IFRS 14 Regulatory Deferral Accounts
IFRS 14 prescribes special accounting for the effects of rate regulation. Rate regulation is a legal framework for establishing the prices that a public utility or similar entity can charge to customers for regulated goods or services.
Rate regulation can create a regulatory deferral account balance.
What is a regulatory deferment account?
A regulatory deferral account balance is an amount of expense or income that would not be recognised as an asset or liability in accordance with other Standards, but that qualifies to be deferred in accordance with IFRS 14, because the amount is included, or is expected to be included, by a rate regulator in establishing the price(s) that an entity can charge to customers for rate-regulated goods or services.
IFRS 14 permits a first-time adopter within its scope to continue to account for regulatory deferral account balances in its IFRS financial statements in accordance with its previous GAAP when it adopts IFRS Standards. However, IFRS 14 introduces limited changes to some previous GAAP accounting practices for regulatory deferral account balances, which are primarily related to the presentation of those balances.
Standard history
In January 2014 the International Accounting Standards Board issued IFRS 14 Regulatory Deferral Accounts. IFRS 14 permits a first-time adopter of IFRS Standards that is within its scope to continue to recognise and measure its regulatory deferral account balances in its first and subsequent IFRS financial statements in accordance with its previous GAAP.
Other Standards have made minor consequential amendments to IFRS 14, including IFRS 17 Insurance Contracts (issued May 2017) and Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018).
Source: IFRS.org
Frequently asked questions
What is a deferred expense in IFRS
The expense which reaps benefit to the organization for more than a year is termed a deferred expense, and it is shown under the non-current asset in the balance sheet and to be amortized on a systematic basis; in other words, it is the type of advance payment of the expense which gives benefit in future years.
What is the net movement in the regulatory deferral account balance
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]
What are the two types of deferrals
There are two types of deferrals, namely expense deferral and revenue deferral. Deferral of an expense refers to the cash payment of an expense made in advance, but the reporting of such expense is made at some later time.
What accounts are deferral
A deferral accounts for expenses that have been prepaid, or early receipt of revenues. In other words, it is payment made or payment received for products or services not yet provided.
Are deferrals a liability
Deferred revenue is recorded as a short-term liability on a company's balance sheet. Money received for the future product or service is recorded as a debit to cash on the balance sheet.
What is the journal entry for deferral
A deferred revenue journal entry is a financial transaction to record income received for a product or service that has yet to be delivered. Deferred revenue, also known as unearned revenue or unearned income, happens when a customer prepays a company for something.
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