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IFRS 14 is an interim standard, applicable to first-time adopters of IFRS that provide goods or services to customers at a price or rate that is subject to rate regulation by the government eg the supply of gas or electricity.
Rate regulation ensures that specified costs are recovered by the supplier, and that prices charged to customers are fair. These twin objectives mean that prices charged to customers at a particular time do not necessarily cover the costs incurred by the supplier at that time. In this case, the recovery of such costs is deferred and they are recognised through future sales.
IFRS does not have specific requirements in respect of accounting for this mismatch, however established practice is that amounts are recognised in profit or loss as they arise.
In some jurisdictions, however, local GAAP allows or requires a supplier of rate-regulated activities to recognise costs to be recovered either as a separate regulatory deferral account or as part of the cost of a related asset.
The IASB is involved in a comprehensive project to address this issue; until this project is completed, IFRS 14 permits first-time adopters of IFRS to continue to recognise amounts related to rate regulation in accordance with their previous GAAP when they adopt IFRS.
ED/2021/1 Regulatory Assets and Regulatory Liabilities
In January 2021 the Board issued ED/2021/1 Regulatory Assets and Regulatory Liabilities. This proposes that companies are required to report regulatory assets and liabilities and regulatory income and expenses in their financial statements in order to help investors better assess future cash flows. If finalised as an IFRS Standard, the proposals would replace IFRS 14.
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