The International Accounting Standards Board (Board) has proposed a new accounting standard that would require companies subject to rate regulation to give investors better information about their financial performance.
Rate regulation determines how much compensation a company is entitled to charge customers for goods or services supplied in a period and when the company can include that compensation in the regulated rates charged. In some cases, a difference in timing arises because part of the compensation for goods or services supplied in a period must be included in the rate charged for goods or services supplied in a different period (past or future).
When those differences in timing occur, the revenue reported by a company for a period in its statement of financial performance and the assets and liabilities reported in its statement of financial position do not give a complete picture of the compensation that the rate regulation entitles the company to charge for goods or services supplied in that period. Currently, IFRS Standards do not require companies to inform investors about those differences in timing.
The proposed Standard would introduce a requirement for companies to give investors such information by reporting regulatory assets and regulatory liabilities in their statement of financial position, and related regulatory income and regulatory expense in their statement of financial performance. This information would help investors understand which fluctuations in the relationship between a company’s revenue and expenses are caused by those differences in timing so that investors could make better assessments of the company’s prospects for future cash flows.
If finalised as a new IFRS Standard, the Board’s proposals would replace IFRS 14 Regulatory Deferral Accounts.
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