Rate-regulated Activities: Interim IFRS

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the International Accounting Standards Board’s (IASB) project to determine whether International Financial Reporting Standards (IFRSs) should be amended to provide guidance on rate-regulated activities. 

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Currently, IFRSs are silent on this topic. However, rate regulation is widespread and significantly affects the economic environment of regulated entities. In 2008, the IASB undertook a project to decide whether IFRSs should be amended to:

  • require the recognition of assets and liabilities arising from rate regulation and provide guidance on their measurement; and/or
  • require disclosures that assist an understanding of an entity’s regulatory environment.    

The IASB paused the project in September 2010 and restarted it in September 2012.

The AcSB participates in the consultations and activities on the Rate-regulated Activities project to ensure that Canadian entities’ financial reporting needs are considered by the IASB. Any changes to IFRSs resulting from this project will be incorporated into Canadian GAAP in accordance with the AcSB’s strategy of adopting IFRSs for publicly accountable enterprises.

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PROJECT NEWS

Final Interim Standard in Handbook – Regulatory Deferral Accounts
April 1, 2014. Interim standard IFRS 14 has been incorporated into Part I of the CPA Canada Handbook – Accounting. The standard is effective for annual periods beginning on or after January 1, 2016 with earlier application permitted.

Final Interim Standard – Regulatory Deferral Accounts
January 31, 2014. The IASB has issued IFRS 14. The interim standard permits qualifying first-time adopters of IFRSs to continue their previous GAAP accounting for regulatory deferral account balances, with limited presentation changes. IFRS 14 is effective for annual periods beginning on or after January 1, 2016 with earlier application permitted.

AcSB Decision Summary – November 6-7, 2013
The AcSB discussed recent international developments including the IASB’s tentative decision to proceed with the publication of an interim standard for first-time adopters of IFRSs that provides guidance on the accounting for rate-regulated activities until its comprehensive project is completed. Subject to the expected interim standard being issued early in 2014, the AcSB decided against further extending its deferral of the mandatory date for first-time adoption of IFRSs by rate-regulated entities. The deferral expires at the end of 2014.

AcSB Response – Regulatory Deferral Accounts
September 10, 2013.  The AcSB has submitted a comment letter responding to the IASB’s Exposure Draft.

AcSB Exposure Draft – Regulatory Deferral Accounts
May 28, 2013. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Canadian stakeholders are encouraged to submit their comments, on the form provided, by September 4, 2013.

IASB Exposure Draft – Regulatory Deferral Accounts
April 26, 2013.  The IASB has issued an Exposure Draft of a proposed interim standard on rate-regulated activities. Canadian stakeholders are encouraged to submit their comments to the IASB by September 4, 2013.

Request for Information – Rate Regulation
April 2, 2013. The IASB has issued a Request for Information to assist it in determining the scope of its comprehensive project on rate-regulated activities. Canadian stakeholders are encouraged to submit their comments to the IASB by May 30, 2013.

Amendment to Handbook – Rate-regulated Activities
March 1, 2013. The AcSB has issued the amendment to the Introduction to Part I of the CICA Handbook – Accounting to defer the mandatory IFRS changeover date to January 1, 2015.

Update – Rate-regulated Activities
February 14, 2013. The AcSB has extended the existing deferral of the mandatory IFRS changeover date for entities with qualifying rate-regulated activities by an additional year to January 1, 2015.

Nominations for Consultative Group – Rate-regulated Activities
January 31, 2013. The IASB is seeking nominations for a consultative group being established to assist with its recently reactivated project.

AcSB Decision Summary – January 16, 2013
The AcSB discussed recent international developments including the IASB’s decision, subject to written ballot, to develop an exposure draft for an interim standard to provide guidance on the accounting for rate-regulated activities until its comprehensive project is completed. 

The AcSB agreed to monitor the progress of this project at the IASB and will discuss at a later date whether there is any action that the AcSB should take.

Update – Rate-regulated Activities
January 3, 2013. The IASB has decided to develop an interim IFRS for use until it completes its comprehensive project.

AcSB Decision Summary – November 7-8, 2012
The AcSB discussed recent international developments, including:

  • the IASB’s decision to restart its previous Rate-regulated Activities project with the development of a discussion paper (see Update – Rate-regulated Activities); and
  • IASB and IFRS Advisory Council discussions on whether the IASB should develop an interim IFRS in the shorter term, and what the different options are for such an interim IFRS, should the IASB decide to develop one.

No decisions were taken.

Update – Rate-regulated Activities
October 25, 2012. The IASB has decided to restart its Rate-regulated Activities project and will seek input from its IFRS Advisory Council on the need for interim guidance.

Amendment to Handbook – Rate-regulated Activities
October 1, 2012. The AcSB has issued the amendment to the Introduction to Part I of the CICA Handbook – Accounting to defer the mandatory IFRS changeover date to January 1, 2014.

Update – Rate-regulated Activities
September 18, 2012. The AcSB has extended the existing deferral of the mandatory IFRS changeover date for entities with qualifying rate-regulated activities by an additional year to January 1, 2014.

AcSB Decision Summary – September 5-6, 2012
The AcSB decided to extend the existing deferral of the mandatory IFRS changeover date for entities with qualifying rate-regulated activities by an additional year to January 1, 2014. In an update relating to its earlier extension (to January 1, 2013) of the mandatory changeover date for this sector, the AcSB said it would monitor future developments and consider the need for a further deferral should an interim solution not occur within a year, but remain a possibility. This is the case, given recent statements the IASB has made publicly about the priority it intends to give rate-regulated activities when setting its future agenda. The AcSB decided it was better to end stakeholder uncertainty about a further extension now, than to wait until closer to the end of 2012 to do so. 

The AcSB expects to issue the amendment to the Introduction to Part I of the Handbook in October 2012.

Update – Rate-regulated Activities
July 25, 2012. The AcSB staff summarizes recent international developments relating to rate-regulated activities.

Amendment to Handbook – Rate-regulated Activities
May 1, 2012. The AcSB has issued the amendment to the Introduction to Part I of the CICA Handbook – Accounting to defer the mandatory IFRS changeover date to January 1, 2013.

Update – Rate-regulated Activities 
April 26, 2012. The AcSB staff answers stakeholders’ questions about the AcSB’s one-year extension of the mandatory changeover date to IFRSs for entities with qualifying rate-regulated activities. Get details on the AcSB’s decision and what other actions are being taken to move this topic forward. 

AcSB Decision Summary – March 20-21, 2012
The AcSB decided to extend the deferral of the mandatory IFRS changeover date for entities with qualifying rate-regulated activities by one year to January 1, 2013, in light of recent discussions of the IASB’s future agenda. Those discussions suggest an increased possibility that the IASB may:

  • address rate-regulated activities as part of its future agenda; and
  • develop interim guidance in the meantime that, in effect, would allow the continuation of accounting practices in accordance with pre-changeover standards in Part V of the Handbook.  

The deferral of the mandatory changeover date for an additional year will permit the AcSB to consider the actions it might take should the IASB add to its agenda a project on the effects of rate regulation.

The AcSB expects to issue the amendment to the Introduction to Part I of the Handbook in May 2012.

IASB Roundtable – Rate-regulated Activities
March 14, 2012. The AcSB hosted an IASB roundtable discussion of its July 2011 Request for Views, “Agenda Consultation 2011” in Toronto. Discussions focused largely on rate-regulated activities. An audio recording of the roundtable is available on the IASB’s website.

AcSB Roundtable – Rate-regulated Activities
October 26, 2011. The AcSB hosted a roundtable discussion between constituents and the IASB Vice-Chair in order to provide a Canadian perspective on required next steps by the IASB.

Background Information and Basis for Conclusions – Rate-regulated Activities
December 15, 2010. A Basis document is now available regarding an amendment to the Introduction to Part I of the CICA Handbook – Accounting.

AcSB Decision Summary – October 13, 2010
The AcSB considered a request from an industry association:

  • to extend, by an additional year, the recently approved optional one-year deferral of the mandatory date for first-time adoption of IFRSs by entities with rate-regulated activities; 
  • to continue to work with and attempt to influence the IASB in support of the recognition of regulatory assets and regulatory liabilities; and
  • during the requested two-year deferral period, to develop an interim solution that would remain in place until issues relating to rate-regulated activities have been appropriately resolved.

The AcSB also considered suggestions received from other stakeholders to replace the deferral with new Handbook guidance requiring entities with rate-regulated activities to adopt IFRSs as originally planned except for the treatment of rate regulation.

The AcSB decided against amending or replacing the one-year deferral incorporated recently into Part I of the CICA Handbook — Accounting. The AcSB observed that the IASB’s decision to consult constituents in 2011 on whether issues relating to rate-regulated activities should be considered in a project in its post-2011 agenda means that those issues will remain unresolved for some time. The AcSB concluded that it would not be appropriate to:

  • prolong the continued use of Part V of the Handbook by entities in this sector beyond the additional year it has already approved; or
  • create a “Part VI” to the Handbook for use in the interim. Developing such guidance would be very difficult and time-consuming. Adopting this approach would also introduce complications for entities in terms of applying IFRS 1 First-time Adoption of International Financial Reporting Standards, an inability to claim compliance with IFRSs, and, for SEC registrants, the continued need to provide a reconciliation to US GAAP. 

The AcSB noted that either alternative would put Canadian reporting issuers with rate-regulated activities in contravention of recently amended Canadian Securities Administrators’ regulations that incorporate the AcSB’s one-year deferral. 

The AcSB encourages current efforts on the part of entities with rate-regulated activities and their auditors to work together to determine the extent to which the actions of rate regulators result in assets and liabilities that can be recognized in accordance with existing IFRSs.

Amendment to Handbook – Rate-regulated Activities
October 1, 2010. The AcSB has issued the amendment to the Introduction to Part I of the CICA Handbook – Accounting to defer the mandatory IFRS changeover date to January 1, 2012.

IASB Update – Rate-regulated Activities
September 2010. The IASB rejected a staff recommendation to explicitly prohibit the recognition of regulatory assets and liabilities under current IFRSs. It reconfirmed that the issues relating to this topic cannot be resolved quickly and decided the next step should be to consider whether to include rate-regulated activities in its future agenda.

AcSB Decision Summary – September 7-8, 2010
The AcSB redeliberated the proposals in its July 2010 Exposure Draft, “Adoption of IFRSs by Entities with Rate-regulated Activities” based on comments received.  The AcSB decided to amend the Introduction to Part I of the CICA Handbook – Accounting to require:

(a)qualifying entities with rate-regulated activities, investment companies and segregated accounts of life insurance enterprises to adopt IFRSs for the first time no later than interim and annual financial statements relating to annual periods beginning on or after January 1, 2012; and
(b)entities electing to defer the first-time adoption of IFRSs to disclose that fact.

The AcSB plans on publishing the amendment no later than October 1, 2010.

The AcSB noted that, on September 16, 2010, the IASB will consider whether to amend existing IFRSs to make clear that they do not permit the recognition of regulatory assets and regulatory liabilities, and incorporate issues relating to rate regulation into a future comprehensive project on intangible assets.  The AcSB decided that, in view of this and other recent standard-setting activities in this area, entities with rate-regulated activities may need additional time to prepare themselves and users of their financial statements for IFRSs. The AcSB decided that an optional deferral of the mandatory IFRS changeover date for this sector was warranted and that the deferral should last for one year only, regardless of the disposition of the IASB’s Rate-regulated Activities project.

The AcSB reaffirmed its decision that the deferral should be limited to entities that have activities subject to cost-based regulation and that recognize regulatory assets and regulatory liabilities.  Accordingly, the deferral applies to the consolidated financial statements of parents of qualifying entities with rate-regulated activities, but does not extend to the financial statements of any subsidiaries that do not, themselves, qualify to use the deferral.

Exposure Draft –  Rate-regulated Activities
July 28, 2010. The AcSB has issued an Exposure Draft proposing that qualifying entities with rate-regulated activities be permitted to defer the adoption of IFRSs by two years. Comments, on the form provided, are requested by August 31, 2010.

IASB Update – Rate-regulated Activities
July 2010. The IASB redeliberated its proposals based on comments received on its Exposure Draft. It decided to continue work on this project as time and resources permit. The IASB also decided not to develop transitional guidance for use by first-time adopters of IFRSs until a final standard is available.

AcSB Decision Summary – July 14. 2010
The AcSB discussed the status and expected timing of the IASB’s Rate-regulated Activities project based on the agenda papers prepared for the IASB’s meeting of July 20, 2010. No decisions were taken.

AcSB Response – Rate-regulated Activities
November 20, 2009. The AcSB has submitted a comment letter responding to the IASB’s Exposure Draft.

Rate-regulated Activities Roundtable
October 5, 2009. Attend a roundtable discussion on October 27, 2009 to share your views on the IASB’s Exposure Draft.

Exposure Draft – Rate-regulated Activities
September 2009. The AcSB has issued an Exposure Draft to adopt a standard on rate-regulated activities. This Exposure Draft corresponds to the IASB's Exposure Draft on this topic. The standard will apply to publicly accountable enterprises at changeover to IFRSs. Comments are requested by November 20, 2009. 

Exposure Draft – Rate-regulated Activities
July 2009. The IASB has issued an Exposure Draft proposing an IFRS on this topic. Comments are requested by November 20, 2009.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.