1. Objective of IFRS 14

IFRS 14 allows a first-time adopter of IFRS to continue previous GAAP accounting for regulatory deferral account balances when transitioning to IFRS.

📌 This standard only applies to entities that:

• Are first-time adopters of IFRS, AND

• Conduct business in rate-regulated activities (e.g., electricity, water, gas providers)

Entities that already apply IFRS cannot start using IFRS 14.

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2. What Are Regulatory Deferral Accounts?

These are amounts that rate-regulated entities defer or accumulate because the regulator allows the entity to:

• Recover costs from future customers

• Refund amounts to future customers

➡ These balances arise due to rate regulation, not IFRS rules.

Example of rate regulation:
Regulator approves electricity prices and allows the entity to recover specific costs through future tariffs.

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3. Recognition Under IFRS 14

Entities may continue recognizing regulatory deferral account balances:

• Using previous GAAP policies

• Until IFRS issues a comprehensive new standard on rate regulation

They cannot introduce new deferral accounts that did not exist under previous GAAP.

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4. Measurement

Measurement must follow previous GAAP, not IFRS.

Entities must:

• Keep same policies consistently

• Test balances for recoverability when previous GAAP requires it

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5. Presentation Requirements

5.1 Separate Line Items

Must present regulatory deferral account balances:

• Separately on the statement of financial position

  • Deferred account debit balances (assets)

  • Deferred account credit balances (liabilities)

5.2 Separate Line in Profit or Loss

Effects of movements must be shown as:

• Regulatory deferral account debit/credit adjacent to profit or loss total

5.3 Disclosures

Disclose:

• Nature and risks of regulatory deferral accounts

• Basis of measurement

• Reconciliation of opening and closing balances

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6. Practical Examples

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Example 1: Recoverable Cost (Regulatory Asset)

A power company experiences unexpected maintenance cost:

• Actual maintenance cost: $10 million

• Regulator approves recovery through future tariffs

Under previous GAAP, the company records:

➡ Under IFRS 14, the company continues using this treatment.

Later, when recovering through tariffs:

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Example 2: Over-Recovery (Regulatory Liability)

A gas supplier sets prices too high during winter:

• Over-recovery: $3 million

• Must return to customers through lower future rates

Under previous GAAP:

When refunded through lower tariffs:

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Example 3: First-Time IFRS Adopter

A Cambodian water utility moving from national GAAP to IFRS:

Previous GAAP shows:

• Regulatory asset = $2,000,000

• Regulatory liability = $500,000

Under IFRS 14, on transition date:

Entity continues recognizing both amounts as separate line items:

No adjustment needed unless required by previous GAAP.

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Example 4: Presentation in Financial Statements

Statement of Financial Position

Assets

• Regulatory deferral account: $6,000,000

Liabilities

• Regulatory deferral account: $1,500,000

Statement of Profit or Loss

Profit for the year: $12,000,000
Regulatory deferral movement (net): +$2,000,000
Total comprehensive income: $14,000,000

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7. Key Points to Remember (Exam Focus)

✔ IFRS 14 applies only to first-time adopters of IFRS
✔ Entities can continue old GAAP for regulatory balances
✔ Must show separate line items for:

• Regulatory assets

• Regulatory liabilities
  ✔ Effects shown separately in profit or loss
  ✔ Extensive disclosures required
  ✔ Cannot start new policies not allowed under old GAAP
  ✔ Standard is temporary until a full IFRS on rate regulation is developed