In May 2026, the International Accounting Standards Board (IASB) issued IFRS 20 Regulatory Assets and Regulatory Liabilities. The standard is effective for accounting periods beginning on or after 1 January 2029 and may be adopted early. The effective date of the standard in a jurisdiction would depend on the specific regulatory and endorsement requirements in that jurisdiction.
Why IFRS 20 is needed
For some industry sectors like power and utilities, companies often enter into regulatory agreements that create a set of enforceable rights and obligations and set out how a regulator determines the price or a range (referred to as regulated rate) that such companies charge for regulatory goods or services provided to customers in a reporting period.
It is common for at least part of the compensation a company is entitled to for such goods or services supplied in a reporting period under a regulatory agreement, to be included in determining the price charged to customers in a different period.
For example, a regulatory agreement entitles a company to recover from its customers the actual costs of supplying electricity to a community. In the first year, the company charges its customers a regulated rate based on the estimated costs at the beginning of that year. The difference between the actual and estimated costs for the first year will be included in the determination of the regulated rate for the following year. This creates a timing difference that is not recognized in IFRS 15 Revenue from Contracts with Customers. Recognizing the regulatory asset that arises from this timing difference results in higher total revenue for the first year and the regulatory asset will be unwound resulting in a lower total revenue for the following year. The recognition of regulatory assets or liabilities has no impact on a company’s cash flows.
Conversely, a regulatory agreement may entitle a company to invoice its customers for costs that will be incurred in the future, thereby increasing revenue applying IFRS 15 in the first year. Recognizing the regulatory expense that arises from this timing difference as a deduction from the total revenue in the first year and the unwinding of such a difference resulting in higher total revenue in subsequent years provides a more economically faithful presentation of the performance of the company.
IFRS 20 is intended to improve financial reporting by requiring a company to recognize some of the effects of timing differences arising from rate regulation through regulatory assets and liabilities and related regulatory income and expenses. This is intended to help users of financial statements to better understand the company’s financial performance and prospects for future cash flows. IFRS 20 also provides specific requirements on measurement, presentation and disclosure.
Action items for the implementation of IFRS 20
1. Identify regulatory agreements subject to IFRS 20 and evaluate the existence of any regulatory asset or liability
A regulatory asset or a regulatory liability can exist only if a company and a regulator are parties to a regulatory agreement that prescribes the regulated rate the company charges for goods or services it supplies to customers. In addition, companies need to identify timing differences arising from when part, or all, of the total allowed compensation is recovered and when the regulated goods or services are supplied (in the past or the future) according to the regulatory agreement.
