Objective (AASB20_10-26)

The objective of this Standard is to require an entity to provide relevant information that faithfully represents how regulatory income and regulatory expense affect the entity’s financial performance, and how regulatory assets and regulatory liabilities affect its financial position. To achieve this objective, the Standard sets out requirements for the recognition, measurement, presentation and disclosure of regulatory assets, regulatory liabilities, regulatory income and regulatory expense.

Regulatory assets and regulatory liabilities are a subset of the rights and obligations created by a regulatory agreement. Information about this subset of rights and obligations enables users of financial statements to understand: 

(a) an entity’s regulatory income and regulatory expense, which arise from the regulatory assets and regulatory liabilities. That understanding, together with information required by other Australian Accounting Standards, will provide insights into the total allowed compensation for regulatory goods or services supplied by the entity in a reporting period, and hence into the entity’s financial performance and prospects for future cash flows. 

(b) an entity’s regulatory assets and regulatory liabilities. That understanding will provide insights into the entity’s financial position at the end of a reporting period and the amount, timing and uncertainty of the entity’s future cash flows.

Total allowed compensation is the amount of compensation to which a regulatory agreement entitles an entity for regulatory goods or services supplied in a reporting period. The amount might be charged through regulated rates – and hence included in revenue from contracts with customers recognised applying AASB 15 Revenue from Contracts with Customers (referred to in this Standard as AASB 15 revenue) – in either the same period as the entity supplies the regulatory goods or services, or a different period. The Standard establishes definitions of a regulatory asset and a regulatory liability, and resulting definitions of regulatory income and regulatory expense, based on the principle that an entity recognises the total allowed compensation for regulatory goods or services in the same reporting period that the entity supplies those regulatory goods or services.