The IASB has issued a new IFRS Accounting Standard

What is the issue?

On 27 May 2026, the IASB issued a new IFRS Accounting Standard – IFRS 20 Regulatory Assets and Regulatory Liabilities*. It will affect the financial statements of entities that are subject to rate regulation. Rate regulation can significantly affect the amount and timing of an entity’s revenue, profit and cash flows by specifying: (a) how much compensation an entity is entitled to charge customers for regulatory goods or services supplied in a period; and (b) when the entity can include that compensation in the regulated rates charged to customers.

IFRS 20 supplements the information that an entity provides by applying IFRS 15. It requires an entity to provide information that gives insights into the total amount of compensation to which the entity is entitled for regulatory goods or services supplied in each reporting period. The resulting information better matches revenue to the costs incurred supplying those goods and services.

If there is a difference between when a company supplies regulatory goods and services and when it charges customers for those goods and services pursuant to a regulatory agreement, revenue reported by applying IFRS 15 might not fully reflect the company’s performance in a period. IFRS 20 calls this a ‘difference in timing’. The new standard requires entities to account for the effects of differences in timing in their financial statements by recognising regulatory assets and regulatory liabilities and the resulting regulatory income and regulatory expense.

IFRS 20 supersedes IFRS 14*, which allowed a first-time adopter to continue applying its previous accounting policies for the recognition and measurement of regulatory deferral accounts on first-time adoption of IFRS Accounting Standards. Entities that are currently applying IFRS 14 will have to discontinue their current accounting practice for regulatory deferral balances and transition to the requirements of IFRS 20 at its effective date.

Who is impacted?

IFRS 20 will mainly affect entities in industries such as utilities, energy and transportation that are subject to rate regulation. However, the scope of the standard is not industry specific. All entities will have to work through whether they have arrangements which are within the scope of IFRS 20. The flowchart below is helpful to identify if an arrangement will be within the scope of, and therefore be impacted by the adoption of, IFRS 20. See also the accompanying notes to the flowchart on the right. 

A high-level summary of the key principles and requirements of IFRS 20

• The key principle of IFRS 20 is that an entity should recognise the total allowed compensation for regulatory goods or services supplied by the entity in the same reporting period that the entity supplies those goods or services. To apply this principle, IFRS 20 requires an entity to recognise regulatory assets and regulatory liabilities and the resulting regulatory income and regulatory expense. Below you can find an example that explains the application, and impact, of this key principle of IFRS 20.
• IFRS 20 includes guidance to help entities to identify differences in timing, and it provides specific guidance on the most common types of compensation provided or deductions made by regulatory agreements. This includes specific recognition and measurement requirements for certain differences in timing e.g. specific recognition criterion for a regulatory asset or regulatory liability arising from regulatory depreciation of a regulatory capital base, compensation based on a benchmark determined using unobservable inputs and a simplified measurement approach for items that affect regulated rates only when the related cash is paid or received.
• Generally, IFRS 20 requires recognition of all regulatory assets and regulatory liabilities that exist at the reporting date by measuring them using a discounted cash flow model; that is, the estimated future cash flows arising from the recovery of a regulatory asset or fulfilment of a regulatory liability are discounted using the regulatory interest rate specified in the regulatory agreement for that regulatory asset or regulatory liability.
• All regulatory income minus all regulatory expense should be classified as revenue and presented as a line item in the statement of profit or loss. Regulatory income includes regulatory interest income while regulatory expense includes regulatory interest expense. Where regulatory income or regulatory expense relates to an item of expense or income recognised in other comprehensive income (OCI), the entity should also include in OCI regulatory income or regulatory expense relating to that item of expense or income.
• IFRS 20 requires detailed disclosures about regulatory assets, regulatory liabilities, regulatory income and regulatory expenses.
• IFRS 20 includes specific transition requirements that entities will need to consider when implementing the standard. Entities can elect to apply the standard retrospectively in accordance with IAS 8 Basis of Preparation of Financial Statements or to use the modified retrospective approach on transition as described in Appendix C of IFRS 20. 

What should entities do now?

Entities should first determine if they are subject to a regulatory agreement that prescribes how a regulator determines a regulated rate that the entity charges for goods or services supplied to customers in a period. Where an entity establishes that the rate that it charges to its customers is subject to a regulatory agreement, it should further assess whether that arrangement is within the scope of IFRS 20 by identifying any differences in timing that might exist and whether the regulatory agreement creates enforceable present rights or obligations to adjust rates to be charged to customers in future periods.

Example illustrating a difference in timing and the impact of IFRS 20

A regulated rate that an entity charged for goods or services supplied to customers in 20X1 was based on estimated input costs of CU100. However, the entity recognised actual input costs in that year of CU120. The regulatory agreement gives the entity an enforceable present right to add the resulting CU20 under-recovery of those input costs in determining the regulated rate to be charged to customers in 20X2.

In this example, the entity’s IFRS 15 revenue for 20X1 includes compensation of CU100 based on the estimated input costs. Compensation for the CU20 under-recovery of input costs in 20X1 will be added in determining the regulated rates to be charged to customers in 20X2, and hence will be included in IFRS 15 revenue in 20X2. However, that compensation of CU20 forms part of the total allowed compensation for regulatory goods or services supplied in 20X1, not for those supplied in 20X2 – the total allowed compensation for regulatory goods or services supplied in 20X1 is CU120.

IFRS 20 requires the entity to recognise a regulatory income and a corresponding regulatory asset of CU20 in 20X1 that results in total revenue for entity to be CU120 (i.e. CU100 billable to customers during 20X1 and CU20 which results from the recognition of a regulatory asset). The CU20 regulatory asset is de-recognised, with a corresponding regulatory expense in 20X2 when the CU20 is reflected in IFRS 15 revenue (i.e. the CU20 is billed to customers during 20X2 but income is reduced by the reversal of the regulatory asset previously recorded). 

This example is based on the example in paragraph 16 of IFRS 20 and assumes that the relevant recognition requirements in IFRS 20 have been met for illustration purposes. For simplicity, this example ignores the effect of regulatory interest.

IFRS 20 Illustrative Example 28* provides a helpful illustration of the classification and presentation requirements of IFRS 20, including an illustration of the statement of profit or loss, statement of comprehensive income, and statement of financial position with the impact of IFRS 20. 

* Access to the additional guidance is restricted to users with Viewpoint access