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Letter to IFRS Foundation on regulatory assets and liabilities exposure draft

July 28, 2021 

International Accounting Standards Board (Board) 
Submitted via email to [email protected] 

Re: IFRS Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities  

Dear Board Members: 

The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the proposed Exposure Draft (ED) ED/2021/1 - Regulatory Assets and Liabilities, issued by the International Accounting Standards Board.  

The VSCPA is a leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of more than 13,000 individual members who actively work in public accounting, private industry, government and education.  

The Committee generally agrees with agrees with the objectives and the requirements of the ED. The proposal would help set the stage to align financial reporting under IFRS and regulatory reporting requirements. 

We are also submitting the following specific responses and comments on questions 1 – 5 of the ED. 

Question 1 

Do you agree with the objective of the Exposure Draft? Why or why not?  

Yes. The requirements would improve the comparability of IFRS financial statements across multiple regulatory jurisdictions; for example, the consistent application of other standards such as IFRS, 14 Regulatory Deferral Accounts.  

Do you agree with the proposed scope of the Exposure Draft? Why or why not? If not, what scope do you suggest and why?  

Yes. Regulatory assets and regulatory liabilities are adequately addressed to ensure consistent reporting across multiple regulatory jurisdictions. 

Do you agree that the proposals in the Exposure Draft are clear enough to enable an entity to determine whether a regulatory agreement gives rise to regulatory assets and regulatory liabilities? If not, what additional requirements do you recommend and why? 

Yes. The proposals are sufficiently clear and comprehensive to enable the consistent recognition and reporting of regulatory assets and liabilities.  

Do you agree that the requirements proposed in the Exposure Draft should apply to all regulatory agreements and not only to those that have a particular legal form or those enforced by a regulator with particular attributes? Why or why not? If not, how and why should the Board specify what form a regulatory agreement should have, and how and why should it define a regulator?  

Yes. The underlying substance of various forms of agreements should drive the financial reporting 

Have you identified any situations in which the proposed requirements would affect activities that you do not view as subject to rate regulation? If so, please describe the situations, state whether you have any concerns about those effects and explain what your concerns are.  

No. There are none based on the current proposed requirements. 

Do you agree that an entity should not recognise any assets or liabilities created by a regulatory agreement other than regulatory assets and regulatory liabilities and other assets and liabilities, if any, that are already required or permitted to be recognised by IFRS Standards?  

Yes. There should be no unintended recognition of assets or liabilities based on the ED.  

Question 2

Do you agree with the proposed definitions? Why or why not? If not, what changes do you suggest and why?  

Yes. Specifically, the use of the term “enforceable” is appropriate for a regulated environment. 

Do you agree with the focus on total allowed compensation, including both the recovery of allowable expenses and a profit component? Why or why not?  
 
Yes. We have no specific comments.   

Do you agree that regulatory assets and regulatory liabilities meet the definitions of assets and liabilities within the Conceptual Framework for Financial Reporting? Why or why not?  

Yes. The regulatory assets and regulatory liabilities definitions are consistent with the enforceable rights and enforceable obligations as envisioned in the conceptual framework.  

Do you agree that an entity should account for regulatory assets and regulatory liabilities separately from the rest of the regulatory agreement? Why or why not? 
 
Yes.  The separation of the revenue streams and cash flows would provide useful information to the users of the financial statements. 

Have you identified any situations in which the proposed definitions would result in regulatory assets or regulatory liabilities being recognised when their recognition would provide information that is not useful to users of financial statements?  
 
No. There are none based on the current proposed requirements. 

Question 3

Do you agree with the proposed guidance on how an entity would determine total allowed compensation for goods or services supplied in a period if a regulatory agreement provides: 

  1. regulatory returns calculated by applying a return rate to a base, such as a regulatory capital base (paragraphs B13–B14 and BC92–BC95)?  

    Yes. We have no specific comments.
     

  2. regulatory returns on a balance relating to assets not yet available for use (paragraphs B15 and BC96–BC100)? performance incentives (paragraphs B16–B20 and BC101–BC110)?

    Yes. We have no specific comments.
     

  3. performance incentives (paragraphs B16–B20 and BC101–BC110)?

    Yes. We have no specific comments. 

Do you agree with how the proposed guidance in paragraphs B3–B27 would treat all components of total allowed compensation not listed in question 3(a)? Why or why not? If not, what approach do you recommend and why? 
 
Yes. The guidance is consistent with the matching principle. 

Should the Board provide any further guidance on how to apply the concept of total allowed compensation? If so, what guidance is needed and why?  
 
No. Further guidance should be considered after a reasonable period of implementation. 

Question 4  

Do you agree that an entity should recognise all its regulatory assets and regulatory liabilities? Why or why not?

Yes. Sufficient and consistent criteria are provided to determine if a regulatory asset or regulatory liability exists.  

Do you agree that a ‘more likely than not’ recognition threshold should apply when it is uncertain whether a regulatory asset or regulatory liability exists? Why or why not? If not, what recognition threshold do you suggest and why?  

Yes. This is consistent with other IFRS standards.  

Question 5  

Do you agree with the proposed measurement basis? Why or why not? If not, what basis do you suggest and why?  

 Yes. See response to 5 b). 

Do you agree with the proposed cash-flow-based measurement technique? Why or why not? If not, what technique do you suggest and why?  

Yes. The cash-flow-based measurement is appropriate given the inclusion of discounting features. 

Do you agree with this proposal? Why or why not? If not, what approach do you suggest and why?  

Yes. The alternatives of the “most likely amount” method or “expected value” method seem sufficiently clear and appropriate. 

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Again, the Committee appreciates the opportunity to respond to this proposal. Please direct any questions or concerns to VSCPA, Vice President of Advocacy Emily Walker at [email protected] or (804) 612-9428. 

Sincerely,  

Tamara Greear, CPA
2021-2022 Chair
VSCPA Accounting & Auditing Advisory Committee 

2021-22 VSCPA Accounting & Auditing Advisory Committee 

Tamara Greear, CPA — Chair 
George Crowell, CPA — Vice Chair 
Zach Borgerding, CPA 
Scott Davis, CPA 
Bo Garner, CPA 
Joshua M. Keene, CPA 
Nick Kinsler, CPA 
Daniel Martin, CPA 
Michael Phillips, CPA 
Chris Smith-Christian, CPA 
Charles M. Valadez, CPA 
Natalya Yashina, CPA