Moneyzine
Contents
/Investment Guides /Regulatory Assets

Regulatory Assets

Moneyzine Editor
Author: 
Moneyzine Editor
2 mins
September 21st, 2023
Advertiser Disclosure

Definition

The term regulatory asset refers to specific costs that a government agency permits a regulated utility to defer to its balance sheet. Accounting for regulatory assets allows public utilities to defer the recognition of certain costs; bypassing the income statement in the near term by moving these costs to the balance sheet.

Explanation

FASB's SFAS 71 Accounting for the Effects of Certain Types of Regulation, provides GAAP guidance to those accounting standards that are unique to regulated utilities. Specifically, these companies may be permitted to defer certain costs to their income statement under certain conditions. Generally, regulated utilities may defer the recognition of certain costs if it is probable that through the ratemaking process there will be a corresponding increase to future rates.

In practice, companies will defer costs to a regulatory asset account if a written order is received from their regulators. This order must either implicitly or explicitly allow for such treatment, and the company must believe there is a probability of recovery. However, regulatory assets will be subject to prudence reviews as part of the ratemaking process and there is a possibility these costs will be denied. If that occurs, the costs would be immediately charged to income.

Deferring costs to a regulatory asset account allows the company to spread the expense over a longer period of time, thereby keeping rates low. Companies are usually allowed to defer items such as gas plant remediation costs, retirement obligations, storm damage and repair expenses, under-recovery of costs, energy efficiency programs, stimulus expenses, as well as certain fuel costs.

Regulatory assets are reported as part of the company's Form 10-K filing and will be classified into two groups. Current regulatory assets are those the company expects to recover through revenue sources in one operating cycle or one year, while non-current regulatory assets are expected to be recovered over a longer timeframe.

Related Terms

Management's Discussion and Analysis, Critical Accounting Estimates, Liquidity and Capital Resources, variable interest entities, regulatory liabilities, financing receivables, asset retirement obligation

Explore Investing Further

Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
Below listed are the small reviews of the top 10 ETF brokers available across the United States.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Biden Or Trump: Who Is Better For The Economy And Stocks?
Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
March 19th, 2024
When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
March 14th, 2024
DRIP Brokers: Best Brokers for Dividend Investing for March 2024
Reinvesting dividends could mean compound growth for your portfolio. But reinvesting them manually can be a hassle. This is why you could benefit from a dividend reinvestment plan (DRIP).
March 12th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
March 6th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024

Contributors

Moneyzine 2024. All Rights Reserved.