ICAI issues Guidance Note on Accounting for Rate Regulated Activities

The rate regulation, as presently prevailing in India in respect of industries such as electricity, does result in creation of a right (asset) or an obligation (liability), as the case may be, as envisaged by the accounting framework, while it may not be so in respect of other industries.  So, not accounting for the right to receive cash flows or the obligation to refund cash flows under such a regulatory requirement would not reflect a true and fair view of assets/liabilities and income/expenses as reflected in the financial statements.To provide guidance in this regard and to address the industry specific accounting issues relating to rate regulated activities, a need was being felt for bringing out a pronouncement with a view to bring about establishment of sound accounting principles. It is heartening to note that the Accounting Standards Board of the Institute has formulated this ‘Guidance Note on Accounting for Rate Regulated Activities’.

This Guidance Note deals with the effects on an entity’s financial statements of its operating activities that provide goods or services whose prices are subject to cost-of-service regulation.

To read the Guidance Note click here.