IFRS 20 Explained: Regulatory Assets & Regulatory Liabilities

Updated July 1, 2026 by Vicky Sarin
IFRS Update · 2026

IFRS 20 Explained: Regulatory Assets & Regulatory Liabilities

The new "timing standard" for utilities, energy, transport and any business whose prices are set by a regulator — one simple rule, one memorable test, and a worked example you will not forget.

By the Eduyush IFRS faculty · Reviewed by CA Vicky Sarin (25+ years in IFRS) · ~12 min read

In one paragraph

IFRS 20 Regulatory Assets and Regulatory Liabilities is a new IFRS Accounting Standard, issued on 27 May 2026. It requires an entity to recognise the total allowed compensation for regulatory goods or services in the same period it supplies them — even if customers are billed for part of that amount in an earlier or later period. The gap between "when you serve" and "when you bill" is a difference in timing, and IFRS 20 bridges it by recognising regulatory assets, regulatory liabilities, regulatory income and regulatory expense. It is effective for annual reporting periods beginning on or after 1 January 2029 (early adoption permitted) and replaces IFRS 14 Regulatory Deferral Accounts.

Remember it this way

"Book the reward when you do the work — not when you bill for it." That single sentence is the whole of IFRS 20. Everything else — regulatory assets, discounting, disclosures — just makes that idea work in the numbers.

IFRS 20 in one picture Supply electricity, gas or water Allowed compensation = CU120 Bill customer this year = CU100 Regulatory asset = CU20 the CU20 timing gap Recover CU20 in next year's tariff The gold rule: total revenue follows performance, not billing.
📅Issued:27 May 2026
⏱️Effective:Periods from 1 Jan 2029 (early adoption allowed)
🔁Replaces:IFRS 14 Regulatory Deferral Accounts
🏭Hits hardest:Utilities, energy, water, gas, transport

1. What is IFRS 20?

Many businesses cannot simply charge whatever they like. A regulator decides how much a water, electricity or gas company can charge customers, and when it can charge them. This is called rate regulation, and it can push a company's revenue out of step with the work it actually did in a period.

Until now, IFRS gave almost no guidance on how to account for that mismatch. Companies improvised — some used IFRS 14, some built their own policies under IAS 8 — which made financial statements hard to compare. IFRS 20 closes that gap with a single, mandatory model for every entity that meets its scope. If you are mapping where this sits among all the standards, our IFRS Standards List 2026 places IFRS 20 alongside the rest of the IAS and IFRS family.

Definition — IFRS 20: an IFRS Accounting Standard that sets out the recognition, measurement, presentation and disclosure of regulatory assets, regulatory liabilities, regulatory income and regulatory expense arising from differences in timing created by a regulatory agreement. It supplements — it does not replace — the revenue an entity reports under IFRS 15 and other standards.

"But isn't this just IFRS 15?"

It is the first question most students ask. The two standards work side by side but answer different questions — IFRS 15 asks whether you have earned revenue from the customer; IFRS 20 asks whether the regulator has let you bill it yet.

IFRS 15 recognises revenue; IFRS 20 fixes its timing when a regulator gets in the way
IFRS 15 IFRS 20
Recognises revenue Adjusts the timing of revenue
Built on a customer contract Built on a regulatory agreement
Contract asset / contract liability Regulatory asset / regulatory liability
"Have I earned it from the customer?" "Has the regulator let me bill it yet?"

2. The problem it solves: differences in timing

Suppose you supply electricity all year, but the regulator only lets you recover some of this year's costs through next year's tariff. Under IFRS 15 alone, this year's revenue looks too low and next year's looks too high — even though your actual performance was steady. An investor could wrongly conclude you had a bad year followed by a great one.

IFRS 20 calls this a difference in timing: part or all of the total allowed compensation for goods or services supplied in one period is charged to customers through regulated rates in a different period. The standard fixes the distortion by recognising a regulatory asset (a right to bill later) or a regulatory liability (an obligation to refund later), with matching regulatory income or expense.

The key principle: recognise the total allowed compensation for regulatory goods or services in the same reporting period you supply them. Timing of billing is separated from timing of performance.

3. The example you will remember (CU100 → CU120)

This is the classic teaching example our faculty use in class for IFRS 20. Learn it once and the standard clicks into place.

The facts

Company A is allowed to recover its input costs through regulated rates. For Year 1 it estimated input costs of CU100 and set the tariff on that basis. But actual input costs turned out to be CU120. The regulatory agreement lets Company A add the CU20 under-recovery to Year 2's tariff.

So Year 2's regulated rate becomes CU120 = CU100 (Year 2 estimate) + CU20 (Year 1 catch-up). A classic difference in timing.

Without IFRS 20, the CU20 lands in Year 2's revenue even though the work was done in Year 1. IFRS 20 pulls it back to where it belongs:

Statement of profit or loss (extract) — the CU20 is recognised in Year 1, then reversed in Year 2
In CU Year 1 Year 2
IFRS 15 revenue 100 120
Regulatory income / (regulatory expense) 20 (20)
Total revenue 120 100
Input costs (120) (100)
Profit / (loss) — —
Statement of financial position (extract) — the regulatory asset appears in Year 1 and is derecognised in Year 2
In CU Year 1 Year 2
Regulatory asset 20 —
The payoff

Total revenue now matches performance: CU120 in Year 1 (when the work was done) and CU100 in Year 2. Profit is a clean nil in both years, exactly as it should be. (The example ignores regulatory interest for simplicity.)

The journal entries

Here is the same example as double-entry — the part DipIFR and SBR candidates are expected to produce. Simplified, and ignoring regulatory interest and tax.

Entry Dr (CU) Cr (CU)
Year 1 — recognise the CU20 under-recovery
Dr  Regulatory asset  (balance sheet) 20
Cr  Regulatory income  (within revenue) 20
Year 2 — reverse it as the CU20 is billed
Dr  Regulatory expense  (within revenue) 20
Cr  Regulatory asset  (balance sheet) 20
Read the journals like this

Year 1: you earned CU20 you have not billed yet → create the asset and take the income now. Year 2: you finally bill the CU20 through IFRS 15 revenue, so you strip it back out with a regulatory expense and remove the asset. The net effect on lifetime revenue is zero — only the timing moved.

The biggest misconception, cleared up: IFRS 20 is not about creating extra profit. It changes when profit is recognised, not how much profit exists over the life of the arrangement.

4. Does IFRS 20 apply to you? The RARE-T test

IFRS 20 is not industry-specific. Any arrangement that passes all five gates below is in scope — so even businesses that never thought of themselves as "regulated" should check. We call it the RARE-T test (it reads like "rarity" — all five must be present, or you are out of scope).

R
Regulator exists

A body required by law or regulation to apply a regulatory agreement to set the rate.

A
Agreement exists

A regulatory agreement creates enforceable rights and obligations between the entity and the regulator.

R
Rate is prescribed

The agreement prescribes how the regulated rate (or a range) charged to customers is determined.

E
Enforceable present right or obligation

A present right to add amounts to future rates (asset), or a present obligation to deduct amounts from future rates (liability).

T
Timing difference

Compensation for goods/services supplied in one period is billed through regulated rates in a different period.

Watch-out

A right to adjust future rates for any other reason (not tied to goods/services already supplied) does not create a regulatory asset. And the only scope exclusion is regulated insurance premiums within IFRS 17.

Which industries are likely in scope?

The standard is not industry-specific, so treat this as a starting-point guide, not a rulebook — every arrangement still has to pass the RARE-T test on its own facts.

Indicative only — a "sometimes" business can still be fully in scope once you test its specific agreement
Industry Typically in scope of IFRS 20?
Electricity generation & distribution ✓ Usually yes
Water & wastewater ✓ Usually yes
Gas supply ✓ Usually yes
Toll roads & transport concessions Sometimes
Telecom Sometimes
Airlines Usually no

5. Key concepts & definitions

1 Regulatory assetright to bill later

An enforceable present right, created by a regulatory agreement, to add an amount when determining a future regulated rate — because compensation for goods/services already supplied has not yet been recovered. In short: your right to recover an under-recovery through future tariffs.

2 Regulatory liabilityobligation to refund later

An enforceable present obligation, created by a regulatory agreement, to deduct an amount when determining a future regulated rate — because you have already recovered amounts relating to goods/services yet to be supplied. In short: your obligation to hand back an over-recovery via lower future tariffs.

3 Regulatory agreementthe rulebook

A set of enforceable rights and obligations that prescribes how a regulator determines the regulated rate (or a range) an entity charges customers in a period.

4 Total allowed compensationthe anchor number

The amount a regulatory agreement entitles an entity to for regulatory goods or services supplied in a period — whether that amount is charged in the same period or a different one. It can cover supplying goods/services, maintaining a network, changing network capacity, and meeting other regulator objectives (e.g. service quality).

Quick mnemonic: a regulatory ASSET = "A"mount owed to you (under-recovery, bill later); a regulatory LIABILITY = amount you owe back (over-recovery, refund later).

The two mirror-image journeys

Every IFRS 20 balance is one of these two stories. An asset is a promise you get to collect later; a liability is a promise you have to give back.

Regulatory asset (under-recovery)

Supply the service Compensation earned Billed in a later period REGULATORY ASSET → becomes cash

Regulatory liability (over-recovery)

Over-recover today Cash collected early REGULATORY LIABILITY owed back to customers Refund via lower tariff

Common mistakes to avoid

These trip up DipIFR and SBR candidates every session. A regulatory asset is a genuinely new kind of balance — do not force it into a box it does not fit.

  • ❌
    "A regulatory asset is just a receivable"

    No. A receivable is an unconditional right to cash from a specific customer. A regulatory asset is a right to add to a future regulated tariff — you only realise it by continuing to supply and bill your customer base.

  • ❌
    "A regulatory asset is the same as an IFRS 15 contract asset"

    No. A contract asset comes from a customer contract under IFRS 15. A regulatory asset comes from a regulatory agreement under IFRS 20 and is presented as its own separate line.

  • ❌
    "A regulatory asset is cash owed to me right now"

    No. Nothing is immediately collectible. It is recovered gradually, through future rates, and is measured at the present value of those future cash flows.

6. Recognition & measurement

An entity recognises all regulatory assets and liabilities existing at period-end, and all regulatory income and expense arising in the period. Where existence is uncertain, apply the "more likely than not" threshold — recognise only if the balance is more likely than not to exist.

Two recognition constraints to know

Regulatory depreciation

Balances from regulatory depreciation of a regulatory capital base are recognised only when a direct relationship exists — you can track, by amount and period, how depreciation compensates the related items.

Benchmark compensation

Where compensation uses a benchmark built on unobservable inputs (e.g. peer-group costs), recognise only once the regulator determines compensation on the actual benchmark.

How you measure the balance

1
Estimate future cash flows

Use current, reasonable and supportable information at the reporting date — market variables (e.g. interest rates) and entity-specific non-market variables (e.g. asset life). Uncertain flows use the most-likely amount or an expected (probability-weighted) value.

2
Discount to present value

Discount using the regulatory interest rate specified (or implied) in the agreement. If discounting concepts feel rusty, our guide to the time value of money is a quick refresher.

3
Update each period

Refresh cash-flow estimates for actual recoveries and new information, but keep the original discount rate unless the regulatory interest rate itself changes.

Two shortcuts built into the standard

A practical exemption from discounting applies where the gap before interest starts is one year or less. And a simplified measurement approach is available for items that affect regulated rates only when cash is actually paid or received — start from the IFRS carrying amount of the related item and adjust for differences until the uncertainty resolves.

7. Presentation & disclosure

Profit or loss
All regulatory income net of regulatory expense (including regulatory interest) is classified as revenue and shown as a separate line item.
OCI mirroring
Where the related item sits in other comprehensive income, the regulatory income/expense is recognised in OCI too, and follows it on reclassification.
Balance sheet
Regulatory assets and liabilities are separate line items, split into current and non-current (unless presented by liquidity under IFRS 18).
Cash flow
Total net cash flows are unchanged; only limited line-item classification within the statement may shift.

Disclosures are detailed: reconciliations of opening-to-closing balances, a maturity analysis of expected recovery/settlement timing, the relationship between the regulatory capital base and related items, and the nature of any unrecognised regulatory balances and why they were not recognised.

8. IFRS 14 vs IFRS 20 — what changes

IFRS 20 is a comprehensive, mandatory model — a major step up from the optional IFRS 14 regime
Feature IFRS 14 (old) IFRS 20 (new)
Who could apply it First-time adopters only All entities meeting the scope criteria
Optional or mandatory Optional Mandatory in scope
Accounting basis Continue previous GAAP for deferral balances Single IFRS recognition & measurement model
Measurement Carried over from prior GAAP Discounted cash flows at the regulatory interest rate
Comparability Diverse, hard to compare Consistent across entities and jurisdictions

This is a genuine shift in rigour. For the wider trade-offs of moving to standards like this, see our take on the practical challenges and disadvantages of IFRS.

9. Timeline & transition

IssuedMay 2026
IFRS 20 is issued

Published 27 May 2026, with narrow-scope amendments to IFRS 1, IFRS 3 and IFRS 18.

Prepare2026–28
Build systems & comparatives

Assess scope, upgrade IT and controls, and prepare the adjusted comparative period. This takes real time — start early.

Live1 Jan 2029
Effective date

Mandatory for annual periods beginning on or after 1 January 2029. Early application is permitted (disclose the fact if you adopt early).

On transition you choose one of two routes — both require an adjusted comparative period and a net adjustment to opening retained earnings:

Full retrospective

Apply IFRS 20 as if it had always applied, in accordance with IAS 8.

Modified retrospective

Use the transition reliefs in Appendix C of IFRS 20, easing parts of full IAS 8 application.

Beyond the accounts

New regulatory income and expense can move EBITDA, operating profit, leverage and return ratios — which feed debt covenants and performance-linked pay. Model the impact well before 2029.

India note: there is currently no exposure draft corresponding to IFRS 20, but an equivalent is expected under Ind AS in due course as convergence continues. If you want the lay of the land, compare the frameworks in our guide to the difference between IFRS and Ind AS.

10. What to do now — your checklist

  • Identify every arrangement where a regulator sets the rate you charge customers.
  • Run each through the RARE-T test to confirm it is in scope.
  • Pinpoint the differences in timing and the enforceable rights/obligations behind them.
  • Assess data gaps — can you track the regulatory capital base and its related items at the required granularity?
  • Model the impact on EBITDA, covenants and performance metrics.
  • Choose a transition approach and plan the comparative period.
  • Align finance and regulatory teams early — successful adoption is cross-functional.
🎓

Learning IFRS 20 for DipIFR or SBR?

IFRS 20 is exactly the kind of standard examiners love — a clear principle, a neat journal, and a timing twist. Build the fundamentals properly with the ACCA Diploma in IFRS.

Explore the DipIFR course Browse DipIFR books

11. Frequently asked questions

What is the main principle of IFRS 20?

Recognise the total allowed compensation for regulatory goods or services in the same reporting period you supply them. When billing happens in a different period, recognise a regulatory asset or liability (and matching regulatory income or expense) to bridge the difference in timing.

When is IFRS 20 effective?

IFRS 20 is effective for annual reporting periods beginning on or after 1 January 2029. Earlier application is permitted, subject to any local endorsement, and an entity that adopts early must disclose that fact.

Does IFRS 20 replace IFRS 15?

No. IFRS 20 supplements IFRS 15 — it does not replace it. IFRS 15 revenue is still recognised as normal; IFRS 20 adds regulatory income and expense so that total revenue reflects the compensation earned in the period the goods or services were supplied.

Which companies does IFRS 20 apply to?

Any entity whose prices are set by a regulator and whose arrangement creates a difference in timing — most visibly utilities, energy, water, gas and transport, but the standard is not industry-specific. Use the RARE-T test (Regulator, Agreement, Rate prescribed, Enforceable right/obligation, Timing difference) to check.

What is the difference between a regulatory asset and a regulatory liability?

A regulatory asset is a right to add an amount to future regulated rates because you under-recovered for services already supplied (bill later). A regulatory liability is an obligation to deduct an amount from future rates because you over-recovered (refund later).

How are regulatory assets and liabilities measured under IFRS 20?

Using a cash-flow-based technique: estimate the future cash flows from recovery or fulfilment, then discount them to present value using the regulatory interest rate specified or implied in the regulatory agreement. Estimates are updated each period; the original discount rate is retained unless the regulatory interest rate changes.

Does IFRS 20 increase a company's profit?

No. IFRS 20 changes when profit is recognised, not how much profit exists over the life of the arrangement. It moves compensation into the period the goods or services were supplied; total lifetime revenue and profit are unchanged.

Is a regulatory asset the same as a receivable?

No. A receivable is an unconditional right to cash from a customer. A regulatory asset is an enforceable right to add an amount to a future regulated tariff, recovered gradually as you continue to supply and bill customers, and measured at the present value of those future cash flows.

Keep learning

IFRS Standards List 2026: IAS, IFRS & IFRS 20

Every current standard, summarised — with IFRS 20 in context.

Time value of money & present value

The discounting engine behind IFRS 20 measurement.

Difference between IFRS and Ind AS

Where the Indian framework stands on rate regulation.

Directly attributable costs under IFRS

How the regulatory capital base is built up.

IFRS regulatory framework

How new IFRS standards like IFRS 20 come about.

DipIFR subsidiary disposals & IFRS 5

Another high-yield DipIFR technical area.

IFRS salary in India 2026

What IFRS expertise is worth on the market.

🚀

Turn IFRS 20 knowledge into a qualification

The ACCA Diploma in IFRS gives you the full standard-by-standard grounding — from IFRS 15 revenue to new arrivals like IFRS 20. Study with Eduyush's IFRS training and materials.

See IFRS training options ACCA SBR technical articles

Written to help finance professionals and DipIFR/SBR students get IFRS 20 right the first time. Always confirm treatment against the full text of IFRS 20 and your specific regulatory agreement.

 

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