The IASB is proposing a new standard; IFRS 14 Regulatory Assets and Regulatory Liabilities, that would repeal and replace IFRS 14 Regulatory Deferral Accounts. The extant accounting standard was only ever intended to provide a short-term interim solution to allow rate-regulated entities a choice as to how they account for such regulatory agreements in their financial statements.

CA ANZ and CPA Australia support the objective of the IASB’s proposals, as these proposals will lead to establishing consistent reporting requirements for entities subject to regulatory agreements. However, in our submission, we highlight two areas that in our view should be given further consideration in developing the proposals further.

Allowable expenses – recovery of the cost of assets

We believe there are challenges associated with applying the proposals to some types of accounting expenses, such as depreciation, envisaged as part of “amounts that recover allowable expenses minus chargeable income”. Many are practical challenges associated with a lack of alignment between the record of assets maintained for accounting purposes and the record of assets maintained in order to recover costs as part of a regulatory agreement.

Transitional provisions

We believe that the retrospective application proposals in the ED will impact many entities that fall within the scope of these proposals that do not currently adopt accounting practices similar to those proposed in the ED. We understand such entities may have to make significant changes to their accounting systems and processes to accommodate the changes proposed in the ED. To assist such entities with a smooth transition to the proposed new requirements, we suggest including an optional modified transitional approach that simplifies the prior-year accounting requirements associated with full-retrospective application.