the organization’s revenue.

There is no particular guidance for the rate regulated activities that are provided by IFRS. In 2014, the ISB is tasked to consider the wide rate regulation issues and has planned to make a publication of a discussion paper. As an interim measure, ISB has opted to develop IFRS to make a development of IFRS 14 as they wait to see the outcome of these detailed Rate regulated Activities.

The IFRS 14 allows the first time adopters to go on recognizing those amounts that relate to rate regulation as per the former requirements of GAAP upon adoption of the IFRS. Nevertheless, for compatibility enhancement with those organizations that are applying the IFRS already and who fail to recognize such amounts, the standard demands that the rate regulation effect be separately presented from the other items.

That organization which presents IFRS financial statements already is not qualified to apply this standard. It is expected that the IFRS 14 will be effective as from 1st January 2016 with an earlier permitted application.

The vice chairman of the IASB, Ian Mackintosh observed that around the globe, diverse rate regulated models are being used. It is likely that some time will be taken as we concern to have the work completed in this significant accounting area as much as possible. These interim measures will go a long way in enhancing the financial reporting comparability by those organizations that have got rate regulated activities. This will be till the completion of IASB ‘s comprehensive rate regulated activities.

Source: ReadyRatios

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