PFRS 14

Regulatory Deferral Accounts

Contents

● Overview of IFRS 14
● History of IFRS 14
● Objective and Scope of PFRS 14
● Key definitions
● Presentation in financial statements
● Disclosures
● Effective date
Overview of IFRS 14

IFRS 14 Regulatory Deferral Accounts permits an entity which is a first-time

adopter of International Financial Reporting Standards to continue to account,
with some limited changes, for 'regulatory deferral account balances' in
accordance with its previous GAAP, both on initial adoption of IFRS and in
subsequent financial statements. Regulatory deferral account balances, and
movements in them, are presented separately in the statement of financial
position and statement of profit or loss and other comprehensive income,
and specific disclosures are required.

IFRS 14 was originally issued in January 2014 and applies to an entity's first
annual IFRS financial statements for a period beginning on or after 1 January
2016.
History of IFRS 14
Objective

The objective of IFRS 14 is to specify the financial reporting requirements for

'regulatory deferral account balances' that arise when an entity provides good
or services to customers at a price or rate that is subject to rate regulation. [IFRS
14:1]

IFRS 14 is designed as a limited scope Standard to provide an interim, short-term

solution for rate-regulated entities that have not yet adopted International
Financial Reporting Standards (IFRS). Its purpose is to allow rate-regulated
entities adopting IFRS for the first-time to avoid changes in accounting policies
in respect of regulatory deferral accounts until such time as the International
Accounting Standards Board (IASB) can complete its comprehensive project on
rate regulated activities.
Scope

IFRS 14 is permitted, but not required, to be applied where an entity

conducts rate-regulated activities and has recognised amounts in its
previous GAAP financial statements that meet the definition of 'regulatory
deferral account balances' (sometimes referred to 'regulatory assets' and
'regulatory liabilities'). [IFRS 14.5]
Scope

Entities which are eligible to apply IFRS 14 are not required to do so, and so can
choose to apply only the requirements of IFRS 1 First-time Adoption of
International Financial Reporting Standards when first applying IFRSs. The
election to adopt IFRS 14 is only available on the initial adoption of IFRSs,
meaning an entity cannot apply IFRS 14 for the first time in financial statements
subsequent to those prepared on the initial adoption of IFRSs. However, an
entity that elects to apply IFRS 14 in its first IFRS financial statements must
continue to apply it in subsequent financial statements. [IFRS 14.6]

When applied, the requirements of IFRS 14 must be applied to all regulatory

deferral account balances arising from an entity's rate-regulated activities. [IFRS
14.8]
Scope

PFRS 14 is an optional standard that is available only to first-time adopters. Existing PFRS
users are prohibited from using PFRS 14.

PFRS 14 is intended to provide first-time adopters temporary relief from derecognizing

rate-regulated assets and liabilities that the first-time adopter has recognized under its
previous GAAP pending IASB’s final decision on rate-regulated activities.

A first-time adopter is allowed, but is not required, to apply PFRS 14 in its first PFRS
financial statements if the first-time adopter conducts rare-regulated activities and has
recognized regulatory deferral accounts under with its previous GAAP.
An entity is allowed to apply PFRS 14 in subsequent periods only if it has applied
PFRS 14 in its first PFRS financial statements.

CFAS 2024 Edition by Zeus Vernon B. Millan

Key Definitions

PFRS 14 specifies the financial reporting requirements for regulatory deferral

account balances arising from the sale of goods or services that are subject to
rate regulation.

❏ Regulatory deferral account balance

❏ Rate regulation
❏ Rate regulator

CFAS 2024 Edition by Zeus Vernon B. Millan

Key Definitions
❏ Regulatory deferral account balance - “the balance of any expense (or income)
account that would not be recognized as an asset or a liability in accordance with
other Standards, but that qualifies for deferral because it is included, or is expected
to be included by the rate regulator in establishing the rate(s) that can be charged to
customers”.
❏ Rate regulation- “a framework for establishing the prices that can be charged to
customers for goods or services and that framework is subject to oversight and/or
approval by a rate regulator”.
❏ Rate regulator- “an authorized body that empowered by statute or regulation to
establish the rate or a range of rates that bind an entity. The rate regulator may be a
third-party body or a related party of the entity, including the entity’s own governing
board, if that body is required by statute or regulation to set rates both in the interest
of the customers and to ensure the overall financial viability of the entity.

CFAS 2024 Edition by Zeus Vernon B. Millan

Accounting policies for regulatory deferral account balances

IFRS 14 provides an exemption from paragraph 11 of IAS 8 Accounting Policies,

Changes in Accounting Estimates and Errors when an entity determines its
accounting policies for regulatory deferral account balances. [IFRS 14.9]
Paragraph 11 of IAS 8 requires an entity to consider the requirements of IFRSs
dealing with similar matters and the requirements of the Conceptual Framework
when setting its accounting policies.

The effect of the exemption is that eligible entities can continue to apply the
accounting policies used for regulatory deferral account balances under the
basis of accounting used immediately before adopting IFRS ('previous GAAP')
when applying IFRSs, subject to the presentation requirements of IFRS 14 [IFRS
14.11].
Accounting policies for regulatory deferral account balances

Entities are permitted to change their accounting policies for regulatory deferral
account balances in accordance with IAS 8, but only if the change makes the
financial statements more relevant and no less reliable, or more reliable and not
less relevant, to the economic decision-making needs of users of the entity's
financial statements. However, an entity is not permitted to change accounting
policies to start to recognise regulatory deferral account balances. [IFRS 14.13]
Summary of principles under PFRS 14

Continuation of existing accounting policy

A first-time adopter continues to apply its previous GAAP to the recognition,
measurement, impairment and derecognition of regulatory deferral account balances,
except for changes in accounting policies and the presentation of regulatory deferral
accounts.
Changes in accounting policy
An entity may change its accounting policy if the change results in more relevant,
information. An entity shall use the criteria in PAS 8 when judging relevance and reliability.
However, an entity is prohibited from changing its accounting policy in order to start
recognizing regulatory deferral account balances.
Interaction with other Standards

The requirements of other IFRSs are required to be applied to regulatory

deferral account balances, subject to specific exceptions, exemptions and
additional requirements contained in IFRS 14 [IFRS 14.16]. These are briefly
summarised below: [IFRS 14.B7-B28]
Interaction with other Standards
Interaction with other Standards
Interaction with other Standards

If the entity had recognized regulatory deferral account balances in respect of

its subsidiary, associate or joint venture, it shall make separate disclosures for
those balances in relation to the disclosure requirements of PFRS 12.

In all other cases, subject to the exceptions listed above, other PFRS shall be
applied whenever they are relevant to the accounting for regulatory deferral
account balances.

For example, PAS 21 The effect of Changes in Foreign Exchange Rates is

applied when translating regulatory deferral account balances that are
denominated in a foreign currency.
Presentation in financial statements

The impact of regulatory deferral account balances are separately presented in an entity's
financial statements. This requirements applies regardless of the entity's previous
presentation policies in respect of regulatory deferral balance accounts under its previous
GAAP. Accordingly:

Separate line items are presented in the statement of financial position for the total of all
regulatory deferral account debit balances, and all regulatory deferral account credit
balances [IFRS 14.20] Regulatory deferral account balances are not classified between
current and non-current, but are separately disclosed using subtotals [IFRS 14.21] The net
movement in regulatory deferral account balances are separately presented in the
statement of profit or loss and other comprehensive income using subtotals [IFRS 14.22-
23]
Presentation in Statement of Financial Position

Separate line items are presented for the totals of:

a. Regulatory deferral account debit balances; and

b. Regulatory deferral account credit balances

The regulatory deferral account balances are not presented as current or

noncurrent. Instead, they are presented separately from the sub-totals of assets
and liabilities that are presented in accordance with other Standards.
Illustration: Assets section of a Statement of financial position
2023 2024

Cash and cash equivalents 1,000 5,000

Trade and other receivables 3,000 1,000

Inventories 4,000 3,000

Total current assets 8,000 9,000

Property, plant and equipment 6,000 7,000

Total noncurrent assets 6,000 7,000

Total assets 14,000 16,000

Regulatory deferral account debit balances 2,000 1,000

Total assets and regulatory deferral account debit 16,000 17,000

balances
Statement of profit or loss and other comprehensive income

Separate line items are presented:

a. In other comprehensive income for the net movement of regulatory
deferral account balances that relate to items recognized in OCI, showing
distinctions between those that will be and will not be reclassified to profit
or loss; and
b. In profit or loss for the remaining net movement of regulatory deferral
account balances, excluding movements that are not reflected in profit or
loss.
Disclosures

IFRS 14 sets out disclosure objectives to allow users to assess: [IFRS 14.27]

❖ the nature of, and risks associated with, the rate regulation that establishes the
price(s) the entity can charge customers for the goods or services it provides -
including information about the entity's rate-regulated activities and the rate-setting
process, the identity of the rate regulator(s), and the impacts of risks and
uncertainties on the recovery or reversal of regulatory deferral balance accounts

❖ the effects of rate regulation on the entity's financial statements - including the basis
on which regulatory deferral account balances are recognised, how they are
assessed for recovery, a reconciliation of the carrying amount at the beginning and
end of the reporting period, discount rates applicable, income tax impacts and
details of balances that are no longer considered recoverable or reversible.
Effective date

Where an entity elects to apply it, IFRS 14 is effective for an entity's first annual IFRS
financial statements that are for a period beginning on or after 1 January 2016. The
standard can be applied earlier, but the entity must disclose when it has done so. [IFRS
14.C1]
Thank you..