Menu Close

Overview of Indian Accounting Standard (Ind AS) 114

Overview of Ind AS 114 Regulatory Deferral Accounts

The objective of Ind AS 114 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.

Rate-regulated activities are an entity’s activities that are subject to rate regulation.

A regulator is an authorised body empowered by statute or by any government or any authorised agency of a government to set rates that binds an entity’s customers.

Rate regulation is a form of regulation for setting an entity’s prices (rates) in which there is a cause-and-effect relationship between the entity’s specific costs and its revenues.

Regulatory deferral account balance is a ‘Regulatory Asset’ or a ‘Regulatory Liability’.

A regulatory asset is an entity’s right to recover fixed or determinable amounts of money towards incurred costs as a result of the actual or expected actions of its regulator under the applicable regulatory framework.

A regulatory liability is an entity’s obligation to refund or adjust fixed or determinable amounts of money as a result of actual or expected action of its regulator under the applicable regulatory framework.

An entity is permitted to apply the requirements of this Standard in its first Ind AS 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.

An entity shall apply the requirements of the Standard in its financial statements for subsequent periods, if and only if, in its first Ind AS financial statements, it recognised regulatory deferral account balances by electing to apply the requirements of this Standard.

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.

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 Ind AS 8 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.

Recognition, measurement, impairment and derecognition

On initial application, an entity shall continue to apply previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances except for the changes as permitted by the Standard.

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 decisionmaking needs of users and no less reliable, or more reliable and no less relevant to those needs.

Any specific exception, exemption or additional requirements related to the interaction of the Standard with other Standards are contained within the Standard. 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.

Classification of regulatory defferal account balances

An entity shall present separate line items in the balance sheet for:

(a) the total of all regulatory deferral account debit balances; and

(b) the total of all regulatory deferral account credit balances.

Classification of movements in regulatory deferral account balances

An entity shall present, in the other comprehensive income section of the statement of profit and loss, 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.

An entity shall present a separate line item in the profit or loss section of the statement of profit and 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.

Disclosure

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.

Get Important Stuff from CA Blog India Directly in Your Email Inbox:

Follow founder on:

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge