Pipara & Co LLP

Regulatory Deferral Accounts
Objective
  1. The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.
  2. In meeting this objective, the Standard requires:
    1. limited changes to the accounting policies that were applied in accordance with previous generally accepted accounting principles (previous GAAP) for regulatory deferral account balances, which are primarily related to the presentation of these accounts; and
    2. disclosures that:
      1. identify and explain the amounts recognised in the entity’s financial statements that arise from rate regulation; and
      2. help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any regulatory deferral account balances that are recognised.
  3. The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts Ind ASs, subject to the limited changes referred to in paragraph 2 above. This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and G.S.R. 419(E) dated 18th June, 2021.
  1. In addition, this Standard provides some exceptions to, or exemptions from, the requirements of other Standards. All specified requirements for reporting regulatory deferral account balances, and any exceptions to, or exemptions from, the requirements of other Standards that are related to those balances, are contained within this Standard instead of within those other Standards.
Scope
  • An entity is permitted to apply the requirements of this Standard in its first Ind AS financial statements if and only if it:
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  • conducts rate-regulated activities; and
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  • recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.
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  • An entity shall apply the requirements of this Standard in its financial statements for subsequent periods if and only if, in its first Ind AS financial statements1, it recognised regulatory deferral account balances by electing to apply the requirements of this Standard.
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    1. This Standard does not address other aspects of accounting by entities that are engaged in rate-regulated activities. By applying the requirements in this Standard, any amounts that are permitted or required to be recognised as assets or liabilities in accordance with other Standards shall not be included within the amounts classified as regulatory deferral account balances.
  • An entity that is within the scope of, and that elects to apply, this Standard shall apply all of its requirements to all regulatory deferral account balances that arise from all of the entity’s rate- regulated activities.

1 An entity subject to rate regulation coming into existence after Ind AS coming into force or an entity whose activities become subject to rate regulation as defined in this Ind AS subsequent to preparation and presentation of its first Ind AS financial statements shall be entitled to apply the requirements of the previous GAAP in respect of its such rate regulated activities.

Recognition, measurement, impairment and derecognition
Temporary exemption from paragraph 11 of Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
  • An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of Ind AS 8 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
  1. Paragraphs 11–12 of Ind AS 8 specify sources of requirements and guidance that management is required or permitted to consider in developing an accounting policy for an item, if no relevant Standard applies specifically to that item. This Standard exempts an entity from applying paragraph 11 of Ind AS 8 to its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, entities that recognise regulatory deferral account balances, either as separate items or as part of the carrying value of other assets and liabilities, in accordance with previous GAAP, are permitted to continue to recognise those balances in accordance with this Standard through the exemption from paragraph 11 of Ind AS 8, subject to any presentation changes required by paragraphs 18–19 of this Standard.
Continuation of existing accounting policies
  • On initial application of this Standard, an entity shall continue to apply previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances, except for any changes permitted by paragraphs 13–15. However, the presentation of such amounts shall comply with the presentation requirements of this
  Standard, which may require changes to the entity’s previous GAAP presentation policies (see paragraphs 18–19).
  1. An entity shall apply the policies established in accordance with paragraph 11 consistently in subsequent periods, except for any changes permitted by paragraphs 13–15.
Changes in accounting policies
  • 2An entity shall not change its accounting policies in order to start to recognise regulatory deferral account balances. An entity may only change its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable*, or more reliable and no less relevant to those needs. An entity shall judge relevance and reliability using the criteria in paragraph 10 of Ind AS 8.
  1. This Standard does not exempt entities from applying paragraphs 10 or 14–15 of Ind AS 8 to changes in accounting policy. To justify changing its accounting policies for regulatory deferral account balances, an entity shall demonstrate that the change brings its financial statements closer to meeting the criteria in paragraph 10 of Ind AS 8. However, the change does not need to achieve full compliance with those criteria for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
  2. Paragraphs 13–14 apply both to changes made on initial application of this Standard and to changes made in subsequent reporting periods.
  2 Substituted vide Notification No. G.S.R. 419(E) dated 18th June, 2021. * The term “faithful representation”, which is used in the Conceptual Framework for Financial Reporting under Ind AS issued by the Institute of Chartered Accountants of India, encompasses the main characteristics that the Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards called “reliability”. The requirement in paragraph 13 of this Standard is based on the requirements of Ind AS 8, which retains the term “reliable”.
Interaction with other Standards
  • Any specific exception, exemption or additional requirements related to the interaction of this Standard with other Standards are contained within this Standard (see paragraphs B7–B28). In the absence of any such exception, exemption or additional requirements, other Standards shall apply to regulatory deferral account balances in the same way as they apply to assets, liabilities, income and expenses that are recognised in accordance with other Standards.
In some situations, another Standard might need to be applied to a regulatory deferral account balance that has been measured in accordance with an entity’s accounting policies that are established in accordance with paragraphs 11–12 in order to reflect that balance appropriately in the financial statements. For example, the entity might have rate-regulated activities in a foreign country for which the transactions and regulatory deferral account balances are denominated in a currency that is not the functional currency of the reporting entity. The regulatory deferral account balances and the movements in those balances are translated by applying Ind AS 21 The Effects of Changes in Foreign Exchange Rates.
Presentation
Changes in presentation
  1. This Standard introduces presentation requirements, outlined in paragraphs 20–26, for regulatory deferral account balances that are recognised in accordance with paragraphs 11–12. When this Standard is applied, the regulatory deferral account balances are recognised in the balance sheet in addition to the assets and liabilities that are recognised in accordance with other Standards. These presentation requirements separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards.
  2. In addition to the items that are required to be presented in the balance sheet and in the statement of profit and loss in accordance with Ind AS 1 Presentation of Financial Statements, an entity  applying this Standard shall present all regulatory deferral account balances and the movements in those balances in accordance with paragraphs 20–26.
Classification of regulatory deferral account balances
  • An entity shall present separate line items in the balance sheet for:
  • the total of all regulatory deferral account debit balances; and
  • the total of all regulatory deferral account credit balances.
  • When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet, it shall not classify the totals of regulatory deferral account balances as current or non-current. Instead, the separate line items required by paragraph 20 shall be distinguished from the assets and liabilities that are presented in accordance with other Standards by the use of sub-totals, which are drawn before the regulatory deferral account balances are presented.
Classification of movements in regulatory deferral account balances
  • An entity shall present, in the other comprehensive income section of the statement of profit and loss , the net movement in all regulatory deferral account balances for the reporting period that relate to items recognised in other comprehensive income. Separate line items shall be used for the net movement related to items that, in accordance with other Standards:
  • will not be reclassified subsequently to profit or loss; and
  • will be reclassified subsequently to profit or loss when specific conditions are met.
  • An entity shall present a separate line item in the profit or loss section of the statement of profit and loss, for the remaining net movement in all regulatory deferral account balances for the

 

reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the income and expenses that are presented in accordance with other Standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances.
  1. When an entity recognises a deferred tax asset or a deferred tax liability as a result of recognising regulatory deferral account balances, the entity shall present the resulting deferred tax asset (liability) and the related movement in that deferred tax asset (liability) with the related regulatory deferral account balances and movements in those balances, instead of within the total presented in accordance with Ind AS 12 Income Taxes for deferred tax assets (liabilities) and the tax expense (income) (see paragraphs B9–B12).
  2. When an entity presents a discontinued operation or a disposal group in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations, the entity shall present any related regulatory deferral account balances and the net movement in those balances, as applicable, with the regulatory deferral account balances and movements in those balances, instead of within the disposal groups or discontinued operations (see paragraphs B19– B22).

When an entity presents earnings per share in accordance with Ind AS 33 Earnings per Share, the entity shall present additional basic and diluted earnings per share, which are calculated using the earnings amounts required by Ind AS 33 but excluding the movements in regulatory deferral account balances (see paragraphs B13–B14).

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