Preparing for IFRS 20: Key Implementation Steps for Rate-Regulated Entities

Preparing for IFRS 20: Key Implementation Steps for Rate-Regulated Entities

With IFRS 20 Regulatory Assets and Regulatory Liabilities issued on 27 May 2026 and effective for annual periods beginning on or after 1 January 2029, the IFRS Foundation has begun releasing implementation support materials — including video guidance — to help entities understand what the standard requires and how to prepare.

For many rate-regulated entities, IFRS 20 will represent the most significant change to their financial statements in a generation. This article sets out the key implementation workstreams that entities should initiate now.

Step 1: Identify All Regulatory Agreements in Scope

The first implementation task is a comprehensive scoping exercise across all jurisdictions in which the entity operates. IFRS 20 applies to any activity governed by a regulatory agreement — an arrangement that creates enforceable rights and obligations prescribing how a regulator sets the rates charged for goods or services supplied.

Key questions at this stage:

• Does a government body (not a market mechanism) determine the rates charged to customers?
• Is there an enforceable framework that specifies how differences in timing between cost recovery and revenue recognition are treated?
• Does the regulatory framework give rise to identifiable rights to add amounts to future rates (regulatory assets) or obligations to deduct amounts from future rates (regulatory liabilities)?

Entities operating across multiple countries or under different regulatory frameworks — for example, a vertically integrated utility with separate distribution and generation businesses — may find that some activities are in scope and others are not. This mapping is foundational for all subsequent work.

Step 2: Map Timing Differences

Once regulatory agreements are identified, entities must map the differences in timing between:

• Revenue recognised under IFRS 15 in a reporting period, and
• The total allowed compensation — the amount to which the entity is entitled for regulatory goods or services supplied in that period

These timing differences are the engine of IFRS 20. They give rise to regulatory assets (where allowed compensation exceeds IFRS 15 revenue — the entity has a right to recover more in the future) and regulatory liabilities (where IFRS 15 revenue exceeds allowed compensation — the entity must credit back excess amounts in future rates).

This mapping exercise requires close collaboration between regulatory affairs teams (who understand the rate-setting framework) and finance teams (who understand the IFRS 15 revenue recognition model). In many organisations these two functions have historically operated in silos.

Step 3: Determine Measurement Inputs

IFRS 20 requires a cash-flow-based measurement technique: estimate all future cash flows from recovery of the regulatory asset or fulfilment of the regulatory liability, then discount those flows at the regulatory interest rate.

Implementation tasks here include:

• Identifying the regulatory interest rate specified in each regulatory agreement — this is often a weighted average cost of capital (WACC) or allowed rate of return set by the regulator
• Building or adapting cash flow models to capture the expected timing of future recovery or settlement under tariff structures
• Assessing whether the simplified measurement approach applies — for items that affect regulated rates only when cash is paid or received, IFRS 20 permits measurement at the carrying amount of the related asset or liability

Step 4: Design New Financial Statement Line Items

IFRS 20 introduces new presentation requirements that will be visible to investors from day one:

• Statement of profit or loss: Regulatory income and regulatory expense appear as separate line items alongside IFRS 15 revenue, so that total allowed compensation for each period is transparent
• Statement of financial position: Regulatory assets and regulatory liabilities are presented as separate line items, classified between current and non-current
• OCI: Where an item of income or expense (e.g., pension remeasurements under IAS 19) is recognised in OCI under another standard, the related regulatory income or expense is also recognised in OCI

This presentation redesign will affect investor relations communications, analyst models, and any performance metrics derived from reported revenue figures.

Step 5: Plan for Disclosure

IFRS 20's disclosure requirements are extensive. Entities should begin designing disclosure templates now, including:

• Reconciliations of opening to closing carrying amounts of regulatory assets and liabilities
• Maturity analysis of when regulatory assets and liabilities are expected to be recovered or settled
• Information about unrecognised regulatory assets and liabilities and the reasons for non-recognition
• Disclosures about the regulatory capital base (RCB) and its relationship to related assets

Step 6: Choose Transition Approach

Entities may apply IFRS 20 either:

• Retrospectively under IAS 8 (full restatement of comparatives), or
• Using a modified retrospective approach with transition reliefs, including the use of hindsight at the transition date

The choice of transition approach should be made early, as it drives data collection requirements. The modified retrospective approach reduces the volume of historical data required but may result in less comparable information for investors in the transition year.

Timeline Recommendation

| Timeframe | Workstream | |---|---| | 2026 | Scoping: identify all regulatory agreements; form cross-functional working group | | 2027 | Data design: map timing differences; build measurement models; draft accounting policies | | 2028 | Dry run: produce IFRS 20 statements in parallel with existing reporting; train investor relations teams | | 2029 | First mandatory reporting period begins |

Entities with complex multi-country or multi-activity regulatory structures should consider beginning the scoping exercise immediately — the 2029 effective date is closer than it appears once system development and parallel running time are factored in.