Entities conducting rate regulated activities are required to establish prices to be charged to customers in accordance with a pricing framework that is subject to oversight and/or approval by a rate regulator, often a statutory body.
Rate regulation often gives rise to a difference in timing between the period when the entity supplies goods and services to customers and the period when it is entitled to charge the customers for those goods and services. In such cases, the revenue reported by the entity in its statement of financial performance and the assets and liabilities reported in its statement of financial position do not reflect the ‘complete picture’ of the compensation that the entity is entitled to for the goods and services supplied during that period. Currently, IFRS Standards do not require entities to inform investors about such differences in timing, except in the limited circumstances in which IFRS 14 Regulatory Deferral Accounts applies.
In January 2012, as an interim measure, the International Accounting Standards Board (IASB) issued IFRS 14. IFRS 14 permitted entities conducting rate regulated activities to continue to recognise and measure their regulatory deferral account balances in accordance with their previous GAAP in their first and subsequent IFRS financial statements. As IFRS 14’s scope was limited to entities applying IFRS for the first time, the number of entities applying it has been limited.
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