IFRS 20 (Regulatory Assets and Regulatory Liabilities) is the recently issued IFRS Accounting standard that requires organisations subject to regulatory agreements to provide information on their regulatory assets, liabilities, income and expenses.
The new standard is effective from January 1, 2029, with earlier application permitted. The information provided by organisations applying IFRS 20 is intended as an addition to the information they provide on IFRS 15 (Revenue from contracts with customers).
It provides users of the financial statements a comprehensive picture of compensation for regulatory goods or services and a better assessment of the organisation’s prospects for future cash flows.
Regulatory agreements are pacts that create regulatory assets and regulatory liabilities, which entitle organisations to compensation for regulatory goods or services supplied in a period and specify that part or all of that compensation for regulatory goods or services supplied in a period is charged to customers through regulated rates in a different period, creating a timing difference.
IFRS 20 will help users understand how these timing differences affect the financial statements. It will improve comparability, transparency and the overall quality of the financial statements.
The new standard replaces IFRS 14 (Regulatory Deferral Accounts) and aims to reduce diversity in practice regarding accounting for regulatory balances.
The standard is likely to affect organisations in the utilities, energy, and transportation sectors of the economy.
The changes to the financial statements for entities applying IFRS 20 include presenting current and non-current portions of regulatory assets and regulatory liabilities on the balance sheet, presenting all regulatory income less all regulatory expense as a revenue line item in the statement of profit or loss and providing the reconciliations and maturity analyses of regulatory assets and regulatory liabilities in the notes to the financial statements.
IFRS 20 provides two transition approaches: the retrospective approach and the modified retrospective approach.
Organisations are expected to present and adjust comparatives for the immediately preceding period, irrespective of the transition approach applied.
Companies subject to regulatory agreements that create regulatory assets and liabilities should commence a process to assess the impact of the new standard on their organisation and financial statements. The mandatory reporting requirement introduced by IFRS 20 on regulatory assets and liabilities will drive consistency and improve the quality of financial reporting.
The writer is a partner at PricewaterhouseCoopers. He is an author who writes and speaks widely on corporate reporting topics.
