Auditing Ind AS 114 — testing regulatory deferral account balances

Ind AS 114 is available only to a first-time adopter of Ind AS that recognised regulatory deferral account balances under its previous GAAP, and it permits those balances — the right to recover, or obligation to repay, amounts from customers resulting from rate regulation — to continue to be recognised using previous GAAP accounting policies, subject to minor adjustments; it is not available to an entity adopting it on a standalone basis without that prior recognition. The audit must first confirm eligibility actually exists before testing any balance recognised under it.

What to test on each regulatory deferral account balance

1. 01Trace the balance to the specific tariff order or regulatory determination creating itA deferral balance representing a cost the regulator has agreed the entity may recover in a future tariff period must be supported by that regulator's actual order, rate schedule, or similar binding determination — not management's own projection of a future tariff outcome that has not yet been approved.
2. 02Test the movement for the periodAdditions, amounts recovered/repaid during the period, and any impairment of the right to recover should each be separately tracked and reconciled to actual billing and collection data where recovery has started.
3. 03Assess recoverability where the regulatory framework has changedA change in tariff policy, a new regulator, or a dispute over the recoverability of a previously recognised balance is an impairment indicator requiring an explicit recoverability assessment, not a roll-forward of the prior year balance unchanged.
4. 04Confirm presentation is separate from other assets/liabilitiesRegulatory deferral account debit and credit balances are required to be presented as separate line items, not merged into other receivables or provisions, and the related movement in profit or loss is also required to be shown as a separate line.