On 27 May 2026, the IASB issued IFRS 20 – Regulatory Assets and Regulatory Liabilities, introducing a comprehensive accounting model for entities subject to defined rate regulation.
The new Standard addresses a long-standing gap in IFRS Accounting Standards by requiring entities to recognise regulatory assets and regulatory liabilities arising from timing differences between the delivery of goods or services and the recovery of consideration through regulated pricing.
Why IFRS 20 was introduced
Entities operating in regulated industries (e.g., utilities, energy, water and infrastructure) often face misalignment between when goods/services are provided and when customers are billed.
Historically, IFRS did not include a comprehensive model for such arrangements, IFRS 14 provided only a temporary, limited solution leading to significant diversity in practice.
IFRS 20 addresses this by introducing a consistent approach to reflect these “timing differences”.
Who may be affected
The standard applies to arrangements where a regulator determines pricing for goods or services, creating enforceable rights and obligations that may lead to future price adjustments. While commonly associated with utilities, IFRS 20 may also impact other industries operating under regulated pricing mechanisms, except for certain insurance-related arrangements within IFRS 17.
Summary of new requirements
a. Core principles
The core principle of IFRS 20 is that an entity recognises the total allowed compensation for regulatory goods or services in the same reporting period in which those goods or services are supplied, thereby aligning financial performance with the underlying economics of the regulatory arrangement.
This is achieved by recognising regulatory assets and regulatory liabilities for timing differences arising when recovery of consideration through regulated rates occurs in a different period from performance, with the resulting regulatory income and expenses reflecting these movements in profit or loss.
b. Recognition and measurement
- Recognition: Regulatory assets and liabilities are recognised when timing differences arise between delivery of goods/services and recovery through regulated pricing, provided the rights or obligations are enforceable and probable.
- Unit of account: Recognition is based on individual timing differences associated with specific regulatory adjustments under the arrangement.
- Measurement basis: Amounts are measured using expected future cash flows representing the compensation or refund to be included in future tariffs.
- Discounting: Cash flows are discounted using the regulatory interest rate, reflecting the time value of money embedded in the regulatory framework.
- Subsequent measurement: Balances are updated each reporting period for new timing differences, unwinding of discount, and changes in estimates.
c. Presentation and Disclosure
- Separate presentation: Regulatory income and regulatory expenses are presented separately from revenue and expenses recognised under IFRS 15, enhancing clarity of performance drivers.
- Balance sheet classification: Regulatory assets and regulatory liabilities are presented separately from other assets and liabilities, highlighting their distinct nature.
- Supplementary information: IFRS 20 supplements existing IFRS reporting rather than replacing it, providing additional insights into regulated activities.
- Disaggregation: Entities are required to provide sufficient disaggregation of regulatory balances and movements to help users understand underlying drivers.
- Key disclosures: Includes information on nature of regulatory arrangements, significant judgments, estimation uncertainties, and expected timing of recovery or reversal.
- Reconciliations: Movement schedules for regulatory assets and liabilities are required to explain changes during the period.
Interaction with other standards
| Standard | Practical impact |
|---|---|
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IFRS 15 Revenue from contracts with customers
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IFRS 20 adds regulatory context to revenue recognized under IFRS 15.
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IFRS 14 Regulated Deferral Accounts
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IFRS 20 replaces IFRS 14 and introduces a permanent framework for regulated assets and liabilities.
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IFRS 18 Presentation and Disclosure in Financial Statements
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IFRS 20 perates alongside IFRS 18 to provide relevant presentation and disclosure requirements.
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Effective date and transition
IFRS 20 is effective for annual reporting periods beginning on or after 1 January 2029, with early application permitted.
Our thoughts
IFRS 20 represents a significant step forward in enhancing transparency and comparability in financial reporting for rate‑regulated entities. By introducing a consistent framework to recognise regulatory assets and liabilities, the Standard aligns reported performance more closely with the underlying economics of regulatory arrangements. While conceptually robust, its implementation is expected to be operationally intensive, requiring significant enhancements to data, systems, and processes, as well as careful consideration of impacts on KPIs, covenants, and investor communication. Entities should therefore start early, adopting a structured implementation approach to manage both technical accounting complexities and broader business implications effectively.
How Grant Thornton UAE can help you
IFRS 20 introduces important considerations across regulatory agreements, financial reporting, systems, internal controls, and stakeholder communication. For entities operating in regulated sectors within the UAE and wider region, interpreting and applying these requirements in practice can be complex and may require a structured and technically robust assessment.
Our team at Grant Thornton UAE can support you in assessing the potential impact, identifying implementation gaps, and preparing for a smooth and confident transition. Whether you are at an initial assessment stage or refining your implementation approach, we are well positioned to guide you through the requirements.