4 IFRS 20 Regulatory Assets and Regulatory Liabilities

25 June 2026 Agenda Paper 4

Executive Summary

Project Stage

Project Type Endorsement

Project Scope Significant

Purpose of the Paper This paper presents a draft Project Initiation Plan (PIP) for Board approval for the project to assess whether to adopt IFRS 20 Regulatory Assets and Regulatory Liabilities for use in the UK.

Summary of the Issue The draft PIP is presented to the Board following the publication of IFRS 20 in May 2026. The Standard has an effective date of 1 January 2029 with earlier application permitted (subject to UKEB adoption in the UK).

Decisions for the Board The Board is asked, subject to any comments at this meeting, whether it approves the draft PIP for publication on the UKEB website?

Recommendation The UKEB Secretariat recommends that the Board approves the draft PIP.

Appendices Appendix A [Draft] Project Initiation Plan: IFRS 20 Regulatory Assets and Regulatory Liabilities

Appendix A: Project Initiation Plan: IFRS 20 Regulatory Assets and Regulatory Liabilities

Purpose

A1 This paper sets out the plan to assess whether to adopt for use in the UK¹ the new IFRS Accounting Standard IFRS 20 Regulatory Assets and Regulatory Liabilities. IFRS 20 was published by the IASB in May 2026. The Standard has an effective date of 1 January 2029, with earlier application permitted (subject to its endorsement for use in the UK).

A2 The UKEB’s statutory functions mean that it must assess the requirements in the Standard against the statutory adoption criteria before deciding whether to adopt it for use in the UK. The Board’s aim would be to ensure that, if the criteria are met, adoption is completed in good time to permit UK entities to apply the Standard on the effective date of 1 January 2029.

Background

A3 In January 2021 the IASB published its ED/2021/1 Regulatory Assets and Regulatory Liabilities (ED)2 proposing a comprehensive model for entities subject to economic rate regulation that experience differences in timing by virtue of agreements with their respective regulators (“regulatory agreements”). Differences in timing arise if the period in which an entity can include compensation for costs in the regulated rate is different from the period when it supplies the related regulatory goods or services.

A4 The purpose of the ED was to replace IFRS 14 Regulatory Deferral Accounts, an interim Standard, issued to enhance comparability of financial reporting by entities with rate-regulated activities, while the IASB developed its comprehensive standard for entities subject to rate regulation. It was not adopted for use in the EU and, consequently, did not form part of the UK-adopted international accounting standards (IAS) when the UK exited the EU.

A5 The IASB received 128 comment letters in response to the ED. It also conducted additional outreach activities including discussions with its Consultative Group for Rate Regulation (CGRR). The IASB redeliberated the proposals in the ED from October 2021 to October 2025.

A6 Subsequent to submitting a final comment letter in response to the ED, the UKEB set-up a Rate-regulated Activities Technical Advisory Group (RRA TAG) to consider the IASB’s redeliberation of the ED proposals. It met between March 2023 and December 2025. IASB staff were invited observers at the meetings. The UKEB web page on this project details the work the UKEB has undertaken since the ED was published.

Description of the main requirements in IFRS 20

A7 A brief description of the main requirements in IFRS 20 is presented in the table in Annex 1.

Project Plan

A8 The following factors have been considered when developing the project plan.

Proportionality Assessment

Significance and Size

Entities affected by the Standard

A9 Analysis conducted by First Economics³ and the UKEB on the ED of IFRS 20 suggested that entities in scope belong to the following sectors: water, energy transmission and distribution, air traffic control and Heathrow Airport. The main uniting factor is that the prices charged to customers in these sectors are subject to price regulation due to their substantial market power. Economically rate-regulated companies in scope of IFRS 20 form a significant share of these sectors in the UK.

A10 The sectors in scope of IFRS 20, particularly water and energy, form part of the UK’s critical national infrastructure as entities operating in these sectors deliver regulated goods and services to almost all of the UK population.

A11 Table 1 below provides a breakdown of the number of listed and unlisted groups reporting under UK-adopted IFRS Standards by sector.

A12 The five listed groups comprise a market capitalisation of 3.4% of the total UK market capitalisation as at December 2025.

Feedback on the Proposals from Desk-based Research / Initial Outreach

Complexity

A13 IFRS 20 introduces new principles for recognition, measurement and disclosure requirements for regulatory income, regulatory expense, regulatory assets and regulatory liabilities of the entities within its scope. There are currently no existing requirements for entities to recognise these items. Consequently, entities will be applying the new requirements for the first time.

A14 Differences in timing arising from regulatory agreements in the UK are typically not simple and straightforward because the underlying assets or contracts can last many decades. The Standard provides the requirements and guidance on accounting for these differences in timing and explains the approach to transition.

Expected Timeline / Urgency

A15 There is no indication for an accelerated adoption in the UK. The planned project timeline is set out below.

Expected Interest / Sensitivity

A16 UK entities that are subject to economic rate regulation play a key part in national infrastructure and there are several factors across the various sectors that increases expected interest and sensitivity.

Energy sector

A17 The focus on net zero targets and renewable energy is likely to impact the capital expenditure of these entities. There is also likely to be an impact on the accounting for existing assets, for example, accelerated depreciation due to the need to phase out high carbon-producing assets. According to Ofgem, the UK’s energy regulator, reinforcing the electricity network to net zero transition could require an additional investment between £100–140 billion by 2050⁵.

Water sector

A18 There has been parliamentary scrutiny of water entities regarding underinvestment in infrastructure, sewage pollution and high customer bills. This led to the government-commissioned investigation into the sector which resulted in the Independent Water Commission report⁶ published in July 2025. Its recommendations include that companies should more clearly define their spending into the following three areas:

1. capital expenditure, including asset replacement;
2. operational expenditure, including energy and labour costs; and
3. enhancement expenditure, including investment that improves services.

A19 This recommendation is likely to lead to changes in the way those entities track and monitor operating and capital expenditure, potentially easing the implementation of IFRS 20.

A20 The water sector is also affected by the UK’s net zero transition. Ofwat, the UK’s water regulator, estimates that achieving net zero emissions two decades ahead of government’s 2050 target could reduce greenhouse gas emissions by up to 10 million tonnes, requiring an estimated £2–4 billion of capital investment⁷. To mitigate the adverse impact on customer bills, a large proportion of this investment is expected to be recovered through regulatory depreciation of the entities’ regulatory capital bases (RCBs).

A21 The UKEB therefore anticipates interest in this project from the entities within the scope of IFRS 20, investors, accounting firms, regulators, the government and media.

Connectivity

A22 Entities with rate-regulated activities usually have targets in their regulatory agreements that are directly linked to fulfilling environmental projects and commitments. These targets often require substantial infrastructure investments and consequently are directly linked to the financial statements.

A23 These sectors are impacted by net-zero commitments as detailed above. They are also required to report their energy use and carbon (Greenhouse Gas (GHG)) emissions under either the Task Force on Climate-related Financial Disclosures (TCFD) requirements or the Streamlined Energy and Carbon Reporting (SECR) requirements in the UK.

Recommended UKEB Project Scope

A24 Based on the proportionality assessment above we recommend a ‘Significant’ project scope and the approach described in this document reflects this assessment.

Project milestones and activities

A25 The table below summarises the key project milestones as set out in the UKEB’s Due Process Handbook (DPH) as well as the activities planned.

Resources Allocated

A26 To undertake the activities described in this project plan, a project team, overseen by a Senior Project Director, has been assigned consisting of:

1. Accounting implications: Project Director supported by a Project Manager.
2. Economic implications: Project Director (Economics Lead) supported by a Project Manager will contribute by providing input on the long term public good assessment.

Ad-hoc Advisory Body

A27 The RRA TAG has the necessary skills and expertise to support the endorsement of IFRS 20.

Project Timeline

A28 The diagram below sets out mandatory milestones and other activities described above. This provides a best estimate based on information known at this time. If necessary, a revised PIP will be presented to the Board, to reflect any major changes, as the project progresses.

Annex 1: Description of the main requirements in IFRS 20

Footnotes