IASB issues IFRS 20 to improve financial reporting for companies subject to rate regulation

Yesterday, the International Accounting Standards Board (IASB) 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.

IFRS 20 is effective for annual reporting periods beginning on or after 1 January 2029. Companies may choose to apply the Standard earlier.

IFRS 20 supplements the information a company provides when applying IFRS 15 Revenue from Contracts with Customers and replaces IFRS 14 Regulatory Deferral Accounts.

Background

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. In Germany, for example, these are the transmission system operators.

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. 

Currently, there are no specific provisions in IFRS for the accounting treatment of rate regulated transactions. As a result, companies have applied different accounting models. The new standard now requires companies subject to rate regulation to recognise regulatory assets and regulatory liabilities and corresponding regulatory income and regulatory expenses.

IFRS 20 is expected to reduce diversity in accounting practices and improve comparability between companies in regulated industries.

Further information is available on the IFRS Foundation’s website.