Rate-regulated Activities

The IASB met on 23 July 2024 regarding the prospective IFRS Accounting Standard on rate-regulated activities (prospective RRA Standard):

• to discuss extending the application of the proposed requirements set out in paragraphs 61 and 69 of the Exposure Draft Regulatory Assets and Regulatory Liabilities (Exposure Draft)—(Agenda Papers 9A–9B);
• to redeliberate the proposed transition requirements and effective date (Agenda Papers 9C–9F); and
• to discuss the re-exposure criteria and the due process requirements (Agenda Papers 9G–9H).

Extending the measurement proposals dealing with items affecting regulated rates on a cash basis (Agenda Paper 9A)

The IASB tentatively decided:

1. not to extend the application of the measurement requirement for items affecting regulated rates only when related cash is paid or received (on a cash basis)—proposed in paragraph 61 of the Exposure Draft—to items affecting regulated rates on other bases.
2. to exempt an entity from discounting the estimates of future cash flows arising from a regulatory asset or regulatory liability if:
   1. the regulatory asset or regulatory liability arises from an item of expense or income that relates to liabilities or assets measured on a present value basis and that affects regulated rates on an accrual basis; and
   2. the entity, having considered all reasonable and supportable information that is available without undue cost or effort, is unable to estimate the amount and timing of those future cash flows.
3. to require an entity that chooses to apply the exemption described in (b) to disclose that fact and also to disclose the carrying amounts at the end of the reporting period of regulatory assets and regulatory liabilities to which the entity has applied that exemption.
4. to include—as another example to which the proposed requirement described in (a) can be applied—expected credit losses that affect regulated rates only once the regulator determines that there is no reasonable expectation of the entity receiving the related cash.

All 14 IASB members agreed with decision (a), eight of 14 IASB members agreed with decision (b) and 12 of 14 IASB members agreed with decision (c).

Seven of 14 IASB members agreed with decision (d). The Chair used his additional casting vote, making the vote eight–seven in favour of the decision.

Extending the presentation proposals dealing with items affecting regulated rates on a cash basis (Agenda Paper 9B)

The IASB tentatively decided to extend the application of the presentation requirement for items affecting regulated rates on a cash basis—proposed in paragraph 69 of the Exposure Draft—to items affecting regulated rates on other bases.

Seven of 14 IASB members agreed with this decision. The Chair used his additional casting vote, making the vote eight–seven in favour of the decision.

Transition—Analysis of the proposals for retrospective application (Agenda Paper 9C)

The IASB tentatively decided to permit an entity already applying IFRS Accounting Standards to apply the prospective RRA Standard retrospectively either in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors or by using a modified retrospective approach.

Thirteen of 14 IASB members agreed with this decision.

The IASB tentatively decided, regardless of which transition approach the entity elects in applying the prospective RRA Standard:

1. to require the entity to restate comparative information for the period immediately preceding the period in which the prospective RRA Standard is first applied (the comparative period); and
2. to permit the entity either to restate comparative information or to present unadjusted comparative information for any earlier periods presented and, if the entity presents unadjusted comparative information, to require the entity to identify clearly the comparative information that has not been adjusted, disclose that the comparative information has been prepared on a different basis and explain that basis.

Thirteen of 14 IASB members agreed with these decisions.

The IASB also tentatively decided:

1. to amend IFRS 1 First-time Adoption of International Financial Reporting Standards to permit a first-time adopter to use a modified retrospective approach in applying the prospective RRA Standard;
2. to retain the proposal in the Exposure Draft to require a first-time adopter to present comparative information in accordance with the requirements in IFRS 1 (and the definition of the date of transition to IFRSs [IFRS Accounting Standards] in IFRS 1); and
3. to retain the amendments proposed in the Exposure Draft:
   1. to align the terminology and requirements in the deemed cost exemption in paragraph D8B of IFRS 1 with the prospective RRA Standard; and
   2. to delete paragraph 39V of IFRS 1.

All 14 IASB members agreed with these decisions.

Transition reliefs (Agenda Paper 9D)

The IASB tentatively decided:

1. to require an entity using the modified retrospective approach to state that fact, disclose which transition reliefs it has applied and, where appropriate, describe how it has applied them;
2. to permit an entity using the modified retrospective approach whose regulatory capital base has a direct relationship with its property, plant and equipment to limit the application of the requirements for regulatory returns on assets not yet available for use to assets that are not yet available for use at the beginning of the comparative period; and
3. to permit an entity using the modified retrospective approach:
   1. to use hindsight; and
   2. to use the regulatory interest rate at the beginning of the comparative period as the regulatory interest rate for the purpose of applying the requirements for discounting estimates of future cash flows, including the minimum interest rate and the uneven regulatory interest rate requirements.

All 14 IASB members agreed with these decisions.

The IASB tentatively decided, regardless of which transition approach an entity elects in applying the prospective RRA Standard (that is, retrospectively either in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors or by using the modified retrospective approach):

1. to require the entity to disclose the quantitative information required by paragraph 28(f) of IAS 8 for the comparative period; and
2. to permit, but not require, the entity to disclose the quantitative information required by paragraph 28(f) of IAS 8 for the current period or for any earlier periods presented.

All 14 IASB members agreed with these decisions.

The IASB also tentatively decided to amend IFRS 1:

1. to permit a first-time adopter to apply any of the transition reliefs in the prospective RRA Standard, except that a first-time adopter that applies the exemption in paragraph D8B of IFRS 1:
   1. is not permitted to apply the transition relief for regulatory returns on assets not yet available for use; and
   2. is required instead to apply prospectively the requirement to account for a regulatory asset arising from regulatory returns on assets not yet available for use.
2. to require a first-time adopter applying any transition reliefs in the prospective RRA Standard to disclose which reliefs it has applied and, where appropriate, describe how it has applied them.

All 13 IASB members present agreed with these decisions. One member was absent.

Past business combinations (Agenda Paper 9E)

The IASB tentatively decided:

1. not to include the requirement proposed in the Exposure Draft for an entity to apply the retrospective or simplified approach to regulatory assets acquired or regulatory liabilities assumed in a past business combination, but instead to require the entity to apply the transition requirements of the prospective RRA Standard to these regulatory assets and regulatory liabilities;
2. to require an entity applying the transition requirements of the prospective RRA Standard to take the net adjustment to retained earnings (or another category of equity, as appropriate), including in that net adjustment adjustments related to regulatory assets acquired and regulatory liabilities assumed in a past business combination; and
3. to omit the proposal in the Exposure Draft to amend paragraph C4 of IFRS 1 to specify how a first-time adopter accounts for the derecognition of goodwill-related regulatory balances.

All 14 IASB members agreed with these decisions.

Effective date (Agenda Paper 9F)

The IASB tentatively decided to require an entity to apply the prospective RRA Standard for annual periods beginning on or after 1 January 2029, with earlier application permitted.

Seven of 14 IASB members agreed with this decision. The Chair used his additional casting vote, making the vote eight–seven in favour of the decision.

Consideration of the re-exposure criteria (Agenda Paper 9G)

The IASB decided that re-exposure of the proposals in the Exposure Draft with the changes made by its tentative decisions is not required.

All 14 IASB members agreed with this decision.

Due process requirements (Agenda Paper 9H)

All 14 IASB members confirmed they were satisfied the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the prospective RRA Standard.

Three IASB members indicated an intention to dissent from issuing the prospective RRA Standard.