12/04/2021 - EFRAG draft comment letter on Rate-regulated Activities
EFRAG has published its draft comment letter on the IASB Exposure Draft ED/2021/1 Regulatory Assets and
Regulatory Liabilities and seeks constituents' views on the proposals. Comments on the draft comment letter are requested by 28 July 2021.
In its draft comment letter EFRAG welcomes the IASB's efforts to address the accounting for regulatory assets and regulatory liabilities and respond to stakeholders' requests to conclude on whether rate regulation creates enforceable rights and obligations which could qualify for recognition as assets and liabilities. Overall, EFRAG agrees with the IASB proposals and considers that the benefits would outweigh the costs for both users and preparers.
At the same time EFRAG attracts attention to the following points:
Objective and scope
EFRAG supports the IASB’s overall objective to develop an accounting model for regulatory assets and regulatory liabilities but is seeking views of constituents on the possible unintended consequences on the impact of the scope outside the utilities sector.
Total allowed compensation
EFRAG supports the three proposed components of the total allowed compensation except for the treatment of construction work in progress ('CWIP'). For CWIP, EFRAG seeks views of constituents on whether, in cases where the regulatory agreement allows regulatory returns to be charged to customers during construction, such returns should be included in the total allowed compensation during the construction period or only when the asset is put in use.
Measurement
EFRAG supports the proposed cash-flow
measurement technique, but disagrees with the proposed application of a
minimum adequate rate as the discount rate for regulatory assets, when the
regulatory interest rate provided is insufficient. EFRAG also seeks views of constituents on whether the regulatory assets and liabilities should be discounted using the regulatory rate or using the general principles in the existing IFRS Standards.
Disclosure
EFRAG agrees with the proposed overall disclosure objective. However, it considers that the level of detail required to meet the specific disclosure objectives might impose a significant burden on reporting entities to generate the information.
Proposed amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IFRS 3 Business Combinations
EFRAG questions the reclassification of goodwill-related regulatory balances to goodwill suggested in the proposed amendments to IFRS 1 as well as the proposed exception from the recognition and measurement requirements of IFRS 3 and seeks the constituents' views on these topics.
EFRAG draft comment letter can be consulted here.
