10TH European IFRS power and utilities roundtable · The views expressed in this presentation are...

10TH European IFRS power and utilities roundtable

29 November 2016

10TH European IFRS power and utilities roundtableJane Pike, IASB29 November 2016

The views expressed in this presentation are those of the presenter, not necessarily those of the International Accounting Standards Board (the Board) or IFRS Foundation.Copyright © IFRS Foundation. All rights reserved

IFRS® Foundation

IASB® Activities

EY European IFRS Power and Utilities Roundtable29 November 2016

Jane PikeIASB Technical Principal

4Agenda

Copyright © IFRS Foundation. All rights reserved

• IASB® Work Plan 2017-2021– Key messages received from the 2015 Agenda Consultation

– Complete remaining large standard-setting projects– Promote better communication in financial reporting– Continued development of implementation support– Focus on fewer research projects

• Rate regulation– ASAF Concerns– Scope and enforceability– A ‘supplementary’ approach– Customer-base – Executory contract and

performance – Next steps

• Emissions trading– Conceptual issues

– Asset-type– ‘Day 1 liability’– Threshold

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IASB® Work Plan 2017-2021Feedback Statement


62015 Agenda Consultation

1Complete remaining large standard-setting projects

2Promote better communication in financial reporting

3Continued development of implementation support

4 Focus on fewer research projects


Four themes in the feedback received

71. Complete standard-setting projectsKey messages received:• Complete Leases (now completed) and Insurance

Contracts as a high priority• Prioritise finalising the revised Conceptual Framework

– It is fundamental to developing IFRS Standards based on clear principles

• IFRS Standards should continue to be principle-based• Focus on fewer standard-setting projects

– To allow stakeholders to implement new IFRS Standards


8Standard-setting projectsProject Expected completion

Conceptual Framework2017—with some education activities in

2017 and 2018

Materiality Practice Statement 2017—part of the Disclosure Initiative

Insurance Contracts 2017—followed by support activities during 2017 and 2018

Rate-regulatedActivities

? —Staff are developing an accounting model. The Board expects to consult

stakeholders in 2017

92. Promote better communicationKey messages received:• Prioritise projects that are important to investors

– Especially better communication of financial performance

Enhanced communication effectiveness of IFRS financial statements

Primary financial

statements

Disclosure initiative

IFRS Taxonomy™


103. Implementation and maintenanceKey messages received:• Additional guidance should clarify principles, not

introduce complexity and rules• Avoid too many narrow-scope amendments

Standard issued Effective datePost-

implementation Review

Support implementationof new IFRS Standards

Maintain existing IFRSStandards

Education, online tools

Ongoing dialogue and collaboration


114. More focused research programmeKey messages received:• Research is an essential part of the standard-setting

process• Clarify how research fits into the Board’s other activities

Research is not lower priority than standard-setting

projects

High-priority projects also start

with research


Standard-setting is undertaken when the answer to each of the following questions is ‘yes’:

– Does a problem exist?– Does the problem warrant standard-setting?– Can a feasible solution be found?

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The refocused research programme

Projects

Primary financial statements

Principles of disclosure

Business combinations under common control

Dynamic risk management

Financial instruments with characteristics of equity

Goodwill and impairment

Share-based payment

Discount ratesNearly finished


13Research pipelineProjectsEquity method (for associates and joint ventures)

Extractive activities

Pollutant pricing mechanismsProvisions

Variable and contingent consideration

Nar

row

fo

cus High inflation: Scope of IAS 29

Pension benefits that depend on asset returns

SMEs that are subsidiaries


1414

Emissions tradingResearch pipeline project—

Pollutant Pricing Mechanisms


• Formerly called Emissions Trading Schemes• Was assessing whether the Board should consider

addressing any diversity that may exist in accounting for pollutant pricing mechanisms

• Moved from the active work plan to the research pipeline

• The Board plans no further work on this project until the revised Conceptual Framework is closer to finalisation

Pollutant Pricing Mechanisms

© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

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161. The ‘asset-type’ issue

Purchased Allowances

Allocated Allowances*

*received from the government/ scheme administrator for nil consideration

How do you measure the assets recognised?

Any difference between purchased vs

allocated?


• intangible?• financial?• inventory?• ‘other’?

Should allowances be recognised as assets:

172. The ‘day 1 liability’ issue

Remittance of

allowances equal to

emissions

‘Basic case’, ie• no allocated (free)

allowances are received; and

• no allowances are held as an

‘economic hedge’


Measure the liability using current value?

Recognise liability as

emissions are made through

the period?

If entity receives allocated allowances:

• Recognise an asset?

• Recognise a gain or a liability?

Cap-and-trade ETS

183. The ‘threshold’ issue

Remittance of

allowances equal to

emissions in excess

of the baseline


Recognise only after the

baseline is exceeded,

based on actual emissions?

Recognise throughout the period, based on expected

excess emissions?

When do you recognise a

liability for the emissions obligation?

How is the liability measured:gross or net (ie offset against

allowances held)?

Baseline-and-credit ETS

Cap-and-trade ETS

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Rate-regulated ActivitiesStandard-setting project


• Scope– ‘Enforceable’ rights and obligations that are created by the

rate regulation

• Interaction with other Standards and the Conceptual

Framework– A ‘supplementary’ approach– Customer-base– Performance obligations– Definitions of, and criteria for recognising, assets and liabilities– Caution in recognising long-term regulatory assets– How to account for funds received in advance of construction

• Segregating identifiable rate adjustments from the overall changes in value of the regulatory licence/ agreement (ie an intangible asset)

Concerns raised by ASAF


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• Specified regulatory adjustments that arise from:– identifiable timing differences between performance of the entity

vs performance of the customer-base; and/or– specified price/volume variances

• Enforceability of the regulatory agreement is necessary to support the existence of the rights and obligations contained in it

• Recognise only those specified regulatory adjustment that result in regulatory balances that are included, or expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers

• Other features of ‘defined rate regulation’ (eg monopoly, essential goods) are factors to consider when assessing enforceability

Scope and enforceability


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• Supplements the requirements of existing IFRS Standards;ie: an entity applies the requirements of other IFRS Standards before reflecting the effects of the new model

A supplementary approach


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Note: This includes recognising revenue in accordance with IFRS 15 to reflect the consideration expected in exchange for the goods or services transferred in the period to individual customers using the regulated rate,ie P x Q, where:

P = price per unit to be billed to customers (ie the regulated rate); and

Q = quantity of goods/service transferred

Rate regulation focuses on ‘customer-base’

Customer-base


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P is fixed P is variable and may not be directly related to Q

transferred in the period

Q is actual goods/services

transferred

Q is goods/ services/ other economic benefits

transferred

IFRS 15 focuses on individual customer

Price = P

Quantity = Q

• On day 1, the regulatory agreement is executory; ie an exchange of economic resources is equally unperformed by:

– the entity; and– the rate regulator / customer-base

• Regulatory balances reflect the excess of the one party’s performance over the performance of the other party

Executory contract and performance


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The new model proposes to recognise regulatory balances for identifiable timing differences between:• performance of the entity (by transferring goods or services to

customers or other parties) vs

• performance of the customer-base (by consuming goods or services or making payments)

• ASAF discussion December 2016 (Agenda Paper 3)

– Responding to ASAF concerns– An overview of core principles and features– A reminder of the key features of ‘defined rate regulation’

• Board deliberations to begin with an education session December 2016

• A Discussion Paper in 2017– Consultation and testing the model

Next steps


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10TH European IFRS power and utilities roundtable

29 November 2016

10TH European IFRS power and utilities roundtable · The views expressed in this presentation are...

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