Accounting for regulatory assets and liabilities

On 28 January 2021, the IASB published an exposure draft entitled Regulatory Assets and Regulatory Liabilities. Historically, certain business sectors - the energy sector, for example - have been subject to regulation by government or administrative authorities.

Keywords: Mazars, Thailand, IFRS, IASB

26 March 2021

These administrative authorities may:

  • determine the prices that companies are entitled to charge customers for goods or services supplied, and
  • decide when these rates apply.

This may have a significant impact on companies engaged in regulated activities, in terms of the amounts to be accounted for as revenue and the timing of their recognition.

Hitherto international accounting standards have provided no specific approach for the recognition of regulatory activities.

The IASB is now proposing an accounting model in which any entity within the scope of this new standard would recognise regulatory assets and liabilities in its statement of financial position.

This model rests on the principle that an entity should reflect the total allowed compensation for goods or services supplied in a given period (i.e. taking the effects of regulation into account in order to make the necessary adjustments).

The comments period runs until 30 June 2021. The exposure draft can be downloaded here.