Ind AS 114 Regulatory Deferral Accounts: A Practitioner Guide for FY 2026-27
Ind AS 114 (Regulatory Deferral Accounts) is an interim Indian Accounting Standard that permits first-time adopters of Ind AS to continue recognising regulatory deferral account balances previously recognised under earlier GAAP if they engage in rate-regulated activities.
The Ministry of Corporate Affairs notified Ind AS 114 via the Companies (Indian Accounting Standards) Rules, 2015. The standard became effective on a voluntary basis from 1 April 2015 and was mandatory for Phase I companies from 1 April 2016. Under the previous Indian GAAP, only limited guidance existed through the ICAI’s Guidance Note on Rate Regulated Activities.
For FY 2026-27, electricity distribution companies (DISCOMs) remain the primary users of Ind AS 114. The standard's relevance persists due to ongoing tariff regulation by State Electricity Regulatory Commissions and the lack of a comprehensive replacement standard from the International Accounting Standards Board.
Ind AS 114 at a Glance
Ind AS 114 establishes an interim framework for first-time adopters engaged in rate-regulated activities to continue recognising regulatory deferral account balances as per their previous GAAP. This standard is primarily used by utilities such as electricity and gas distribution companies transitioning to Ind AS.
| Field | Value |
|---|---|
| Standard Number | Ind AS 114 |
| Full Name | Regulatory Deferral Accounts |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | Specific guidance under AS framework was limited; Guidance Note on Rate Regulated Activities under AS framework |
| Equivalent Standard | Guidance Note on Rate Regulated Activities ↔ Ind AS 114 ↔ IFRS 14 |
| Applies To | Ind AS 114 is an interim standard applicable only to first-time adopters of Ind AS that engage in rate-regulated activities (electricity distribution, gas distribution, regulated water utilities, etc.). The standard permits continuation of regulatory deferral account balances that were recognised under previous GAAP. It does NOT apply to entities already preparing Ind AS financial statements without prior regulatory deferral account recognition. The standard reflects an interim solution while a comprehensive standard for rate-regulated activities is being developed at the IASB. |
What is Ind AS 114: Regulatory Deferral Accounts?
Ind AS 114 allows first-time adopters of Indian Accounting Standards who are subject to rate regulation, such as electricity or gas distributors, to continue recognising certain regulatory assets and liabilities that arise from tariff-setting decisions by regulators. These balances reflect costs or income deferred for recovery or refund through future customer rates.
The Institute of Chartered Accountants of India introduced this interim standard in line with IFRS 14 issued by the International Accounting Standards Board. Before its notification, Indian companies relied mainly on ICAI’s Guidance Note on Rate Regulated Activities under the old accounting standards framework. The new standard bridges the gap until a comprehensive rate regulation accounting model is developed internationally.
CFOs and finance teams in regulated sectors, especially power and gas utilities, use this standard most often during their initial transition to Ind AS.
Objective of Ind AS 114
- Specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price subject to rate regulation.
- Permit first-time adopters to continue accounting for regulatory deferral account balances that were recognised under previous GAAP.
- Provide separate presentation of regulatory deferral account balances in financial statements to maintain comparability.
The objective supports faithful representation by ensuring users understand how much profit or loss depends on future tariff decisions. This aligns with Section 129 of the Companies Act, 2013 by supporting a true and fair view when transitioning from previous GAAP.
Who Must Apply Ind AS 114?
Entities covered, applicability table
Ind AS 114 applies only to first-time adopters transitioning from previous Indian GAAP who engaged in rate-regulated activities and recognised regulatory deferral account balances before adopting Ind AS.
| Applicability Category | Covered? |
|---|---|
| Phase I companies (listed + net worth ≥ Rs 500 crore) | Yes, if previously recognised regulatory deferrals |
| Phase II/III companies | Yes, if previously recognised regulatory deferrals |
| Existing preparers of Ind AS | No |
| Entities without prior recognition | No |
Entities must elect to apply this option at transition and then follow it consistently each period.
Scope exclusions
Entities excluded from applying Ind AS 114:
- Entities not adopting Ind AS for the first time
- Entities that did not recognise regulatory deferral account balances under previous GAAP
- Activities not subject to rate regulation
When the standard does not apply
Entities already preparing financial statements under Ind AS cannot use this election again. Businesses without prior recognition, such as those operating outside regulated sectors, must comply with other relevant standards like Ind AS 115 Revenue or Ind AS 16 Property, Plant and Equipment as applicable.
Key Definitions under Ind AS 114
| Term | Definition |
|---|---|
| Rate regulation | A framework where prices charged are set or approved by a regulator. |
| Regulatory deferral account balance | Expense or income deferred because it will be included in future regulated rates. |
| Rate regulator | An authorised body empowered by law or regulation to set binding rates for entities. |
| Regulatory asset | Debit balance recoverable through future customer rates as allowed by regulator. |
| Regulatory liability | Credit balance representing amounts owed back to customers due to over-recovery or similar. |
These definitions anchor how regulated entities must identify which costs can be deferred and separately presented due to oversight by statutory regulators such as State Electricity Regulatory Commissions or PNGRB.
Recognition and Measurement under Ind AS 114
When to recognise
An entity may apply Ind AS 114 only if it is a first-time adopter of Indian Accounting Standards and has previously recognised regulatory deferral account balances under its earlier accounting policies. This election must be made at transition date per Para 8 and applied consistently across all eligible activities within the group.
Continued recognition requires that the entity remains subject to rate regulation which includes these balances in determining future customer tariffs. If the regulator ceases recognising these amounts in rate-setting, further recognition must stop immediately.
Initial measurement
At transition date (the start of the earliest comparative period presented), eligible entities carry forward all recognised regulatory deferral account balances using their existing accounting policies from previous GAAP (Para 11). There is no requirement, or permission, to adjust these balances retrospectively for compliance with other Indian Accounting Standards such as Ind AS 109 Financial Instruments or Ind AS 37 Provisions.
**Initial Carry Forward Formula:**
Opening Regulatory Deferral Account Balance = Closing balance per previous GAAP at transition date
No new classes of deferred accounts can be created at transition; only those previously recognised qualify.
Subsequent measurement
After transition, entities continue measuring both existing and new regulatory deferral account balances using their previous GAAP policies until replaced by a comprehensive new standard (Para 13). Each reporting period requires:
Reviewing recoverability based on current regulatory decisions.
Recognising additions arising from new cost deferrals permitted by regulators.
Deducting amounts recovered through tariff adjustments.
Testing for impairment whenever there is doubt about recovery probability (Para 16).
If recovery becomes improbable, such as after an adverse order from State Electricity Regulatory Commission, the entity must impair all or part of the balance immediately through profit or loss.
**Subsequent Movement Formula:**
Closing Balance = Opening Balance + Additions − Recoveries − Impairments
Movements are presented separately in profit or loss as “net movement in regulatory deferral accounts.”
Separate Presentation Requirements
Paras 19-25 require presenting all regulatory deferral account assets and liabilities as separate line items on the face of both balance sheet and statement of profit and loss, not mixed with other assets/liabilities governed by other standards like Ind AS 12 Income Taxes or Ind AS 36 Impairment.
Entities must also disclose:
(a) Basis for continuing recognition
(b) Nature of regulated activity and identity/powers of regulator
(c) Reconciliation between opening and closing carrying amounts
(d) Discount rates used where relevant
(e) Risks affecting recoverability
This approach ensures users can compare regulated entities with non-regulated peers transparently, seeing both “with” and “without” effect scenarios, until international convergence produces a permanent model.
Worked Examples on Ind AS 114
Example 1: Continuation of regulatory asset on first-time adoption
Scenario: Maharashtra Power Distribution Ltd is a state electricity distribution company with Rs 200 crore recognised as a regulatory asset under previous GAAP at transition date (1 April 2024). During FY 2024-25 it incurs additional Rs 30 crore eligible costs but recovers Rs 50 crore via tariffs set by State Electricity Regulatory Commission.
Computation Table
| Particulars | Amount (Rs crore) | Computation |
|---|---|---|
| Opening balance at transition | ₹200 | Carried forward per previous GAAP |
| Additions during FY 2024-25 | ₹30 | Additional eligible costs |
| Less: Recovery via tariffs | ₹50 | Amount recovered from customers |
| Closing balance at year-end | ₹180 | ₹200 + ₹30 − ₹50 |
Journal Entry
On transition:
_No entry required; Rs 200 crore continues._
During FY:
Dr Regulatory Deferral Account Asset ₹30 crore / Cr Net Movement in Regulatory Deferral Accounts (P&L) ₹30 crore
Dr Bank ₹50 crore / Cr Regulatory Deferral Account Asset ₹50 crore
Net P&L impact is Rs 20 crore charge; closing asset appears separately on balance sheet per Para 19-21.
Example 2: Impairment of regulatory asset
Scenario: Krishna Gas Distribution holds Rs 100 crore as a regulatory asset at transition date (1 April 2024). In FY 2025-26, Petroleum & Natural Gas Regulatory Board decides not to allow recovery through future tariffs due to policy change.
Computation Table
| Particulars | Amount (Rs crore) | Computation |
|---|---|---|
| Opening balance | ₹100 | Carried forward per previous GAAP |
| Impairment required | ₹100 | Full impairment; recovery not probable |
| Closing balance | , | Nil; fully impaired |
Journal Entry
Dr Net Movement in Regulatory Deferral Accounts (P&L) ₹100 crore / Cr Regulatory Deferral Account Asset ₹100 crore
The entire amount is charged off immediately upon regulator’s refusal; disclosure required regarding facts leading to impairment per Para 30(b). Future reversal possible only if regulations change again permitting recovery.
Disclosure Requirements under Ind AS 114
Disclosures under Ind AS 114 are critical for users of financial statements to understand the nature, risks, and recoverability of regulatory deferral account balances. Schedule III to the Companies Act, 2013, and Para 30 onwards of Ind AS 114 require granular information to ensure transparency and comparability with entities not applying this interim standard.
| Item | Requirement | Para Reference |
|---|---|---|
| Description of nature of rate-regulated activities | Including the rate-setting process and the rate regulator | Para 30 |
| Risks and uncertainties of recovery | Of regulatory deferral account balances | Para 30(b) |
| Reconciliation of opening to closing carrying amounts | By class of regulatory deferral account balance | Para 33 |
| Discount rate used | If discounted (rare under interim standard) | Implicit |
| Income statement movement | Net movement in regulatory deferral account balances - separate line | Para 22 |
| Tax and OCI impacts | Of regulatory deferral account balances | Para 23 |
Auditors must verify these disclosures align with SA 700 requirements for a true and fair presentation under Schedule III.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Applying Ind AS 114 to entities that did not have regulatory deferral balances under previous GAAP (only first-time adopters with prior recognition can apply)
- Not presenting regulatory deferral balances as separate line items in financial statements
- Failing to test for impairment when regulatory framework changes
- Continuing recognition when rate regulator no longer includes balance in rate setting
- Inadequate disclosure of nature of rate-regulated activities and recovery risks
- Treating Ind AS 114 as permanent standard rather than interim
Industry application notes
Electricity distribution (DISCOMs): State Electricity Regulatory Commissions govern tariff-setting. Under-recovery creates regulatory assets. The probability of recovery depends on regulator orders. In our audit practice, DISCOMs often face impairment risk if regulators disallow cost pass-through.
Gas distribution (CGD): City Gas Distribution companies fall under Petroleum and Natural Gas Regulatory Board oversight. Pass-through clauses and trued-up tariffs create both assets and liabilities. Patron's clients in this sector must monitor changes in PNGRB regulations closely for impairment triggers.
Water utilities: Application is limited due to less formalised regulation in India. Where water utilities are subject to binding tariff orders, similar principles apply as for electricity distributors, but recoverability risk is often higher due to political intervention.
Ind AS 114 vs Guidance Note vs IFRS: Key Differences
The table below summarises the principal differences between the ICAI Guidance Note on Rate Regulated Activities (AS framework), Ind AS 114 (Regulatory Deferral Accounts), and IFRS 14 (the international equivalent).
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Scope | Guidance Note | Specific interim standard | Same (IFRS 14) |
| Application | Continuous | First-time adopters only | Same |
| Measurement | Per Guidance Note | Continue previous GAAP policies | Same |
| Presentation | Within balance sheet line items | Separate line items | Same |
| Future status | Stable | Interim - awaits comprehensive standard | Same |
India’s approach follows IFRS 14 closely but restricts application strictly to first-time adopters with prior recognition. The carve-out ensures that existing preparers cannot reintroduce or create new regulatory deferral balances after transition. Presentation requirements are stricter than those under the ICAI Guidance Note, ensuring visibility for users comparing regulated versus non-regulated entities.
Latest Amendments to Ind AS 114 (FY 2026-27)
No amendments have been notified to Ind AS 114 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 101](/ind-as-101-first-time-adoption/), First-time adoption standard - Ind AS 114 election is made on first-time adoption.
- [Ind AS 1](/ind-as-1-presentation-of-financial-statements/), Presentation framework - separate line items per Ind AS 114.
- [Ind AS 36](/ind-as-36-impairment-of-assets/), Impairment principles applied to regulatory assets when recovery becomes improbable.
- [Ind AS 12](/ind-as-12-income-taxes/), Tax effects on regulatory deferral balances.
Need Help with Ind AS 114 Compliance?
Patron Accounting LLP supports utilities, infrastructure companies, and regulated entities with end-to-end Ind AS compliance, including complex cases involving Ind AS 114 Regulatory Deferral Accounts. Our team combines technical expertise with practical experience across power, gas, and water sectors.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III compliance
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
Only first-time adopters of Indian Accounting Standards who previously recognised regulatory deferral account balances under their old GAAP must consider applying Ind AS 114. Existing preparers or entities without such prior balances cannot elect this standard.
No. Application is restricted strictly to first-time adopters that already recognised such balances under previous GAAP accounting policies before transition. New classes cannot be created at transition date under Para 8 of the standard.
The ICAI Guidance Note applies continuously to all eligible entities under Indian GAAP, while Ind AS 114 only permits continuation by first-time adopters at transition, using their existing policies, until a comprehensive new standard is developed by the International Accounting Standards Board.
These are expense or income amounts deferred because a rate regulator allows their future recovery or refund through tariffs charged to customers. They would not qualify as assets or liabilities under other standards but are permitted here due to specific regulation.
Yes. Paras 19-25 mandate that all regulatory deferral account assets and liabilities appear as distinct line items on both the balance sheet and income statement, separate from other assets or liabilities governed by other standards such as Ind AS 1.
If it becomes no longer probable that the entity will recover the balance through future regulated rates, such as after an adverse order from the regulator, the entire or partial amount must be impaired immediately through profit or loss per Para 16.
Most DISCOMs transitioning from Indian GAAP to Ind AS elect this option if they had recognised such balances previously. Ongoing eligibility depends on continued recognition by State Electricity Regulatory Commissions in tariff orders.
No. It is an interim measure pending development of a comprehensive accounting model by the International Accounting Standards Board for all types of rate-regulated activities globally.
Impairment testing principles from Ind AS 36 apply if recovery becomes doubtful; however, measurement otherwise continues per previous GAAP policies until a new standard replaces Ind AS 114.
Entities must disclose risks and uncertainties related to recovery of these balances, including assumptions about future tariff approvals, under Para 30(b). This helps users assess whether reported profits rely heavily on uncertain future regulator decisions.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation