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:
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Are first-time adopters of IFRS, AND
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Conduct business in rate-regulated activities (e.g., electricity, water, gas providers)
Entities that already apply IFRS cannot start using IFRS 14.
2. What Are Regulatory Deferral Accounts?
These are amounts that rate-regulated entities defer or accumulate because the regulator allows the entity to:
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Recover costs from future customers
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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.
3. Recognition Under IFRS 14
Entities may continue recognizing regulatory deferral account balances:
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Using previous GAAP policies
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Until IFRS issues a comprehensive new standard on rate regulation
They cannot introduce new deferral accounts that did not exist under previous GAAP.
4. Measurement
Measurement must follow previous GAAP, not IFRS.
Entities must:
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Keep same policies consistently
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Test balances for recoverability when previous GAAP requires it
5. Presentation Requirements
5.1 Separate Line Items
Must present regulatory deferral account balances:
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Separately on the statement of financial position
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Deferred account debit balances (assets)
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Deferred account credit balances (liabilities)
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5.2 Separate Line in Profit or Loss
Effects of movements must be shown as:
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Regulatory deferral account debit/credit adjacent to profit or loss total
5.3 Disclosures
Disclose:
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Nature and risks of regulatory deferral accounts
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Basis of measurement
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Reconciliation of opening and closing balances
6. Practical Examples
Example 1: Recoverable Cost (Regulatory Asset)
A power company experiences unexpected maintenance cost:
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Actual maintenance cost: $10 million
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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:
Example 2: Over-Recovery (Regulatory Liability)
A gas supplier sets prices too high during winter:
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Over-recovery: $3 million
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Must return to customers through lower future rates
Under previous GAAP:
When refunded through lower tariffs:
Example 3: First-Time IFRS Adopter
A Cambodian water utility moving from national GAAP to IFRS:
Previous GAAP shows:
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Regulatory asset = $2,000,000
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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.
Example 4: Presentation in Financial Statements
Statement of Financial Position
Assets
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Regulatory deferral account: $6,000,000
Liabilities
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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
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:
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Regulatory assets
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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