Regulatory Deferral Account

Last update 02/12/2019

A regulatory deferral account is an amount recognised by a price-regulated entity, for example an electricity supplier. Rate regulations allow the supplier to recover specified costs and other amounts through the prices charged to retail customers, subject to the approval of a rate regulator.

To protect the interests of customers, rate regulation may defer the recovery of these amounts, in order to reduce retail price volatility. The regulatory deferral amount is the balance of any expense (or income) account that would not otherwise be recognised as an asset or a liability in accordance with general Financial Standards, but qualifies for recognition because it is included, or is expected to be included, by a rate regulator in establishing the rate (s) that can be charged to customers in the future.

The supplier usually keeps track of these deferred amounts in separate regulatory deferral accounts until they are recovered through future sales of the regulated goods or services.

OBJECTIVE

The objective of IFRS 14 is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

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:

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 116 Property, Plant and Equipment).
Non-directly-attributable overhead costs that are treated as capital costs for rate regulation purposes (but are not permitted, in accordance with IAS 116, to be included in the cost of an item of property, plant and equipment).
Project cancellation costs.
Storm damage costs.
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).

SCOPE

RECOGNITION, MEASUREMENT, IMPAIRMENT AND DERECOGNITION

An entity that has rate-regulated activities and that is within the scope of, and elects to apply, IFRS 14 shall apply paragraphs 10 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors when developing its accounting policies for the recognition, measurement, impairment, and derecognition of regulatory deferral account balances.

On initial application of IFRS 14, an entity can continue to apply its previous GAAP accounting policies for regulatory deferral account balances, subject to the presentation requirements of IFRS 14, which may require changes to the entity’s previous GAAP presentation policies.

Changes in accounting policies

An entity shall not change its accounting policies in order to start to recognise regulatory deferral account balances. An entity may only change its accounting policies for regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An entity shall judge relevance and reliability using the criteria in paragraph 10 of IAS 8.

PRESENTATION

An entity needs to present separate line items in the statement of financial position for:

the total of all regulatory deferral account debit balances; and
the total of all regulatory deferral account credit balances.

An entity should not classify the totals of regulatory deferral account balances as current or non-current in the statement of financial position. It needs to separately disclose the separate line items required by IFRS 14 by the use of sub-totals.

An entity should present, in the other comprehensive income section of the statement of profit or loss and other comprehensive income, the net movement in all regulatory deferral account balances for the reporting period that relate to items recognised in other comprehensive income. Separate line items should be used for the net movement related to items that, in accordance with other standards:

will not be reclassified subsequently to profit or loss; and
will be reclassified subsequently to profit or loss when specific conditions are met.

Similarly, an entity should present a separate line item in the profit or loss section of the statement of profit or loss and other comprehensive income, or in the separate statement of profit or loss, for the remaining net movement in all regulatory deferral account balances for the reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired.

This separate line item should be distinguished from the income and expenses that are presented in accordance with other standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances.

DISCLOSURES

IFRS	Disclosure requirements
IFRS 14 27 What is regulatory deferral account balances?	The entity shall elect to apply IFRS 14 disclosed information that enables users to assess: the nature of, and the 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 its financial position, financial performance and cash flows
IFRS 14 28	If the disclosures provided in accordance with IFRS 14 30 – IFRS 14 36 are insufficient to meet the objective in IFRS 14 27 above, the entity shall disclose additional information that is necessary to meet that objective
IFRS 14 30 What is regulatory deferral account balances? What is regulatory deferral account balances? What is regulatory deferral account balances?	The entity shall disclose for each type of rate-regulated activity: a brief description of the nature and extent of the rate-regulated activity and the nature of the regulatory rate-setting process; 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 shall disclose that fact, together with an explanation of how it is related; and 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)
IFRS 14 31	The disclosures required by IFRS 14 30 in the financial statements shall be given either directly in the notes or incorporated by cross reference from the financial statements to some other statement, such as a management commentary or 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 32	The entity shall disclose 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 any impairment loss is allocated
IFRS 14 33 What is regulatory deferral account balances? What is regulatory deferral account balances? What is regulatory deferral account balances? What is regulatory deferral account balances?	For each type of rate-regulated activity, the entity shall discloses the following information for each class of regulatory deferral account balance: 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 shall apply judgement in deciding the level of detail necessary (see IFRS 14 28 – 29), 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; 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 34	When rate regulation affects the amount and timing of an entity’s income tax expense (income), the entity shall disclose the impact of the rate regulation on the amounts of current and deferred tax recognised The entity shall separately disclose any regulatory deferral account balance that relates to taxation and the related movement in that balance
IFRS 14 35 What is regulatory deferral account balances?	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 shall disclose the amounts that are included for the regulatory deferral account debit and credit balances and the net movement in those balances for the interests disclosed (see paragraphs IFRS 14 B25 – B28)
IFRS 14 36	When an entity concludes that a regulatory deferral account balance is no longer fully recoverable or reversible, the entity shall disclose that fact, the reason why it is not recoverable or reversible and the amount by which the regulatory deferral account balance has been reduced

Regulatory Deferral Account

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