IFRS 14 and IFRS 20: Rate-regulated activities
Regulatory deferral accounts under IFRS 14, and IFRS 20 (issued May 2026, effective 2029): regulatory assets and regulatory liabilities.
ACCA exams this helps with: SBR Strategic Business Reporting See the ACCA map
New to this topic?
What it is: Utilities (energy, water) often have their prices set by a regulator. Sometimes they are allowed to charge customers later for costs incurred now, or must give money back later. These standards deal with that timing difference.
The key idea: IFRS 20 recognises a regulatory asset when the company has a right to add an amount to future prices for goods or services already supplied, and a regulatory liability when it must reduce future prices for amounts already charged. It replaces the temporary IFRS 14.
Example. The regulator allows a power company £110m for this year, but it has only billed £100m. It has a right to recover £10m through future prices: a regulatory asset of £10m (before discounting).
Key words
- Regulatory agreement
- An agreement that sets the regulated rates an entity charges customers for its goods or services.Example: A licence from the energy regulator.
- Regulatory asset (IFRS 20)
- An enforceable present right, created by a regulatory agreement, to add an amount to future regulated rates because part of the total allowed compensation for goods or services already supplied has not yet been included in revenue.Example: £10m to be recovered through next year’s bills.
- Regulatory liability (IFRS 20)
- An enforceable present obligation, created by a regulatory agreement, to deduct an amount from future regulated rates because the total allowed compensation for goods or services not yet supplied has already been included in revenue.Example: Over-recovery that must be refunded through lower prices.
- Total allowed compensation
- The amount the regulatory agreement entitles the entity to for the regulated goods or services supplied in the period.Example: £110m allowed for this year.
- Regulatory deferral account balance (IFRS 14)
- An amount of expense or income that would not be recognised under other standards but is deferred under previous GAAP because it will be recovered or refunded through rates.Example: A balance carried forward under old local GAAP.
Learn
IFRS 14 Regulatory Deferral Accounts (interim standard)
- Issued 2014 as a temporary fix. Only for first-time adopters of IFRS that recognised regulatory deferral balances under their previous GAAP.
- Lets them keep their previous GAAP policies for those balances.
- The balances and their movements are shown as separate line items, apart from other assets, liabilities, income and expenses.
IFRS 20 Regulatory Assets and Regulatory Liabilities
- Issued May 2026, effective for annual periods beginning on or after 1 January 2029, with early application permitted. It replaces IFRS 14.
- Applies to every entity that is party to a regulatory agreement creating regulatory assets or liabilities (regulated insurance premiums within IFRS 17 are excluded).
- The aim: profit should reflect the total allowed compensation for goods or services supplied in the period.
| Area | IFRS 20 requirement |
|---|---|
| Recognition | Regulatory assets and regulatory liabilities as defined, alongside IFRS 15 revenue (which is unchanged). |
| Measurement | A cash-flow-based technique: estimated future cash flows discounted at the regulatory interest rate (a simplified approach applies in some cases). |
| Profit or loss | Regulatory income or regulatory expense presented as a separate line, apart from revenue. |
| Statement of financial position | Regulatory assets and regulatory liabilities as separate line items (current and non-current). No offsetting. |
Exam tip. Revenue under IFRS 15 is what was billed for supplies made. IFRS 20 adds the regulatory income or expense, so the total shows what the regulator allowed for the period.
Worked example
A water company’s regulator allows it total compensation of £110m for supplies made in Year 1, but its Year 1 prices only bring in IFRS 15 revenue of £100m. The regulator lets it add £10m to customers’ bills in Year 2. (Discounting is ignored to keep it simple.)
| Year 1 £m | Year 2 £m | |
|---|---|---|
| Revenue (IFRS 15) | 100 | 120 |
| Regulatory income / (expense) | 10 | (10) |
| Total | 110 | 110 |
| Regulatory asset at year end | 10 | nil |
In Year 2 the company bills £120m, including the £10m catch-up. Revenue is £120m, but £10m of it relates to Year 1, so a regulatory expense of £10m reverses the asset. Each year’s result shows the £110m the regulator allowed for that year (if Year 2’s allowance is also £110m). Under IFRS 20 the asset would be measured at present value using the regulatory interest rate.
Practice questions
Type or choose your answers, then press Check answer. Questions with a New numbers button can be repeated with different figures.