IFRS 14

Regulatory Deferral Accounts

1Objective and scope

IFRS 14 permits an entity that is a first-time adopter of IFRS to continue to account for regulatory deferral account balances (amounts arising from rate-regulated activities, where a regulator sets prices an entity may charge customers) in accordance with its previous GAAP, both on adoption of IFRS and in subsequent financial statements. It is explicitly an interim standard, pending the completion of a broader IASB project on rate-regulated activities.

2Key definitions

Rate regulation

A framework in which a rate regulator establishes prices an entity can charge its customers for goods or services, and that binding price establishment is designed to recover the entity's allowable costs of providing those goods or services.

Regulatory deferral account balance

The balance of an expense (or income) account that would not be recognised as an asset or liability under other IFRSs, but that qualifies for deferral under the entity's previous GAAP rate-regulated accounting.

3Recognition and presentation

IFRS 14 is available only to a first-time adopter that recognised regulatory deferral account balances under its previous GAAP; an existing IFRS preparer cannot begin using it. If an entity elects to apply IFRS 14, it must apply it to all of the regulatory deferral account balances arising from its rate-regulated activities - it is not a line-by-line choice.

Regulatory deferral account balances (debit and credit) are presented as SEPARATE line items in the statement of financial position, distinct from the assets and liabilities recognised under other IFRSs
The net movement in regulatory deferral account balances for the period is presented as a separate line item in the statement of profit or loss and other comprehensive income, outside the subtotal for profit or loss determined in accordance with other IFRSs

4Presentation and disclosure

The nature of, and risks associated with, the rate regulation establishing the prices the entity charges customers for goods or services
The effects of that rate regulation on the entity's financial position, financial performance and cash flows

5Examinable focus

What KASNEB tests

A very narrow, rarely-applied standard (few new IFRS adopters remain, and Kenya's rate-regulated entities - e.g. certain utilities - largely predate it). Candidates mainly need to recognise that it exists, that it is available only to first-time adopters, and that it ring-fences regulatory balances outside ordinary assets, liabilities and profit or loss rather than blending them in.