| IASB issues proposed accounting for rate-regulated activities |
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Some entities’ activities are regulated in terms of the prices they can charge for the goods or services they provide. In South Africa, these include the sale of oil, petroleum and related products, and electricity. In the context of electricity, Eskom and municipalities distribute electricity based on tariffs determined by the National Energy Regulator of South Africa, i.e. the regulator.
The tariffs determined by the regulator are usually based on the costs entities incur to deliver or produce the goods or services and their rate of return. The regulator determines what fixed and variable costs are permissible and set limits for the rates of return. In terms of the licence and other operating conditions granted by the regulator to the entity, the regulator agrees that these costs and rates of returns will be recovered over the period of the licence or other specified period through the tariffs charged. This means that the tariffs allowed by the regulator may be higher or lower in periods – depending on whether costs and returns need to be recouped or refunded based on future sales of goods or services.
There has been a long-standing accounting debate about whether the rights to charge higher, or the obligation to charge lower, tariffs result in an asset or a liability that should be recognised in the financial statements. The IASB issued a proposed IFRS on Regulatory Assets and Regulatory Liabilities for comment by 30 June 2021. The proposed IFRS indicates that assets and liabilities – along with related revenue and expenses – should be recognised in the financial statements of the entity providing regulated goods or services.
While the ASB has a policy of converging with IPSAS, the IPSAS are based on IFRS Standards. As there are activities in the public sector that are subject to rate regulation, there are some entities that could potentially be affected by these accounting proposals. The ASB will be hosting a discussion on the 8th of April from 09:00 to 11:00 to share views on the proposed accounting. These views will be included in a submission to the IASB to ensure that public sector issues are also considered.
Should you be interested in attending the discussion, please contact Jeanine Poggiolini at jeaninep@asb.co.za.
The Exposure Draft can be accessed by following this link. |
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