IFRS 20 and the End of IFRS 14
How IFRS 15 Delayed It and IFRS 18 Helped Complete the Story
What Is a Regulatory Asset?
Before tracing that history, a brief orientation is necessary.
In a conventional business, if your costs in Year 1 exceed what you recovered from customers, that shortfall is a loss. You cannot place a "right to recover it later" on your balance sheet — because no such enforceable right exists.
Infrastructure businesses are different. Electricity networks, gas pipelines, water utilities, and railways typically operate under a regulatory agreement: a legally binding framework in which a regulator determines the rates the company may charge, and when. When a regulator approves costs incurred in Year 1 but defers recovery to future tariffs — because, for example, the rate-setting cycle runs annually in arrears — the company holds an enforceable right to future recovery. That right has economic substance. It will determine future cash flows. It belongs on the balance sheet.
A regulatory asset is precisely that: a present right to recover amounts through future regulated compensation, arising because costs have been incurred but not yet recovered through current-period revenue. The recovery need not take the form of higher headline tariffs — it may flow through other elements of the regulatory compensation structure. What matters is that the right is enforceable and economically real.
The mirror image — a regulatory liability — arises when a company has already collected more from customers than it was entitled to, and is obligated to return that excess through future rate reductions.
Without recognising these items, an infrastructure company's reported earnings swing artificially with the timing of regulatory cycles, obscuring the underlying economics. Investors are misled. Capital allocation decisions are distorted.
This is the problem IFRS 20 solves — but the problem itself is more than 40 years old.
The History Behind a 12-Year Interim Standard
On 27 May 2026, the International Accounting Standards Board (IASB) issued IFRS 20 Regulatory Assets and Regulatory Liabilities — a comprehensive standard governing how companies subject to rate regulation account for the timing differences between costs incurred and revenue recovered.
Mandatory from 1 January 2029 (with early adoption permitted), IFRS 20 supersedes IFRS 14 Regulatory Deferral Accounts, a stopgap standard issued in 2014 that was explicitly described as interim from the moment of its publication.
Twelve years is a long time for an "interim" solution. The story of why it took so long — and what finally forced the issue — is the story of a collision between accounting philosophy, geopolitical pragmatism, and the economics of the energy transition.
Act I: The US Had It. Europe Did Not.
The concept of regulatory assets is not new. US GAAP has included explicit accounting guidance for rate-regulated activities since the 1980s, codified today as ASC 980. The rationale was straightforward: American utilities were privately owned and stock-exchange listed from an early stage. When rate regulation created temporary mismatches between incurred costs and allowed recovery, those mismatches showed up immediately as reported losses — causing stock price volatility unrelated to the underlying business performance. ASC 980 was the practical answer.
In many European jurisdictions, infrastructure remained state-owned for much longer than in the United States. Where state-owned electricity or gas companies ran deficits, governments covered them — the question of how to represent regulatory timing differences on a balance sheet simply did not arise in the same way. When the IASB assembled the original body of IFRS standards in the early 2000s, this concept was not part of the toolkit.
This divergence mattered little while European utilities remained in public hands. It became a crisis when they did not.
Act II: Privatisation Changes Everything
Through the 1990s and 2000s, privatisation of infrastructure accelerated across Europe, Australia, Canada, and beyond. Former state-owned monopolies became listed companies, subject to market scrutiny and requiring access to capital markets. Many were subject to IFRS, or preparing to move to it.
The collision was immediate. Companies that had been applying local GAAP — often modelled on US ASC 980 — faced a stark prospect on IFRS adoption: the regulatory assets and liabilities recognised under their previous accounting policies would simply disappear. For large utilities with significant regulatory balances, this was not a rounding error. It was a structural restatement that threatened reported equity, debt covenants, and investor relations.
The message from affected industries was clear: without some accommodation, IFRS adoption would create significant reporting challenges for rate-regulated entities — challenges that could threaten reported equity positions, debt covenants, and investor confidence built on regulatory balance recognition.
Act III: The 2014 Two-Track Solution
By 2014, the IASB was approaching the finish line on IFRS 15 Revenue from Contracts with Customers — arguably the most significant revenue standard ever written, representing years of joint work with the FASB. Disrupting that project to absorb the regulatory assets debate was not an option.
The incompatibility runs deep. IFRS 15 is built on the concept of a contract with a customer: revenue is recognised when control of a good or service transfers to the customer. The economics of rate regulation do not fit this framework. A regulatory asset does not arise from a customer contract. It arises from a relationship between the entity and its regulator — a governmental body determining rates through a legal or quasi-legal process. The two regimes speak different languages.
Rather than attempting a merger that would have compromised both standards, the IASB executed a two-track solution:
January 2014 — IFRS 14 issued. Described from the outset as an interim standard, IFRS 14 permitted companies making their first-time adoption of IFRS to continue applying their previous accounting policies for regulatory deferral balances. Crucially, existing IFRS preparers were excluded entirely — they could not use IFRS 14 even if they wanted to. The regulatory balances were presented in a holding area of the balance sheet, separate from assets and liabilities recognised under other IFRS standards.
May 2014 — IFRS 15 issued. With the regulatory objections contained by IFRS 14, IFRS 15 was completed cleanly.
IFRS 14 was explicit about its own limitations. It did not constitute the IASB's view on the correct accounting for rate-regulated activities. It was a holding position — buying time for the comprehensive project to be completed.
Act IV: Why Now?
For years, the debate moved slowly.
The central question was whether a right created by a regulator — rather than a customer contract — could qualify as an asset under the IFRS Conceptual Framework. The IASB continued its Rate-regulated Activities project through multiple rounds of consultation, but progress was gradual.
What changed was not the accounting theory. It was the world around it.
The energy transition is driving unprecedented investment in electricity networks, renewable infrastructure, and grid modernisation. At the same time, geopolitical disruption and commodity price volatility have increased the importance of regulatory cost-recovery mechanisms.
Without recognition of regulatory assets and liabilities, the financial statements of many regulated utilities risked becoming increasingly disconnected from their economic reality.
The conceptual debate remained important. But the changing environment made resolving it far more urgent.
In 2026, the IASB concluded that regulatory assets meet the definition of an asset under the Conceptual Framework and issued IFRS 20. The transition period, however, is far from over: mandatory application begins in 2029.
Revenue, But Not IFRS 15 Revenue
At first glance, regulatory assets resemble accrued revenue — amounts that will eventually be recovered from customers through future billings. The IASB deliberately chose not to treat them that way.
IFRS 15 recognises revenue when control of a good or service transfers to a customer under a contract. Regulatory assets arise from a different source entirely: rights and obligations created by a regulatory agreement between an entity and its regulator. There is no contract with a customer. There is no transfer of control. The two regimes operate on different foundations.
IFRS 20 therefore introduces regulatory income and regulatory expense as distinct line items in profit or loss — separate from IFRS 15 revenue, but included within the Operating category under IFRS 18. The diagram below illustrates how this flows from balance sheet to operating profit.
The recognition criteria, measurement model, and disclosure requirements that underpin this structure are the subject of the next article in this series.
Conclusion
For more than a decade, IFRS 14 acted as a temporary accommodation for an unresolved accounting question.
Its purpose was never to provide a comprehensive model for rate-regulated activities. It existed to keep the issue separate while the IASB completed IFRS 15 and continued its work on a longer-term solution.
That solution has now arrived.
IFRS 20 does more than replace IFRS 14. It brings rate regulation into the core architecture of IFRS, recognising that regulatory rights and obligations can create real assets, real liabilities, and real economic consequences.
The debate lasted twelve years. The transition will take another three. But for rate-regulated entities, the waiting period is finally over.
Slide Deck Available
Need to explain IFRS 20 to your team or clients? This editable slide deck covers the key concepts from this article — ready to customise and present as your own. Use it for internal training, client advisory, or CPD sessions. The infographics used in this article are also included for free use.
This material is for educational and informational purposes only and does not constitute professional accounting or legal advice. Users are responsible for ensuring accuracy and appropriateness for their specific context. Redistribution or resale of this file as a standalone product is prohibited.
Check your understanding with IFRS-OneQ
Reading is only the first step. Repetition and practice help turn knowledge into lasting understanding.
IFRS-OneQ provides short, focused IFRS practice questions with detailed explanations and links to related IFRS-LABO articles.
Learn and practice across a growing library of IFRS standards and topics.
Available on Web and Android.
Actual screenshots from the app. The learning content is integrated with the IFRS-LABO articles.
Disclaimer: This article is prepared for educational purposes and reflects the author's interpretation of IFRS standards as at the date of publication. It does not constitute professional accounting or legal advice. Readers should refer to the full text of IFRS 20 and consult qualified advisers for application to specific circumstances.