The global standard-setter wants feedback on whether or not the distinguishing features of defined rate regulation, as identified by the IASB, sufficiently capture the type(s) of rate regulation that have the most significant financial effects.

A knock-on effect of the review of rate regulation is that IASB is also seeking comments on whether the presentation and disclosure requirements of the interim standard, IFRS 14, Regulatory Deferral Accounts, should form the basis of any future proposals that the IASB may develop as a result of feedback from this consultation.

IFRS 14 was issued in January 2014 as a temporary measure until the IASB concludes this project.

Many governments regulate the supply and pricing of particular types of activity by entities. These activities usually involve providing goods or services that are considered in that jurisdiction to be essential to customers, including transport services, some types of insurance policies, and utilities such as gas, electricity and water. Some forms of rate regulation can significantly affect not only the amount of revenue and profit that a rate-regulated entity can earn, but also the timing of the related cash flows.

The IASB definition set out in the discussion paper interprets defined rate regulation as the type of rate regulation that contains elements of both cost recovery and incentive approaches.

However, it should be noted the discussion paper does not include any specific accounting proposals. Instead, it explores what information about rate-regulated activities is most useful to users of financial statements and outlines possible approaches (and the accompanying advantages and disadvantages) that the IASB could consider in deciding how best to report the financial effects of rate regulation.

The Discussion Paper Reporting the Financial Effects of Rate Regulation is available for comment until 15 January 2015.

A high level ‘Snapshot’ summary of the Discussion Paper is available here.