Rate Regulated Activities Economic Study

News types: Codes and Standards Announcements

Published: 19 April 2024

Issued on behalf of the UKEB.

During 2023, the UK Endorsement Board (UKEB) commissioned an independent economic assessment of the IASB Exposure Draft 2021/1 Regulatory Assets and Regulatory Liabilities and subsequent accounting re-deliberations (up to December 2023).

First Economics, who conducted the report, concluded that the IASB’s accounting proposals in the ED, as amended by tentative decisions up to December 2023, are not expected to lead to any major macroeconomic effects in the UK. Overall, they are expected to lead to some improvement in financial reporting for companies within scope. However, in certain circumstances the proposals may not lead to an improvement in UK companies’ financial reporting, due to: the non-recognition of regulatory assets/liabilities in the absence of a direct relationship between an entity’s property, plant and equipment and its regulatory capital base; the treatment of inflation indexation; and the treatment of deferred tax. As a result:

  • generalist investors may not benefit from the intended improvements in accounting for companies undertaking rate regulated activities;
  • comparability between companies and jurisdictions may be impaired; and
  • any anticipated cost of capital reductions may be smaller than if the proposed accounting fully reflected the underlying economics.

This preliminary assessment is subject to change as the IASB deliberates on additional topics in anticipation of a standard being published in 2025.

The final report can be accessed on the UKEB's website.