IFRS 20 Regulatory Assets and Regulatory Liabilities

On 27 May 2026, the International Accounting Standards Board (IASB) issued IFRS 20 Regulatory Assets and Regulatory Liabilities, a new IFRS Accounting Standard that fundamentally changes how rate-regulated entities report the financial effects of differences in timing arising from regulatory agreements. IFRS 20 supersedes the interim standard IFRS 14 Regulatory Deferral Accounts and fills a long-standing gap in IFRS Accounting Standards.

Historically, when the company charged customers in a reporting period did not include the full compensation for goods or services supplied in that period (with the balance to be recovered or refunded through future regulated rates), IFRS Accounting Standards offered no specific guidance. The resulting reporting did not faithfully represent the company’s financial performance or the rights and obligations created by the regulatory agreement. Diversity in practice, reduced comparability, and significant analyst adjustments followed.

IFRS 20 introduces a comprehensive recognition, measurement, presentation, and disclosure model. Companies subject to a regulatory agreement that may create such differences in timing must now recognize regulatory assets (enforceable rights to add an amount to future rates) and regulatory liabilities (enforceable obligations to deduct an amount from future rates), and the resulting regulatory income and regulatory expense. The measurement model is cash flow-based, discounted at the regulatory interest rate. IFRS 14 applied only to first time adopters and permitted the continuation of previous GAAP.

The standard is effective for annual reporting periods beginning on or after 1 January 2029, with early application permitted. Entities may transition either retrospectively (per IAS 8) or using a modified retrospective approach that permits hindsight.

In this Early Impressions publication, we highlight what has changed, why it matters, and the key implementation considerations for CFOs, Chief Accounting Officers, and accounting professionals in the utilities, energy, transportation, water, and other rate-regulated sectors.

We hope you find this publication valuable and welcome further discussion.

Why rate regulation matters

Rate regulation is pervasive in industries that deliver essential goods and services — electricity, gas, water, transportation, and telecommunications. In these sectors, an independent regulator approves a tariff (the regulated rate) that customers pay. The regulator’s tariff-setting methodology typically defines an amount of compensation the entity is entitled to recover for the regulatory goods or services it supplies in a period (the total allowed compensation) and the timing of when the entity can recover that compensation through customer billings.

Often, those two amounts diverge. Costs incurred today may only be recovered through tariffs charged in future years; conversely, the entity may be entitled to bill today for items it will deliver in the future. These differences in timing are the economic reality of how regulators set rates — yet, prior to IFRS 20, IFRS Accounting Standards did not require entities to account for those effects.

The accounting gap problem

Before IFRS 20, companies applying IFRS Accounting Standards were unable to recognize the effects of differences in timing. As a result:

• Revenue under IFRS 15 reflected the regulated rate charged in the period, not the total allowed compensation — distorting reported financial performance.
• Enforceable rights to recover under-recovered costs through future rates, and enforceable obligations to refund over-collections through future rates, were not reflected on the statement of financial position.
• Investors and analysts had to develop their own adjustments to normalize reported results, leading to significant diversity and reduced comparability across rate-regulated entities.
• IFRS 14 provided a short-term grandfathering relief for first-time adopters of IFRS but did not address the underlying accounting issue.

Expected impact at a glance

IFRS 20 is a comprehensive new standard that establishes a complete model for accounting for the financial effects of rate regulation. The infographic below highlights the six key dimensions of the standard.

Conceptual flow — from rate regulation to financial statements

IFRS 20 applies to every entity that is a party to a regulatory agreement that creates regulatory assets or regulatory liabilities. There is a single, narrowly drafted scope exception. The standard does not depend on whether the entity is a public, private, government-controlled, or first-time IFRS adopter — if a regulatory agreement creates qualifying rights or obligations, IFRS 20 must be applied.

Key terms defined

IFRS 20 introduces several defined terms that drive the entire model. Understanding these definitions is the entry point for applying the standard.

Scope exception

IFRS 20 includes only one scope exception: it does not apply to regulatory assets and regulatory liabilities arising from premiums charged in insurance contracts within the scope of IFRS 17 that are regulated. Those effects continue to be addressed under IFRS 17.

Illustrative Scope Example 1 — In scope (Electric utility)

Fact pattern: Utility RRE operates under a cost-of-service tariff approved by the national energy regulator. In Year 1, actual fuel costs of CU120 were incurred, but the regulator allowed Utility RRE to charge customers a tariff that recovered only CU100 of fuel costs in Year 1. The regulatory agreement gives Utility RRE an enforceable right to recover the CU20 shortfall through the Year 2 tariff.

Analysis: Utility RRE is a party to a regulatory agreement that creates an enforceable present right to add CU20 to future regulated rates. A difference in timing arises because the total allowed compensation for goods supplied in Year 1 (CU120) is greater than the amount included in Year 1 IFRS 15 revenues (CU100). The arrangement is in scope of IFRS 20. A regulatory asset of CU20 and regulatory income of CU20 are recognized in Year 1; the asset is derecognized in Year 2 when it is reflected under IFRS 15 revenue.

Journal entries to be passed:

Year 1 — Under-recovery period

(a) Incurrence of actual fuel costs (CU120)

(b) Billing customers at the regulated tariff — IFRS 15 revenue (CU100)

(c) IFRS 20 recognition of the enforceable right to recover the CU20 shortfall through Year 2 tariffs

Year 1 outcome: Total revenue 120 (IFRS 15 revenue 100 + Regulatory income 20) − Fuel cost 120 = Profit nil. Regulatory asset of CU20 on the SoFP.

Year 2 — Recovery period

When the regulator permits the additional CU20 to be recovered through Year 2 tariffs, Utility RRE bills customers an extra CU20. Under IFRS 15, this amount is included in revenue in Year 2, but the regulatory asset recognized in Year 1 must be derecognized.

(a) Record additional tariff recovery

(b) Derecognition of the Year 1 regulatory asset as it flows through IFRS 15 revenue in Year 2

Year 2 outcome: Total revenue 20 (IFRS 15 revenue): Regulatory expense 20 = Profit nil. Regulatory asset fully derecognized.

Two-year summary

Note: For simplicity, the regulatory interest rate is assumed to be nil (recovery within the next reporting period). If the recovery period extended beyond one year, the regulatory asset would be measured at the present value of expected recoveries discounted at the regulatory interest rate, with regulatory interest income unwound through P&L each period.

Illustrative Scope Example 2 — Out of scope (Insurance premium regulation)

Fact pattern: Insurer B writes motor insurance contracts within the scope of IFRS 17. The premium it can charge policyholders is approved by the insurance supervisor; under-collections in a year can be recovered through higher approved premiums in future years.

Analysis: Although the rate is regulated and differences in timing arise, the underlying contracts are insurance contracts within IFRS 17. The IFRS 20 scope exception applies; the effects of premium regulation continue to be reflected through the IFRS 17 measurement model.

This section walks through the substantive recognition and measurement requirements of IFRS 20. The application introduces several new concepts (regulatory capital base, direct relationship, regulatory interest rate) and requires significant judgment and data infrastructure.

Applying IFRS 20 — 5-step workflow

01 Identify — Regulatory agreement and differences in timing

The first step is to establish whether IFRS 20 applies. The entity must identify the regulatory agreement (a tariff order, multi-year regulatory plan, court-approved settlement, concession contract, or similar instrument), the regulator that determines the regulated rate, and the regulatory goods or services supplied under that agreement. It must then assess whether differences in timing arise — that is, whether part or all of the total allowed compensation for goods or services supplied in a reporting period is charged to customers through regulated rates in a different period.

Each of these conditions must be present. Without an enforceable regulatory agreement, an authoritative regulator, and an identified difference in timing, no regulatory asset or regulatory liability can exist under IFRS 20. The entity must also confirm that the IFRS 17 scope exception (for regulated insurance premiums) does not apply.

• Inventory of regulatory agreements — every distinct tariff order, multi-year plan, or regulator-approved settlement is captured and assessed against the IFRS 20 definitions.
• Confirm enforceability — by reference to applicable laws, prior regulatory decisions, court rulings, established precedents, and advice from qualified advisers.
• Identify each difference in timing — map the items the regulator considers in setting the rate (allowable expenses, regulatory returns, performance incentives, inflation pass-throughs, under- or over-recovery balances) against the periods of supply and recovery.

02 Define — Unit of account and relevant cash flows

Once an in-scope arrangement is identified, the entity defines the unit of account, and the cash flows it will measure. Under IFRS 20, the unit of account is either an individual right or obligation arising from a difference in timing, or a group of differences in timing that (i) are created by the same regulatory agreement, (ii) have similar expiry patterns, and (iii) are subject to similar risks. Disciplined aggregation reduces operational burden while preserving faithful representation.

Having fixed the unit of account, the entity scopes the relevant cash flows — all future cash flows arising from the recovery of a regulatory asset or the fulfillment of a regulatory liability that are within the boundary of the regulatory agreement, including cash flows for regulatory interest and any settlement on termination of the agreement.

• Choose an estimation method — the ‘most likely amount’ (single best estimate) where one outcome dominates, or the ‘expected value’ (probability-weighted outcomes) where there is a range of possible outcomes.
• Document the boundary — cash flows outside the regulatory agreement’s enforceable boundary (for example, expected future rate cases not yet approved) are excluded.
• Reflect risk factors — incorporate demand risk, credit risk, and any other uncertainties specific to the regulatory cash flows rather than the underlying operating cash flows.

Example — Defining the unit of account

Utility E operates under a single tariff order that creates three distinct differences in timing: (i) a fuel cost under-recovery of CU30 expected to reverse within one year; (ii) a storm-damage repair cost of CU200 to be recovered over five years; and (iii) a deferred environmental remediation obligation of CU80 to be deducted from rates over three years.

Items (i) and (ii) arise from allowable-expense recoveries with similar risk profiles and may be grouped into a single unit of account. Item (iii) is an obligation with a different expiry pattern and risk profile and is accounted for as a separate unit of account.

03 Recognize — Assets/liabilities meeting the threshold

An entity is required to recognize all regulatory assets and all regulatory liabilities existing at the end of the reporting period, and all regulatory income and regulatory expense arising during the reporting period.

Two recognition concepts are critical:

• Existence uncertainty — where it is uncertain whether a regulatory asset or liability exists, the entity recognizes it only if it is more likely than not to exist. The threshold is applied by reference to all reasonable and supportable information available without undue cost or effort (including applicable laws, regulatory decisions, precedents, and advice from advisers). Uncertainty about the existence of a regulatory asset or regulatory liability might arise from uncertainty about the existence of a present right or present obligation, uncertainty about the enforceability of the present right or present obligation, or uncertainty about both existence and enforceability. The existence of a present right or present obligation does not need to be certain for an entity to be able to assess its enforceability. An entity shall consider both types of uncertainty and make a combined assessment of whether it is more likely than not that an enforceable present right or enforceable present obligation exists.
• Direct relationship — regulatory assets/liabilities arising from regulatory depreciation of a regulatory capital base (RCB) are recognized only if a direct relationship exists between the RCB and a related item (typically a depreciable / amortisable asset or an item the regulator monitors separately).

Further, Compensation for an allowable expense might be based on a benchmark (for example, the actual expenses of an entity’s peer group). In some cases, the benchmark is determined using unobservable inputs, and the regulator determines the compensation only after the entity’s financial statements are authorised for issue. In such cases, an entity shall recognise any resulting regulatory asset or regulatory liability only when the regulator determines the compensation based on the actual benchmark.

Example — Existence uncertainty: threshold met (recognize)

Fact pattern: In November 2027, Utility F incurs CU500 of restoration costs following a major storm. The regulatory agreement contains a general principle that prudently incurred extraordinary costs may be recovered through future tariffs, but the regulator has not yet issued a formal decision on this specific event. Management reviewed five comparable storm events in the same jurisdiction over the past decade: in four of those events, the regulator approved full recovery (typically over 3–5 years), and in one event, a 20% disallowance was applied for imprudence. Outside legal counsel concurs that recovery is highly likely, subject to documentation of prudent operation.

Analysis: The existence of the right to recover is uncertain as of 31 December 2027 because the regulator has not formally approved recovery. However, applying the more-likely-than-not threshold to all reasonable and supportable information available (regulatory precedent, applicable framework, legal advice), Utility F concludes that it is more likely than not that a regulatory asset exists. Utility F recognizes a regulatory asset and regulatory income on 31 December 2027.

Example — Existence uncertainty: threshold not met (do not recognize; disclose)

Fact pattern: In the same year, Utility F also requests recovery of CU150 of new IT-platform investment costs that fall outside its current regulatory plan. There is no precedent in the jurisdiction for recovering this category of costs mid-cycle, and the regulator’s preliminary indications are mixed. Counsel assesses the probability of recovery at around 30 – 40%.

Analysis: The more-likely-than-not threshold is not met. Utility F does not recognize a regulatory asset for the CU150. However, IFRS 20 requires disclosure of unrecognized regulatory assets — Utility F discloses the nature of the item, the amount, and the reason it has not been recognized. The position is reassessed at each period; if the regulator subsequently approves recovery (or precedent moves in favor), recognition is triggered prospectively.

Indicators of a direct relationship between RCB and related items

Example — Direct relationship EXISTS (recognize regulatory items from regulatory depreciation)

Fact pattern: Utility G is an electricity transmission company. Under its regulatory agreement, the regulator approves a Regulatory Capital Base (RCB) constructed using the same asset classes as Utility G’s IFRS books — transmission lines, substations, towers, and metering equipment — at original IFRS cost less accumulated regulatory depreciation. The regulator computes regulatory depreciation per asset class using straight-line useful lives set by the regulator (e.g., 40 years for transmission lines) and that differ from the useful lives Utility G applies under IAS 16 (e.g., 50 years).

Analysis: A direct relationship exists between the RCB and the related depreciable assets because (i) the RCB classes mirror the IFRS asset classes, allowing differences to be tracked at the class level; and (ii) the regulator determines an amount of regulatory depreciation specifically to compensate for the depreciation of those assets. The fact that the useful lives differ creates differences in timing — but those differences arise from the same underlying items. Utility G recognizes a regulatory asset (or liability) for the cumulative difference between regulatory depreciation taken to date (recovered through tariffs) and IFRS depreciation recognized in profit or loss.

Derecognition — when and how to remove regulatory items

A regulatory asset or regulatory liability — or part of one — is derecognized when either:

• the amount no longer meets the definition of a regulatory asset or regulatory liability (for example, the under-recovery has been recovered through future regulated rates and now sits in IFRS 15 revenue, or the over-collection has been fulfilled through reduced future tariffs); or
• the amount no longer meets the recognition criteria (for example, on reassessment under the more-likely-than-not threshold, the right or obligation is no longer more likely than not to exist — typically following an adverse regulatory ruling or a material shift in regulatory precedent).

The adjustment to the carrying amount on derecognition is recognized in profit or loss as regulatory income or regulatory expense (or in OCI, where the related item was recognized in OCI under another IFRS Accounting Standard).

Common derecognition triggers in practice

Example — Derecognition following an adverse regulatory ruling (disallowance)

Fact pattern: Utility J recognized a regulatory asset of CU400 in 2026 in respect of contested capital-expenditure costs that the regulator had indicated, on a preliminary basis, would be recovered through future tariffs. In June 2028, after a contested hearing, the regulator issued a final order disallowing CU100 of those costs as imprudent, while confirming the remaining CU300 for recovery over the 2029 – 2031 tariff cycle.

Analysis: On 30 June 2028, the CU100 disallowed portion no longer meets the definition of a regulatory asset — there is no enforceable right to add this amount to future regulated rates. Utility J derecognizes CU100 of the regulatory asset and recognizes CU100 of regulatory expense in profit or loss in 2028. The remaining CU300 continues to be recognized and is subsequently derecognized over 2029 – 2031 as the amounts flow through IFRS 15 revenue.

04 Measure — Cash flows discounted at the regulatory interest rate

IFRS 20 requires entities to measure regulatory assets and regulatory liabilities using a cash-flow-based technique:

• Estimate all future cash flows arising from the recovery of the regulatory asset or fulfillment of the regulatory liability that are within the boundary of the regulatory agreement, including cash flows for regulatory interest.
• Discount those estimated future cash flows using the regulatory interest rate specified or implied by the regulatory agreement. A short-term practical expedient is available: if the period between recognition and the date the agreement-specified interest rate starts to apply is one year or less, the entity need not discount during that period.
• Where uncertainty exists, apply the ‘most likely amount’ method (single most likely outcome) or the ‘expected value’ method (probability-weighted outcomes) — whichever better predicts the ultimate cash flows.
• On subsequent measurement, an entity updates cash-flow estimates each period and continues to use the discount rate determined at initial recognition, unless the regulatory agreement changes the regulatory interest rate.

Further, for a regulatory asset or regulatory liability that arises from regulatory depreciation of a regulatory capital base, the regulatory interest rate is the rate of return that the regulatory agreement applies to the regulatory capital base.

In some cases, an entity shall derive an implied regulatory interest rate from the terms of a regulatory agreement instead of using the interest rate specified in the regulatory agreement.

Example — Multi-year recovery with regulatory interest (initial and subsequent measurement)

Fact pattern: Utility K incurs CU450 of allowable storm-recovery costs in late 2026, none of which have been included in 2026 IFRS 15 revenue. The regulator’s final order (issued in November 2026) approves recovery over the 2027 – 2029 tariff period (three years) and specifies a regulatory interest rate of 4%. The order requires Utility K to recover the under-recovered costs through level annual increments to the tariff that fully amortize the principal at 4%.

Annual recovery built into the tariff = CU450 × [0.04 / (1 − 1.04^-3)] = CU162.16 per year (total cash to be billed = CU486.47, of which CU450 is principal and CU36.47 is regulatory interest).

Initial measurement on 31 December 2026:

• Estimated future cash flows: CU162.16 × 3 years = CU486.47
• Discount at the regulatory interest rate (4%) — present value of CU162.16 for three years at 4% = CU450
• Regulatory asset recognized: CU450; regulatory income recognized in 2026 profit or loss: CU450

Amortization schedule of the regulatory asset:

P&L impact in each year (for the recovery component only):

Observations:

• The regulatory interest rate (4%) specified by the order is used as the discount rate at initial recognition and is carried forward through subsequent periods unchanged, because the regulatory agreement has not changed the rate.
• Each year, the regulatory asset unwinds through interest accretion (regulatory income) and is derecognized as the recovery flows through IFRS 15 revenue (regulatory expense), leaving only the interest income in net revenue. This is consistent with the principle that the period of supply (2026) already captured the CU450 total allowed compensation in profit or loss.
• On subsequent measurement at each balance sheet date, Utility K updates its estimate of future cash flows. If the regulator subsequently changes the rate or the recovery schedule, Utility K remeasures using the new specified regulatory interest rate at that date.

Journal entries (Utility K — CU450 storm costs, three-year recovery, 4% regulatory interest rate). Cash settlement is assumed for simplicity.

2026 — Costs incurred, and regulatory asset recognized

(a) Incurrence of allowable storm-restoration costs

(b) Initial recognition of the regulatory asset (on issuance of the regulator’s final order in November 2026)

2026 P&L effect on this transaction = nil (CU450 storm expense offset by CU450 regulatory income — the period of supply now reflects the total allowed compensation).

Regulatory asset on 31 December 2026 = CU450.

2027 — Year 1 of recovery

(a) Customer billings under the recovery component of the tariff

(b) Unwind of regulatory interest at 4% on opening regulatory asset (CU450 × 4%)

(c) Derecognition of the regulatory asset as the recovery flows through IFRS 15 revenue

Regulatory asset roll-forward 2027: 450.00 + 18.00 − 162.16 = CU305.84.

Net revenue contribution = 162.16 + 18.00 − 162.16 = CU18.00 (the regulatory interest income for the period).

2028 — Year 2 of recovery

(a) Customer billings

(b) Interest unwinds on opening asset (CU305.84 × 4%)

(c) Derecognition for recovery component

Regulatory asset roll-forward 2028: 305.84 + 12.23 − 162.16 = CU155.91.

Net revenue contribution = CU12.23.

2029 — Year 3 of recovery (final year)

(a) Customer billings

(b) Interest unwinds on opening asset (CU155.91 × 4%)

(c) Final derecognition of the regulatory asset

Regulatory asset roll-forward 2029: 155.91 + 6.24 − 162.15 = nil.

Net revenue contribution = CU6.24. (CU0.01 rounding through the final-year cash flow.)

Three-year summary

Year 2026 nets to zero — the storm cost is matched to the regulatory income, restoring the period-of-supply principle. Years 2027 – 2029 each show only the regulatory interest income, totaling CU36.47 — exactly the embedded interest in the regulator’s recovery schedule.

Simplified measurement approach — cash-basis items

Where a regulatory agreement compensates an allowable expense (or deducts a chargeable income) only when cash is paid or received, IFRS 20 provides a simplified measurement approach. The regulatory asset or liability is measured by reference to the carrying amount of the related liability or asset under IFRS Accounting Standards, adjusted for any differences (e.g., demand risk, credit risk reflected in the regulatory item but not in the related item).

Example — Simplified approach in practice (Pension costs)

Utility C operates under a regulatory agreement that allows recovery of pension costs only when contributions are paid into the defined benefit plan. Utility C has recognized a defined benefit pension liability under IAS 19 of CU500 representing the funded status of the plan.

Because the regulator will compensate Utility C for those amounts only as cash contributions are made, Utility C recognizes a regulatory asset measured at the IAS 19 pension liability carrying amount (CU500), adjusted for any timing or risk differences between the IAS 19 liability and the regulatory recovery. Subsequent remeasurements of the pension liability through OCI are accompanied by regulatory income/(expense) recognized in OCI under IFRS 20.

05 Present and Disclose — Line items and extensive notes

IFRS 20 requires an entity to:

• Classify all regulatory income and regulatory expense as revenue and present all regulatory income minus all regulatory expense as a single line item in the statement of profit or loss — separately from IFRS 15 revenue.
• Where the related item is recognized in other comprehensive income (OCI) under another IFRS Accounting Standard, include the related regulatory income/(expense) in OCI on the same basis.
• Present regulatory assets and regulatory liabilities as line items in the statement of financial position, distinguishing current and non-current amounts (unless presenting in order of liquidity).
• Offsetting of regulatory assets and regulatory liabilities is not permitted in presentation.

Disclosure under IFRS 20 is principle-based but extensive. The overall objective is to provide investors with insights into both: (a) the total allowed compensation for regulatory goods or services supplied in a period and the resulting financial performance; and (b) the entity’s regulatory assets and liabilities at the reporting date, together with the amount, timing, and uncertainty of their future cash flows.

Required disclosure framework

Effective date

Effective Date — IFRS 20 is effective for annual reporting periods beginning on or after 1 January 2029.

Early Application — Early application is permitted. Entities that elect to apply IFRS 20 before its mandatory effective date are required to disclose this fact in their financial statements.

Interaction with IFRS 14 — IFRS 20 replaces IFRS 14 Regulatory Deferral Accounts. Entities currently applying IFRS 14 will discontinue its use and transition to the comprehensive recognition, measurement, presentation, and disclosure requirements of IFRS 20.

Key timeline:

Transition methods

This guidance is defining two key dates for transition to IFRS 20:

1. Date of Initial Application – the first day of the reporting period in which IFRS 20 is applied.
2. Transition Date – the date from which you start applying the transition requirements and recognize regulatory assets/liabilities retrospectively.

Illustrative transition example

Transition example — Modified retrospective

Entity D, an electricity transmission company with a calendar reporting period, adopts IFRS 20 on 1 January 1, 2029, with the comparative period ending December 31, 2028. On 1 January 2028, Entity D identifies a CU150 historical under-recovery of allowable transmission costs that the regulator will recover over five years through the 2028 – 2032 tariffs at an implied regulatory interest rate of 6%.

Date of Initial Application = 1 January 2029

Transition Date = 1 January 2028

Applying the modified retrospective approach, Entity D measures the regulatory asset at the present value of expected recoveries (CU150 nominal discounted at 6% → CU131), recognizes a cumulative-effect adjustment to opening retained earnings of CU131 on 1 January 2028 (transition date), and records regulatory income/interest going forward as the asset unwinds. Comparative-period regulatory income and the closing 31 December 2028 regulatory asset are presented on the IFRS 20 basis.

For more information on the Accounting Standard, see press release on the IASB’s Website

IFRS 20 is a transformational standard for rate-regulated entities. Below, we share the six takeaways we believe will most influence how CFOs, Chief Accounting Officers, and accounting professionals should plan their implementation — distilled from our work across utilities, energy, transportation, water, and other rate-regulated sectors.

Uniqus implementation roadmap — from analysis to steady state