Rate-regulated Activities

The IASB met on 23 April 2024:

• to redeliberate the proposals on the minimum interest rate in paragraphs 50–53 of the Exposure Draft Regulatory Assets and Regulatory Liabilities (Agenda Paper 9A);
• to discuss whether the scope of the prospective IFRS Accounting Standard on rate-regulated activities (prospective RRA Standard) should exclude regulatory assets and regulatory liabilities that might arise from insurance contracts within the scope of IFRS 17 Insurance Contracts (Agenda Paper 9B); and
• to redeliberate the proposed amendments to IFRS 3 Business Combinations and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations in the Exposure Draft (Agenda Paper 9C).

Discounting of future cash flows—Minimum interest rate (Agenda Paper 9A)

Regarding the prospective RRA Standard, the IASB tentatively decided:

1. to retain the proposals in paragraphs 50–52 of the Exposure Draft that would require an entity to assess whether there is any indication that the regulatory interest rate for a regulatory asset might be insufficient to compensate the entity for the time value of money and for uncertainty in the future cash flows arising from the regulatory asset, and to use the minimum interest rate as the discount rate if it is higher than the regulatory interest rate;
2. to clarify in the application guidance that an entity performing the assessment described in (a) would not be required to calculate the minimum interest rate for the regulatory asset or carry out an exhaustive search for indications that the regulatory interest rate for the regulatory asset might be insufficient as described in (a);
3. to retain the proposal in paragraph 53 of the Exposure Draft that would require an entity to use the regulatory interest rate as the discount rate for a regulatory liability in all circumstances;
4. to provide guidance on the estimation of the minimum interest rate, and to include in that guidance principles used in other IFRS Accounting Standards to help entities carry out that estimation;
5. to exempt an entity from applying the proposals on the minimum interest rate to a regulatory asset that arises from variances between estimated and actual costs or volume, and to require an entity to apply the requirements once the regulator determines the final balance to be included in future regulated rates; and
6. to require an entity that chooses to apply the exemption described in (e) to disclose that fact and the carrying amount of regulatory assets at the end of the reporting period to which the entity has applied that exemption.

Seven of 14 IASB members agreed with decisions (a)–(c). The Chair used his additional casting vote, making the vote eight–seven in favour of these decisions. All 14 IASB members agreed with decisions (d)–(f).

Scope—Interaction with IFRS 17 (Agenda Paper 9B)

The IASB tentatively decided to exclude from the scope of the prospective RRA Standard regulatory assets and regulatory liabilities that might arise when premiums charged in insurance contracts that fall within the scope of IFRS 17 are regulated.

All 14 IASB members agreed with this decision.

Amendments to IFRS 3 and IFRS 5 (Agenda Paper 9C)

The IASB tentatively decided to retain the proposals in the Exposure Draft:

1. to create an exception to the recognition and measurement principles in IFRS 3 for regulatory assets acquired and regulatory liabilities assumed; and
2. to exclude regulatory assets from the scope of IFRS 5.

All 14 IASB members agreed with these decisions.