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The International Accounting Standards Board (IASB) has issued IFRS 20 Regulatory Assets and Regulatory Liabilities, a new Accounting Standard for companies subject to a specific type of rate regulation. It aims to help investors better understand how that rate regulation affects a company’s financial performance, financial position and its prospects for future cash flows.
The rationale for IFRS 20
The Standard will affect companies subject to rate regulation that determines how much a company can charge customers and when it can charge them. Companies that supply vital services such as electricity, water and gas are often subject to this type of regulation.
If there is a difference between when a company supplies regulatory goods and services and when it charges customers for those goods and services, reported revenue may not fully reflect the company’s performance in a period. IFRS 20 calls this a ‘difference in timing’. The new Standard requires companies to account for the effects of differences in timing in their financial statements.
IFRS 20 is also expected to reduce diversity in accounting practices and improve comparability between companies in regulated industries.
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