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Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation :Although the approval by the rate regulator may not guarantee that a regulatory deferral account balance will be recovered (or reversed) through future sales, it does provide a high degree of assurance that the anticipated economic benefits will flow to or from the entity. In some cases, an entity may incur costs several months or even years before the rate regulator formally approves them. The IASB concluded that, in such cases, judgement is required to determine whether the costs can be considered recoverable. Consequently, the IASB decided not to
develop specific recognition or impairment requirements for these circumstances, but instead decided that an entity should continue to apply its previous GAAP accounting policies for the recognition and measurement of such amounts.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : Cost of self-constructed or internally generated assets

The IASB noted that in some cases, a rate regulator requires, for rate-setting purposes, an entity to include, as part of the cost of property, plant and equipment or other assets, amounts that would not be included by non-rate-regulated entities. For example, a rate regulator might specify how to calculate the carrying value of an item of property, plant and equipment for rate-setting purposes (the rate-base or regulatory value), which might differ from the method required by IAS 16.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : The IASB acknowledges that at least two alternatives exist for accounting for these amounts: present them separately or include them within the amounts presented for property, plant and equipment or other assets. Proponents of the first alternative think that regulatory deferral account balances that would be recognised as a result of this Standard do not have the same characteristics as assets and liabilities that would be recognised in accordance with other Standards. Consequently, proponents of this alternative think that all amounts that qualify for recognition as regulatory deferral account balances should be presented separately from the assets and liabilities that are recognised in accordance with other Standards, instead of being included within the carrying amount of the item of property, plant and equipment or other asset.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : Proponents of the second alternative think that some regulatory deferral account balances that would be recognised as a result of this Standard are so closely related to other assets of the entity that accounting for them separately does not provide additional information to users. Proponents of this alternative
think that when regulatory assets are complementary to other assets and have similar useful lives, there is no need to incur the costs of separate accounting. Instead, they think that the other assets should be measured at the amount allowed for rate-regulatory purposes. In accordance with this alternative, an entity includes the regulatory deferral account balances in the cost of the asset that is recognised in accordance with other Standards as a single asset. This approach is consistent with that applied in US GAAP

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : The IASB will consider this issue as part of the comprehensive Rate-regulated Activities project. For the purpose of this Standard, the IASB has decided to require the first alternative. This decision does not change the relief available to first-time adopters using the deemed cost exemption provided  of IFRS 1 . This is consistent with the IASB’s decision not to introduce any changes to the accounting for assets and liabilities that are
already addressed in other Standards . Some IASB members think that this separate presentation is essential until the consideration of the more fundamental issues about accounting for rate-regulated activities is completed through the comprehensive project.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation :Separate presentation in the primary financial statements

Many of the items included in regulatory deferral account balances would not otherwise be capitalised as assets (or liabilities) in the absence of the temporary exemption of IAS 8 that is contained in this Standard. Consequently, and consistent with the IASB’s decision discussed , the Standard requires the total of all regulatory deferral account debit balances and the total of all regulatory deferral account credit balances to be presented as separate line items in the statement of financial position. Similarly, the net movement between the opening and closing balances is presented separately within the statement(s) of profit or loss and other comprehensive income, split between amounts related to other comprehensive income and amounts related to profit or loss. Any movements not related to profit or loss or other comprehensive income, such as amounts acquired or disposed of, are disclosed in the reconciliation of opening and closing balances required.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : In addition, the IASB concluded that presenting the regulatory impact separately would provide more useful information about the regulatory environment and would be consistent with the enhancing qualitative characteristic of comparability  of the Conceptual Framework. In particular, it would enable users to more directly compare the property, plant and equipment or intangible assets of comparable rate-regulated entities (in
addition to comparing them to those of non-rate-regulated entities), regardless of whether they recognise regulatory deferral account balances in their financial statements. This would also result in more consistent application of IFRS for all other transactions or activities, irrespective of whether an entity has
rate-regulated activities and the type of rate-regulatory environment that the entity is subject to.

Basis For Conclusions On IFRS 14 Presentation

Basis For Conclusions On IFRS 14 Presentation : The IASB concluded that the separate presentation of regulatory deferral account balances, especially those amounts that are often permitted by national GAAP practices to be included within the carrying amounts of property, plant and equipment and other assets, is an important improvement because it
contributes to increased transparency in financial reporting. The IASB noted that a first-time adopter of IFRS may apply the deemed cost exemption , which allows adopters to use their previous GAAP carrying amounts at the date of transition to IFRS. This exemption provides relief for first-time adopters that would otherwise be required to separate out the regulatory component of the carrying amount of sometimes very large and old items of property, plant and equipment or intangible assets at the date of transition to IFRS, which may be impracticable. The IASB has made a consequential amendment to the scope of the IFRS 1 exemption to make it consistent with the scope of this Standard. Consequently, entities that apply this Standard will only need to isolate the regulatory deferral account amounts for those items on a prospective basis from the date of transition to IFRS. The IASB also noted that the information required for separate presentation on an ongoing basis is normally available in any case, due to the information requirements of rate regulators.

Basis For Conclusions On IFRS 14 Presentation

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