IASB proposes new rate regulation standard

The International Accounting Standards Board (IASB) has published proposals for a new IFRS accounting standard that would “require companies subject to rate regulation to give investors better information about their financial performance”. 

According to the board, rate regulation, which is common in some industries, determines the amount a company can charge its customers for “goods or services supplied to them and the period when the company can charge that amount”.

However in some cases, the period when a company supplies goods or services differs from the period when the company can charge customers for those goods or services—and thus “differs from the period when the company reports revenue in its income statement”.

The new proposed IASB standard would introduce a “requirement for companies to give investors such information” by reporting regulatory assets and regulatory liabilities in their balance sheet, and related regulatory income and regulatory expense in their income statement”.

Currently, IFRS standards do not require companies to give investors information about those differences in timing.

The IASB believes that the information would “help investors understand which fluctuations in the relationship between a company’s revenue and expenses are caused by differences in timing and enable investors to make better assessments of the company’s prospects for future cash flows”.

Hans Hoogervorst, chair of the IASB, said: “Rate regulation can have a big impact on a company’s revenue and profit, but currently investors don’t get the full picture of this impact. Our proposed new IFRS standard will require additional information to give investors a more complete picture.”