Hey everyone,
They say that in May nature springs back to life, so the IASB jumped on this trend by bringing to life a brand new IFRS standard. That’s the main topic of this issue, but not the only one!
Let’s dive in.
IFRS 20 Regulatory Assets and Regulatory Liabilities
IFRS 20 is quite niche, and mostly relevant to entities in the “utilities” sector, such as those supplying electricity, natural gas and water.
IFRS 20 applies where a regulator sets regulated rates that give rise to timing differences, with at least part of the compensation for regulatory goods or services supplied in one period being included in regulated rates charged to customers in another period.
The core principle in IFRS 20 is that total compensation is recognised in P&L in the same period in which the related regulatory goods or services are supplied. Consequently, entities will recognise regulatory assets for enforceable present rights to add amounts to future regulated rates, and regulatory liabilities for enforceable present obligations to deduct amounts from future regulated rates. These regulatory assets and liabilities will result in the recognition of corresponding regulatory income and expense.
IFRS 20 is effective from 2029 and replaces IFRS 14.
You can learn more in the summary of the new standard prepared by the IASB.
If you want to dig even deeper, here are links to Big 4 publications:
Technical Publications
Managing and communicating value uncertainty
The International Valuation Standards Council (IVSC) released a paper that addresses the distinction between valuation risk and value uncertainty, a topic highly relevant to fair value measurements under IFRS 13:
- Valuation risk is the risk that the valuation process itself is deficient. It’s the possibility of errors, omissions, or bias in areas such as the valuation method, valuation model, data, assumptions, professional judgement or quality controls.
- Value uncertainty is the inherent variability in valuation outcomes that remains even when the valuation process is properly performed. It arises because different, but reasonable, valuation methods, inputs, and assumptions may produce a range of values. It should be acknowledged, understood and transparently communicated, rather than treated as a valuation failure.
The IVSC paper focuses on value uncertainty and explores its sources, the principles that help valuers address it, and ways of managing and communicating uncertainty. It also includes illustrative examples of how value uncertainty can arise.
Miscellany
Private equity investments in the accountancy sector
Private equity and wider third-party ownership are becoming increasingly significant in the accountancy sector, which has historically been dominated by partnership structures. New investors are attracted by recurring revenues and predictable cash flows, while smaller accounting firms need capital to invest in new technologies and digitalisation. An analysis published by Accountancy Europe shows that PE activity accelerated sharply from 2023, when transactions in the European accountancy sector exceeded 100, before reaching around 200 in 2024, compared to just 10-20 transactions annually before 2020.
The Accountancy Europe team observed that PE investment commonly leads to a legal separation between an audit firm and a non-audit firm, with the latter providing services and resources to the former under an administrative services agreement.
That’s all for this edition of Reporting Period. Thanks for reading and see you in the next issue!
Best regards,
Marek