AASB Standard
AASB 14
June 2014
Regulatory Deferral Accounts
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ISSN 1036-4803
CONTENTS
Preface
Comparison with IFRS
Accounting Standard
AASB 14 Regulatory Deferral Accounts
Paragraphs
Objective 1 – 4
Application Aus4.1 – Aus4.3
Commencement Aus4.4
Scope 5 – 8
Recognition, measurement, impairment and derecognition
Temporary exemption from paragraph 11 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors 9 – 10
Continuation of existing accounting policies 11 – 12
Changes in accounting policies 13 – 15
Interaction with other Standards 16 – 17
Presentation
Changes in presentation 18 – 19
Classification of regulatory deferral account balances 20 – 21
Classification of movements in regulatory deferral account balances 22 – 26
Disclosure
Objective 27 – 29
Explanation of activities subject to rate regulation 30 – 31
Explanation of recognised amounts 32 – 36
Appendices:
A. Defined Terms Page 11
B. Application Guidance Page 12
C. Effective Date and Transition Page 16
DELETED IFRS 14 TEXT Page 17
BASIS FOR CONCLUSIONS Page 18
DISSENTING OPINION Page 19
ILLUSTRATIVE EXAMPLES
(available on the AASB website)
BASIS FOR CONCLUSIONS ON IFRS 14
(available on the AASB website)
Australian Accounting Standard AASB 14 Regulatory Deferral Accounts is set out in paragraphs 1 – 36 and Appendices A – C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. AASB 14 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Preface
Introduction
The Australian Accounting Standards Board (AASB) makes Australian Accounting Standards, including Interpretations, to be applied by:
(a) entities required by the Corporations Act 2001 to prepare financial reports;
(b) governments in preparing financial statements for the whole of government and the General Government Sector (GGS); and
(c) entities in the private or public for-profit or not-for-profit sectors that are reporting entities or that prepare general purpose financial statements.
AASB 1053 Application of Tiers of Australian Accounting Standards establishes a differential reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements:
(a) Tier 1: Australian Accounting Standards; and
(b) Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements.
Tier 1 requirements incorporate International Financial Reporting Standards (IFRSs), including Interpretations, issued by the International Accounting Standards Board (IASB), with the addition of paragraphs on the applicability of each Standard in the Australian environment.
Publicly accountable for-profit private sector entities are required to adopt Tier 1 requirements, and therefore are required to comply with IFRSs. Furthermore, other for-profit private sector entities complying with Tier 1 requirements will simultaneously comply with IFRSs. Some other entities complying with Tier 1 requirements will also simultaneously comply with IFRSs.
Tier 2 requirements comprise the recognition and measurement requirements of Tier 1 but substantially reduced disclosure requirements in comparison with Tier 1.
Australian Accounting Standards also include requirements that are specific to Australian entities. These requirements may be located in Australian Accounting Standards that incorporate IFRSs or in other Australian Accounting Standards. In most instances, these requirements are either restricted to the not-for-profit or public sectors or include additional disclosures that address domestic, regulatory or other issues. These requirements do not prevent publicly accountable for-profit private sector entities from complying with IFRSs. In developing requirements for public sector entities, the AASB considers the requirements of International Public Sector Accounting Standards (IPSASs), as issued by the International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants.
Reduced disclosure requirements
Disclosure requirements under Tier 2 are the same as those under Tier 1.
cOMPARISON WITH IFRS
AASB 14 Regulatory Deferral Accounts incorporates IFRS 14 Regulatory Deferral Accounts issued by the International Accounting Standards Board (IASB). Paragraphs that have been added to this Standard (and do not appear in the text of IFRS ) are identified with the prefix “Aus”, followed by the number of the preceding IASB paragraph and decimal numbering. Paragraphs that apply only to not‑for‑profit entities begin by identifying their limited applicability.
Entities that comply with AASB 14 will simultaneously be in compliance with IFRS 14.
aCCOUNTING STANDARD AASB 14
The Australian Accounting Standards Board makes Accounting Standard AASB 14 Regulatory Deferral Accounts under section 334 of the Corporations Act 2001.
Kevin M. Stevenson
Dated 4 June 2014
Chair – AASB
aCCOUNTING STANDARD AASB 14
Regulatory Deferral Accounts
Objective
1 The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.
2 In meeting this objective, the Standard requires:
(a) limited changes to the accounting policies that were applied in accordance with previous generally accepted accounting principles (previous GAAP) for regulatory deferral account balances, which are primarily related to the presentation of these accounts; and
(b) disclosures that:
(i) identify and explain the amounts recognised in the entity’s financial statements that arise from rate regulation; and
(ii) help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any regulatory deferral account balances that are recognised.
3 The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts Australian Accounting Standards, subject to the limited changes referred to in paragraph 2 above.
4 In addition, this Standard provides some exceptions to, or exemptions from, the requirements of other Standards. All specified requirements for reporting regulatory deferral account balances, and any exceptions to, or exemptions from, the requirements of other Standards that are related to those balances, are contained within this Standard instead of within those other Standards.
Application
Aus4.1 This Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus4.2 This Standard applies to annual reporting periods beginning on or after 1 January 2016.
Aus4.3 This Standard may be applied to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2016. When an entity applies this Standard to such an annual reporting period, it shall disclose that fact.
Commencement
Aus4.4 This Standard commences on the day this Standard is made by the Australian Accounting Standards Board.
Scope
5 An entity is permitted to apply the requirements of this Standard in its first Australian-Accounting-Standards financial statements if and only if it:
(a) conducts rate-regulated activities; and
(b) recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.
6 An entity shall apply the requirements of this Standard in its financial statements for subsequent periods if and only if, in its first Australian-Accounting-Standards financial statements, it recognised regulatory deferral account balances by electing to apply the requirements of this Standard.
7 This Standard does not address other aspects of accounting by entities that are engaged in rate-regulated activities. By applying the requirements in this Standard, any amounts that are permitted or required to be recognised as assets or liabilities in accordance with other Standards shall not be included within the amounts classified as regulatory deferral account balances.
8 An entity that is within the scope of, and that elects to apply, this Standard shall apply all of its requirements to all regulatory deferral account balances that arise from all of the entity’s rate-regulated activities.
Recognition, measurement, impairment and derecognition
Temporary exemption from paragraph 11 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors
9 An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of AASB 108 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
10 Paragraphs 11–12 of AASB 108 specify sources of requirements and guidance that management is required or permitted to consider in developing an accounting policy for an item, if no relevant Standard applies specifically to that item. This Standard exempts an entity from applying paragraph 11 of AASB 108 to its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, entities that recognise regulatory deferral account balances, either as separate items or as part of the carrying value of other assets and liabilities, in accordance with their previous GAAP, are permitted to continue to recognise those balances in accordance with this Standard through the exemption from paragraph 11 of AASB 108, subject to any presentation changes required by paragraphs 18–19 of this Standard.
Continuation of existing accounting policies
11 On initial application of this Standard, an entity shall continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances, except for any changes permitted by paragraphs 13–15. However, the presentation of such amounts shall comply with the presentation requirements of this Standard, which may require changes to the entity’s previous GAAP presentation policies (see paragraphs 18–19).
12 An entity shall apply the policies established in accordance with paragraph 11 consistently in subsequent periods, except for any changes permitted by paragraphs 13–15.
Changes in accounting policies
13 An entity shall not change its accounting policies in order to start to recognise regulatory deferral account balances. An entity may only change its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable[1], or more reliable and no less relevant to those needs. An entity shall judge relevance and reliability using the criteria in paragraph 10 of AASB 108.
14 This Standard does not exempt entities from applying paragraphs 10 or 14–15 of AASB 108 to changes in accounting policy. To justify changing its accounting policies for regulatory deferral account balances, an entity shall demonstrate that the change brings its financial statements closer to meeting the criteria in paragraph 10 of AASB 108. However, the change does not need to achieve full compliance with those criteria for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
15 Paragraphs 13–14 apply both to changes made on initial application of this Standard and to changes made in subsequent reporting periods.
Interaction with other Standards
16 Any specific exception, exemption or additional requirements related to the interaction of this Standard with other Standards are contained within this Standard (see paragraphs B7–B28). In the absence of any such exception, exemption or additional requirements, other Standards shall apply to regulatory deferral account balances in the same way as they apply to assets, liabilities, income and expenses that are recognised in accordance with other Standards.
17 In some situations, another Standard might need to be applied to a regulatory deferral account balance that has been measured in accordance with an entity’s accounting policies that are established in accordance with paragraphs 11–12 in order to reflect that balance appropriately in the financial statements. For example, the entity might have rate-regulated activities in a foreign country for which the transactions and regulatory deferral account balances are denominated in a currency that is not the functional currency of the reporting entity. The regulatory deferral account balances and the movements in those balances are translated by applying AASB 121 The Effects of Changes in Foreign Exchange Rates.
Presentation
Changes in presentation
18 This Standard introduces presentation requirements, outlined in paragraphs 20–26, for regulatory deferral account balances that are recognised in accordance with paragraphs 11–12. When this Standard is applied, the regulatory deferral account balances are recognised in the statement of financial position in addition to the assets and liabilities that are recognised in accordance with other Standards. These presentation requirements separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards.
19 In addition to the items that are required to be presented in the statement of financial position and in the statement(s) of profit or loss and other comprehensive income in accordance with AASB 101 Presentation of Financial Statements, an entity applying this Standard shall present all regulatory deferral account balances and the movements in those balances in accordance with paragraphs 20–26.
Classification of regulatory deferral account balances
20 An entity shall present separate line items in the statement of financial position for:
(a) the total of all regulatory deferral account debit balances; and
(b) the total of all regulatory deferral account credit balances.
21 When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify the totals of regulatory deferral account balances as current or non-current. Instead, the separate line items required by paragraph 20 shall be distinguished from the assets and liabilities that are presented in accordance with other Standards by the use of sub-totals, which are drawn before the regulatory deferral account balances are presented.
Classification of movements in regulatory deferral account balances
22 An entity shall present, in the other comprehensive income section of the statement of profit or loss and other comprehensive income, the net movement in all regulatory deferral account balances for the reporting period that relate to items recognised in other comprehensive income. Separate line items shall be used for the net movement related to items that, in accordance with other Standards:
(a) will not be reclassified subsequently to profit or loss; and
(b) will be reclassified subsequently to profit or loss when specific conditions are met.
23 An entity shall present a separate line item in the profit or loss section of the statement of profit or loss and other comprehensive income, or in the separate statement of profit or loss, for the remaining net movement in all regulatory deferral account balances for the reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the income and expenses that are presented in accordance with other Standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances.
24 When an entity recognises a deferred tax asset or a deferred tax liability as a result of recognising regulatory deferral account balances, the entity shall present the resulting deferred tax asset (liability) and the related movement in that deferred tax asset (liability) with the related regulatory deferral account balances and movements in those balances, instead of within the total presented in accordance with AASB 112 Income Taxes for deferred tax assets (liabilities) and the tax expense (income) (see paragraphs B9–B12).
25 When an entity presents a discontinued operation or a disposal group in accordance with AASB 5 Non-current Assets Held for Sale and Discontinued Operations, the entity shall present any related regulatory deferral account balances and the net movement in those balances, as applicable, with the regulatory deferral account balances and movements in those balances, instead of within the disposal groups or discontinued operations (see paragraphs B19–B22).
26 When an entity presents earnings per share in accordance with AASB 133 Earnings per Share, the entity shall present additional basic and diluted earnings per share, which are calculated using the earnings amounts required by AASB 133 but excluding the movements in regulatory deferral account balances (see paragraphs B13–B14).
Disclosure
Objective
27 An entity that elects to apply this Standard shall disclose information that enables users to assess:
(a) the nature of, and the risks associated with, the rate regulation that establishes the price(s) that the entity can charge customers for the goods or services it provides; and
(b) the effects of that rate regulation on its financial position, financial performance and cash flows.
28 If any of the disclosures set out in paragraphs 30–36 are not considered relevant to meet the objective in paragraph 27, they may be omitted from the financial statements. If the disclosures provided in accordance with paragraphs 30–36 are insufficient to meet the objective in paragraph 27, an entity shall disclose additional information that is necessary to meet that objective.
29 To meet the disclosure objective in paragraph 27, an entity shall consider all of the following:
(a) the level of detail that is necessary to satisfy the disclosure requirements;
(b) how much emphasis to place on each of the various requirements;
(c) how much aggregation or disaggregation to undertake; and
(d) whether users of financial statements need additional information to evaluate the quantitative information disclosed.
Explanation of activities subject to rate regulation
30 To help a user of the financial statements assess the nature of, and the risks associated with, the entity’s rate-regulated activities, an entity shall, for each type of rate-regulated activity, disclose:
(a) a brief description of the nature and extent of the rate-regulated activity and the nature of the regulatory rate-setting process;
(b) the identity of the rate regulator(s). If the rate regulator is a related party (as defined in AASB 124 Related Party Disclosures), the entity shall disclose that fact, together with an explanation of how it is related;
(c) how the future recovery of each class (ie each type of cost or income) of regulatory deferral account debit balance or reversal of each class of regulatory deferral account credit balance is affected by risks and uncertainty, for example:
(i) demand risk (for example, changes in consumer attitudes, the availability of alternative sources of supply or the level of competition);
(ii) regulatory risk (for example, the submission or approval of a rate-setting application or the entity’s assessment of the expected future regulatory actions); and
(iii) other risks (for example, currency or other market risks).
31 [Deleted by the AASB]
Explanation of recognised amounts
32 An entity shall disclose the basis on which regulatory deferral account balances are recognised and derecognised, and how they are measured initially and subsequently, including how regulatory deferral account balances are assessed for recoverability and how any impairment loss is allocated.
33 For each type of rate-regulated activity, an entity shall disclose the following information for each class of regulatory deferral account balance:
(a) a reconciliation of the carrying amount at the beginning and the end of the period, in a table unless another format is more appropriate. The entity shall apply judgement in deciding the level of detail necessary (see paragraphs 28–29), but the following components would usually be relevant:
(i) the amounts that have been recognised in the current period in the statement of financial position as regulatory deferral account balances;
(ii) the amounts that have been recognised in the statement(s) of profit or loss and other comprehensive income relating to balances that have been recovered (sometimes described as amortised) or reversed in the current period; and
(iii) other amounts, separately identified, that affected the regulatory deferral account balances, such as impairments, items acquired or assumed in a business combination, items disposed of, or the effects of changes in foreign exchange rates or discount rates;
(b) the rate of return or discount rate (including a zero rate or a range of rates, when applicable) used to reflect the time value of money that is applicable to each class of regulatory deferral account balance; and
(c) the remaining periods over which the entity expects to recover (or amortise) the carrying amount of each class of regulatory deferral account debit balance or to reverse each class of regulatory deferral account credit balance.
34 When rate regulation affects the amount and timing of an entity’s income tax expense (income), the entity shall disclose the impact of the rate regulation on the amounts of current and deferred tax recognised. In addition, the entity shall separately disclose any regulatory deferral account balance that relates to taxation and the related movement in that balance.
35 When an entity provides disclosures in accordance with AASB 12 Disclosure of Interests in Other Entities for an interest in a subsidiary, associate or joint venture that has rate-regulated activities and for which regulatory deferral account balances are recognised in accordance with this Standard, the entity shall disclose the amounts that are included for the regulatory deferral account debit and credit balances and the net movement in those balances for the interests disclosed (see paragraphs B25–B28).
36 When an entity concludes that a regulatory deferral account balance is no longer fully recoverable or reversible, it shall disclose that fact, the reason why it is not recoverable or reversible and the amount by which the regulatory deferral account balance has been reduced.
APPENDIX A
Defined Terms
This appendix is an integral part of AASB 14.
First Australian-Accounting-Standards financial statements
The first annual financial statements in which an entity adopts Australian Accounting Standards, by an explicit and unreserved statement of compliance with Australian Accounting Standards.
First-time adopter
An entity that presents its first Australian-Accounting-Standards financial statements.
Previous GAAP
The basis of accounting that a first-time adopter used immediately before adopting Australian Accounting Standards.
Rate-regulated activities
An entity’s activities that are subject to rate regulation.
Rate regulation
A framework for establishing the prices that can be charged to customers for goods or services and that framework is subject to oversight and/or approval by a rate regulator.
Rate regulator
An authorised body that is empowered by statute or regulation to establish the rate or a range of rates that bind an entity. The rate regulator may be a third-party body or a related party of the entity, including the entity’s own governing board, if that body is required by statute or regulation to set rates both in the interest of the customers and to ensure the overall financial viability of the entity.
Regulatory deferral account balance
The balance of any expense (or income) account that would not be recognised as an asset or a liability in accordance with other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers.
APPENDIX B
aPPLICATION GUIDANCE
This appendix is an integral part of AASB 14.
Rate-regulated activities
B1 Historically, rate regulation applied to all activities of an entity. However, with acquisitions, diversification and deregulation, rate regulation may now apply to only a portion of an entity’s activities, resulting in it having both regulated and non-regulated activities. This Standard applies only to the rate-regulated activities that are subject to statutory or regulatory restrictions through the actions of a rate regulator, regardless of the type of entity or the industry to which it belongs.
B2 An entity shall not apply this Standard to activities that are self-regulated, ie activities that are not subject to a pricing framework that is overseen and/or approved by a rate regulator. This does not prevent the entity from being eligible to apply this Standard when:
(a) the entity’s own governing body or a related party establishes rates both in the interest of the customers and to ensure the overall financial viability of the entity within a specified pricing framework; and
(b) the framework is subject to oversight and/or approval by an authorised body that is empowered by statute or regulation.
Continuation of existing accounting policies
B3 For the purposes of this Standard, a regulatory deferral account balance is defined as the balance of any expense (or income) account that would not be recognised as an asset or a liability in accordance with other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers. Some items of expense (income) may be outside the regulated rate(s) because, for example, the amounts are not expected to be accepted by the rate regulator or because they are not within the scope of the rate regulation. Consequently, such an item is recognised as income or expense as incurred, unless another Standard permits or requires it to be included in the carrying amount of an asset or liability.
B4 In some cases, other Standards explicitly prohibit an entity from recognising, in the statement of financial position, regulatory deferral account balances that might be recognised, either separately or included within other line items such as property, plant and equipment in accordance with previous GAAP accounting policies. However, in accordance with paragraph 11 of this Standard, an entity that elects to apply this Standard in its first Australian-Accounting-Standards financial statements applies the exemption from paragraph 11 of AASB 108 in order to continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment, and derecognition of regulatory deferral account balances. Such accounting policies may include, for example, the following practices:
(a) recognising a regulatory deferral account debit balance when the entity has the right, as a result of the actual or expected actions of the rate regulator, to increase rates in future periods in order to recover its allowable costs (ie the costs for which the regulated rate(s) is intended to provide recovery);
(b) recognising, as a regulatory deferral account debit or credit balance, an amount that is equivalent to any loss or gain on the disposal or retirement of both items of property, plant and equipment and of intangible assets, which is expected to be recovered or reversed through future rates;
(c) recognising a regulatory deferral account credit balance when the entity is required, as a result of the actual or expected actions of the rate regulator, to decrease rates in future periods in order to reverse over-recoveries of allowable costs (ie amounts in excess of the recoverable amount specified by the rate regulator); and
(d) measuring regulatory deferral account balances on an undiscounted basis or on a discounted basis that uses an interest or discount rate specified by the rate regulator.
B5 The following are examples of the types of costs that rate regulators might allow in rate-setting decisions and that an entity might, therefore, recognise in regulatory deferral account balances:
(i) volume or purchase price variances;
(ii) costs of approved ‘green energy’ initiatives (in excess of amounts that are capitalised as part of the cost of property, plant and equipment in accordance with AASB 116 Property, Plant and Equipment);
(iii) non-directly-attributable overhead costs that are treated as capital costs for rate regulation purposes (but are not permitted, in accordance with AASB 116, to be included in the cost of an item of property, plant and equipment);
(iv) project cancellation costs;
(v) storm damage costs; and
(vi) deemed interest (including amounts allowed for funds that are used during construction that provide the entity with a return on the owner’s equity capital as well as borrowings).
B6 Regulatory deferral account balances usually represent timing differences between the recognition of items of income or expenses for regulatory purposes and the recognition of those items for financial reporting purposes. When an entity changes an accounting policy on the first-time adoption of Australian Accounting Standards or on the initial application of a new or revised Standard, new or revised timing differences may arise that create new or revised regulatory deferral account balances. The prohibition in paragraph 13 that prevents an entity from changing its accounting policy in order to start to recognise regulatory deferral account balances does not prohibit the recognition of the new or revised regulatory deferral account balances that are created because of other changes in accounting policies required by Australian Accounting Standards. This is because the recognition of regulatory deferral account balances for such timing differences would be consistent with the existing recognition policy applied in accordance with paragraph 11 and would not represent the introduction of a new accounting policy. Similarly, paragraph 13 does not prohibit the recognition of regulatory deferral account balances arising from timing differences that did not exist immediately prior to the date of transition to Australian Accounting Standards but are consistent with the entity’s accounting policies established in accordance with paragraph 11 (for example, storm damage costs).
Applicability of other Standards
B7 An entity that is within the scope of, and that elects to apply, the requirements of this Standard shall continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. However, paragraphs 16–17 state that, in some situations, other Standards might also need to be applied to regulatory deferral account balances in order to reflect them appropriately in the financial statements. The following paragraphs outline how some other Standards interact with the requirements of this Standard. In particular, the following paragraphs clarify specific exceptions to, and exemptions from, other Standards and additional presentation and disclosure requirements that are expected to be applicable.
Application of AASB 110 Events after the Reporting Period
B8 An entity may need to use estimates and assumptions in the recognition and measurement of its regulatory deferral account balances. For events that occur between the end of the reporting period and the date when the financial statements are authorised for issue, the entity shall apply AASB 110 to identify whether those estimates and assumptions should be adjusted to reflect those events.
Application of AASB 112 Income Taxes
B9 AASB 112 requires, with certain limited exceptions, an entity to recognise a deferred tax liability and (subject to certain conditions) a deferred tax asset for all temporary differences. A rate-regulated entity shall apply AASB 112 to all of its activities, including its rate-regulated activities, to identify the amount of income tax that is to be recognised.
B10 In some rate-regulatory schemes, the rate regulator permits or requires an entity to increase its future rates in order to recover some or all of the entity’s income tax expense. In such circumstances, this might result in the entity recognising a regulatory deferral account balance in the statement of financial position related to income tax, in accordance with its accounting policies established in accordance with paragraphs 11–12. The recognition of this regulatory deferral account balance that relates to income tax might itself create an additional temporary difference for which a further deferred tax amount would be recognised.
B11 Notwithstanding the presentation and disclosure requirements of AASB 112, when an entity recognises a deferred tax asset or a deferred tax liability as a result of recognising regulatory deferral account balances, the entity shall not include that deferred tax amount within the total deferred tax asset (liability) balances. Instead, the entity shall present the deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances either:
(a) with the line items that are presented for the regulatory deferral account debit balances and credit balances; or
(b) as a separate line item alongside the related regulatory deferral account debit balances and credit balances.
B12 Similarly, when an entity recognises the movement in a deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances, the entity shall not include the movement in that deferred tax amount within the tax expense (income) line item that is presented in the statement(s) of profit or loss and other comprehensive income in accordance with AASB 112. Instead, the entity shall present the movement in the deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances either:
(a) with the line items that are presented in the statement(s) of profit or loss and other comprehensive income for the movements in regulatory deferral account balances; or
(b) as a separate line item alongside the related line items that are presented in the statement(s) of profit or loss and other comprehensive income for the movements in regulatory deferral account balances.
Application of AASB 133 Earnings per Share
B13 Paragraph 66 of AASB 133 requires some entities to present, in the statement of profit or loss and other comprehensive income, basic and diluted earnings per share both for profit or loss from continuing operations and profit or loss that is attributable to the ordinary equity holders of the parent entity. In addition, paragraph 68 of AASB 133 requires an entity that reports a discontinued operation to disclose the basic and diluted amounts per share for the discontinued operation, either in the statement of profit or loss and other comprehensive income or in the notes.
B14 For each earnings per share amount presented in accordance with AASB 133, an entity applying this Standard shall present additional basic and diluted earnings per share amounts that are calculated in the same way, except that those amounts shall exclude the net movement in the regulatory deferral account balances. Consistent with the requirement in paragraph 73 of AASB 133, an entity shall present the earnings per share required by paragraph 26 of this Standard with equal prominence to the earnings per share required by AASB 133 for all periods presented.
Application of AASB 136 Impairment of Assets
B15 Paragraphs 11–12 require an entity to continue to apply its previous GAAP accounting policies for the identification, recognition, measurement and reversal of any impairment of its recognised regulatory deferral account balances. Consequently, AASB 136 does not apply to the separate regulatory deferral account balances recognised.
B16 However, AASB 136 might require an entity to perform an impairment test on a cash-generating unit (CGU) that includes regulatory deferral account balances. This test might be required because the CGU contains goodwill, or because one or more of the impairment indicators described in AASB 136 have been identified relating to the CGU. In such situations, paragraphs 74–79 of AASB 136 contain requirements for identifying the recoverable amount and the carrying amount of a CGU. An entity shall apply those requirements to decide whether any of the regulatory deferral account balances recognised are included in the carrying amount of the CGU for the purpose of the impairment test. The remaining requirements of AASB 136 shall then be applied to any impairment loss that is recognised as a result of this test.
Application of AASB 3 Business Combinations
B17 The core principle of AASB 3 is that an acquirer of a business recognises the assets acquired and the liabilities assumed at their acquisition-date fair values. AASB 3 provides limited exceptions to its recognition and measurement principles. Paragraph B18 of this Standard provides an additional exception.
B18 Paragraphs 11–12 require an entity to continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, if an entity acquires a business, it shall apply, in its consolidated financial statements, its accounting policies established in accordance with paragraphs 11–12 for the recognition and measurement of the acquiree’s regulatory deferral account balances at the date of acquisition. The acquiree’s regulatory deferral account balances shall be recognised in the consolidated financial statements of the acquirer in accordance with the acquirer’s policies, irrespective of whether the acquiree recognises those balances in its own financial statements.
Application of AASB 5 Non-current Assets Held for Sale and Discontinued Operations
B19 Paragraphs 11–12 require an entity to continue to apply its previous accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, the measurement requirements of AASB 5 shall not apply to the regulatory deferral account balances recognised.
B20 Paragraph 33 of AASB 5 requires a single amount to be presented for discontinued operations in the statement(s) of profit or loss and other comprehensive income. Notwithstanding the requirements of that paragraph, when an entity that elects to apply this Standard presents a discontinued operation, it shall not include the movement in regulatory deferral account balances that arose from the rate-regulated activities of the discontinued operation within the line items that are required by paragraph 33 of AASB 5. Instead, the entity shall present the movement in regulatory deferral account balances that arose from the rate-regulated activities of the discontinued operation either:
(a) within the line item that is presented for movements in the regulatory deferral account balances related to profit or loss; or
(b) as a separate line item alongside the related line item that is presented for movements in the regulatory deferral account balances related to profit or loss.
B21 Similarly, notwithstanding the requirements of paragraph 38 of AASB 5, when an entity presents a disposal group, the entity shall not include the total of the regulatory deferral account debit balances and credit balances that are part of the disposal group within the line items that are required by paragraph 38 of AASB 5. Instead, the entity shall present the total of the regulatory deferral account debit balances and credit balances that are part of the disposal group either:
(a) within the line items that are presented for the regulatory deferral account debit balances and credit balances; or
(b) as separate line items alongside the other regulatory deferral account debit balances and credit balances.
B22 If the entity chooses to include the regulatory deferral account balances and movements in those balances that are related to the disposal group or discontinued operation within the related regulated deferral account line items, it may be necessary to disclose them separately as part of the analysis of the regulatory deferral account line items described by paragraph 33 of this Standard.
Application of AASB 10 Consolidated Financial Statements and AASB 128 Investments in Associates and Joint Ventures
B23 Paragraph 19 of AASB 10 requires that a “parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances”. Paragraph 8 of this Standard requires that an entity that is within the scope of, and elects to apply, this Standard shall apply all of its requirements to all regulatory deferral account balances arising from all of the entity’s rate-regulated activities. Consequently, if a parent recognises regulatory deferral account balances in its consolidated financial statements in accordance with this Standard, it shall apply the same accounting policies to the regulatory deferral account balances arising in all of its subsidiaries. This shall apply irrespective of whether the subsidiaries recognise those balances in their own financial statements.
B24 Similarly, paragraphs 35–36 of AASB 128 require that, in applying the equity method, an “entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances”. Consequently, adjustments shall be made to make the associate’s or joint venture’s accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances conform to those of the investing entity in applying the equity method.
Application of AASB 12 Disclosure of Interests in Other Entities
B25 Paragraph 12(e) of AASB 12 requires an entity to disclose, for each of its subsidiaries that have non-controlling interests that are material to the reporting entity, the profit or loss that was allocated to non-controlling interests of the subsidiary during the reporting period. An entity that recognises regulatory deferral account balances in accordance with this Standard shall disclose the net movement in regulatory deferral account balances that is included within the amounts that are required to be disclosed by paragraph 12(e) of AASB 12.
B26 Paragraph 12(g) of AASB 12 requires an entity to disclose, for each of its subsidiaries that have non-controlling interests that are material to the reporting entity, summarised financial information about the subsidiary, as specified in paragraph B10 of AASB 12. Similarly, paragraph 21(b)(ii) of AASB 12 requires an entity to disclose, for each joint venture and associate that is material to the reporting entity, summarised financial information as specified in paragraphs B12–B13 of AASB 12. Paragraph B16 of AASB 12 specifies the summary financial information that an entity is required to disclose for all other associates and joint ventures that are not individually material in accordance with paragraph 21(c) of AASB 12.
B27 In addition to the information specified in paragraphs 12, 21, B10, B12–B13 and B16 of AASB 12, an entity that recognises regulatory deferral account balances in accordance with this Standard shall also disclose the total regulatory deferral account debit balance, the total regulatory deferral account credit balance and the net movements in those balances, split between amounts recognised in profit or loss and amounts recognised in other comprehensive income, for each entity for which those AASB 12 disclosures are required.
B28 Paragraph 19 of AASB 12 specifies the information that an entity is required to disclose when the entity recognises a gain or loss on losing control of a subsidiary, calculated in accordance with paragraph 25 of AASB 10. In addition to the information required by paragraph 19 of AASB 12, an entity that elects to apply this Standard shall disclose the portion of that gain or loss that is attributable to derecognising regulatory deferral account balances in the former subsidiary at the date when control is lost.
APPENDIX C
Effective date and transition
This appendix is an integral part of AASB 14.
Effective date and transition
Effective date
C1 [Deleted by the AASB]
Deleted IFRS 14 TeXT
Deleted IFRS 14 text is not part of AASB 14.
Paragraph 31
The disclosures required by paragraph 30 shall be given in the financial statements either directly in the notes or incorporated by cross-reference from the financial statements to some other statement, such as a management commentary or risk report, that is available to users of the financial statements on the same terms as the financial statements and at the same time. If the information is not included in the financial statements directly or incorporated by cross-reference, the financial statements are incomplete.
Paragraph C1
An entity shall apply this Standard if its first annual IFRS financial statements are for a period beginning on or after 1 January 2016. Earlier application is permitted. If an entity applies this Standard in its first annual IFRS financial statements for an earlier period, it shall disclose that fact.
BASIS FOR CONCLUSIONS
This Basis for Conclusions accompanies, but is not part of, AASB 14.
Background
BC1 This Basis for Conclusions summarises the Australian Accounting Standards Board’s (AASB) considerations in issuing AASB 14 Regulatory Deferral Accounts. Individual Board members gave greater weight to some factors than to others.
Background
BC2 AASB 14 is the result of the AASB’s due process, which began when the AASB issued Exposure Draft ED 240 Regulatory Deferral Accounts (AASB ED 240) in May 2013 (incorporating International Accounting Standards Board [IASB] ED/2013/5 Regulatory Deferral Accounts). That Exposure Draft proposed an interim Standard to permit first-time adopters of Australian Accounting Standards [International Financial Reporting Standards (IFRS)] to continue to account for regulatory deferral account balances in their financial statements in accordance with their previous GAAP. The proposed interim standard was not intended, in any way, to anticipate the outcome of the IASB’s longer term Rate-regulated Activities project.
BC3 In the Preface to ED 240, the AASB expressed the view that it did not expect the proposed interim standard, if it were to be incorporated into Australian Accounting Standards, would have a significant impact on entities in Australia as the Standard could conceivably only affect entities that adopt Australian Accounting Standards for the first time and have recognised regulatory deferral account balances under their previous GAAP.
BC4 The AASB received two comment letters on ED 240, which expressed broad support for issuing the interim standard, acknowledging that it would be an interim measure while the IASB develops a Discussion Paper under its comprehensive Rate-regulated Activities project. One respondent expressed the view that they were not aware of any entities in Australia whose financial statements would be directly impacted by the proposals in ED 240.
BC5 In its comment letter to the IASB on ED/2013/5, the AASB raised the following key concerns:
(a) the proposals could result in the IASB inappropriately setting a precedent of introducing additional interim standards for first-time adopters of IFRS to encourage transition to IFRS; and
(b) the proposals would reduce comparability between first-time adopters of IFRS that choose to apply the proposals and those that already apply IFRS or first-time adopters of IFRS that do not elect to apply the proposals.
BC6 In January 2014, the IASB issued IFRS 14 Regulatory Deferral Accounts (incorporating the proposals in ED/2013/5 without substantive changes) for annual reporting periods beginning on or after 1 January 2016, with early application permitted. The AASB noted that its concerns with the ED/2013/5 proposals, expressed in its submission to the IASB, were not addressed in IFRS 14.
BC7 After further considering the types of entities that might be affected by the requirements of AASB 14 (including a newly listed rate-regulated entity from a foreign jurisdiction and a foreign rate-regulated entity that ‘back door’ lists in Australia), the AASB expects that the practical impact of adopting AASB 14 in Australia would be minimal.
BC8 The AASB noted that its concerns (see paragraph BC5 above) are not so great as to cause it to make a decision that would be seen as not adopting IFRS more broadly. Accordingly, given the interim nature of IFRS 14 (and therefore AASB 14) and the expected practical impact of AASB 14, consistent with its policy of adopting IFRS in Australia, the AASB decided to issue AASB 14 on the basis that to do so would not be contrary to the best interests of the Australian economy.
BC6 The AASB also noted that, currently under AASB 1 First-time Adoption of Australian Accounting Standards, if a first-time adopter recognises property, plant and equipment or intangible assets used in rate-regulated activities and the carrying amounts of such items include amounts determined under the entity’s previous GAAP that do not qualify for capitalisation in accordance with Australian Accounting Standards, the first-time adopter may elect to use its previous GAAP carrying amount of such items at the date of transition to Australian Accounting Standards as deemed cost (paragraph D8B of AASB 1). A similar exemption is also available to a first-time adopter with oil and gas properties, whereby the entity may elect to account for its exploration and evaluation assets at the amount determined under the entity’s previous GAAP on transition to Australian Accounting Standards (paragraph D8A of AASB 1). The AASB considered that the exemption in AASB 14 that would permit first-time adopters to continue to account for amounts related to rate regulation in accordance with their previous GAAP when they first-time adopt Australian Accounting Standards is somewhat similar to these exemptions in AASB 1. Therefore, AASB 14 would be broadly consistent with the approach taken by the AASB to allowing first-time adopters to ‘grandfather’ previous GAAP when transitioning to Australian Accounting Standards.
DISSENTING Opinion
Dissent of Peter Gibson and Steve Mitsas
DO1 AASB 14 Regulatory Deferral Accounts is consistent with the AASB’s policy of incorporating IFRSs into Australian Accounting Standards. While we generally support that policy, from a ‘first principles’ basis we do not agree with the key approach in AASB 14 that allows the continuation of accounting policies that are inconsistent with existing recognition and measurement requirements in other Australian Accounting Standards for late first-time adopters of Australian Accounting Standards.
DO2 Despite AASB 14 being described as an interim standard, it risks perpetuating differences in the recognition and measurement of assets and liabilities, and detracts from the comparability of financial statements, across similar entities. On this basis, we do not support adoption of AASB 14.
[1] In December 2013, the AASB amended the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards). The term “faithful representation” encompasses the main characteristics that the previous version of the Framework called “reliability”. The requirement in paragraph 13 of this Standard is based on the requirements of AASB 108, which retains the term “reliable”.
