The Financial Reporting Council (FRC) is objecting to a proposed interim standard published by IASB covering rate regulation, on the grounds that it does not provide a level playing field for all users of International Financial Reporting Standards (IFRSs).
IASB's exposure draft (ED/2013/5), Regulatory Deferral Accounts, sets out an interim standard that would allow entities to preserve the existing accounting policies that they have in place for rate-regulated activities with some modifications designed to enhance comparability.
Under the proposals, an entity that adopts IFRS would be allowed to continue to use its previous GAAP accounting policies as accepted in its local jurisdiction for the recognition, measurement and impairment of regulatory deferral account balances without specifically considering the requirements of paragraph 11 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Entities would be required to present regulatory deferral account balances as separate line items in the statement of financial position and to present movements in those account balances as a separate line item in the statement of profit or loss and other comprehensive income. The ED also requires specific disclosures to identify clearly the nature of, and risks associated with, the rate regulation that has resulted in the recognition of regulatory deferral account balances.
In a draft comment letter setting out its preliminary assessment of the IASB's ED, the FRC says it does not support the proposed interim standard because it is not principles-based. It wants IASB to determine if regulatory deferral account balances are assets and liabilities in accordance with the Conceptual Framework and, if there are not, then it says IASB should be wary of including them in financial statements.
The FRC also says the proposals jeopardise the objective of creating a single set of IFRSs, since different jurisdictions will be permitted to carry forward previous practices and so there will be two or more versions of IASB sanctioned IFRSs. Users will need to determine whether financial statements have applied existing IFRSs or an 'alternative' form of IFRSs, which will erode confidence.
Feedback on FRC's draft comment letter should be sent to Annette Davis at [email protected] by 14 August 2013.
