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10 December 2009

CESR comments on EFRAG letter on IASB Exposure Draft Rate-Regulated Activities – international co-operation needed

In order to achieve a level playing field in financial reporting, CESR wants IASB to work with US FASB and other standard-setters to find robust grounds on which the recognition of regulatory assets and/or regulatory liabilities can be based.

CESR agrees that there is a need to address the divergence that occurs in practice in how entities treat the recognition of assets and liabilities arising from rate regulation.


CESR concurs with those EFRAG members who believe that the proposals in the Exposure Draft (ED) do not represent an improvement to financial reporting and are not in line with the Framework’s definition of assets and liabilities. CESR finds it hard to understand why non-regulated entities should not be in a position under certain circumstances to recognise similar types of assets and liabilities within their activities. As a result, CESR finds itself unable to agree with the proposed accounting in the ED and is drawn more towards the position set out in the Alternative View.


CESR is nevertheless of the view that regulated activities can have a significant impact on an entity’s financial position and performance and as such they should be properly reflected in its financial statements. As CESR believes it important to achieve a level playing field in this area, it is encouraging the IASB to work together with the US FASB and other standard-setters having specific rate-regulation accounting requirements, to develop a more comprehensive project exploring whether there are robust grounds on which the recognition of regulatory assets and/or regulatory liabilities can be based.


Furthermore, the IASB should explore further whether standards which already exist might be able to provide an acceptable solution without the need either to deviate from the Framework or to issue a new standard.


The IASB could help users in the short term by adding additional disclosures explaining the nature and extent of regulated activities and their effects on the financial position and performance of an entity. Disclosures that are currently asked of regulated entities could be enhanced along the lines of those proposed in this ED by adding them for example to existing standards.


CESR Press release

Efrag’s comments


© CESR - Committee of European Securities Regulators

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