Susan Maina is a content writer at Mugo and Company, where she simplifies Accounting, Auditing, and Forensic Audit services with her finance expertise.
LinkedIn >>Table of Contents
Let’s start with a quick question:
Have you ever paid your Kenya Power bill and wondered, “Who really decides these electricity prices?”
The truth is — some industries in Kenya (like electricity, water, and sometimes telecoms) don’t just set their own prices.
Regulators step in. They tell companies, “Here’s how much you can charge your customers.”
Now, imagine you’re running such a company.
Because prices are regulated, sometimes you spend more than you recover immediately. Other times, you recover more than your costs in the short term.
This timing difference creates something accountants call a regulatory deferral account balance.
And that’s where IFRS 14 comes in. It gives guidance on how to record these balances in your financial statements — so your books tell the real story.
This simple guide by Mugo & Co breaks down what IFRS 14 is, why it matters, and how it is applied in Kenya. Let’s dive in!
Not sure how IFRS 14 applies to your company in Kenya?
Talk to our IFRS 14 experts today.
Book your First Consultation For FreeThink of IFRS 14 as a “transition rulebook” for companies moving from their old accounting systems into IFRS.
It basically says:
“If you’re a first-time adopter of IFRS, and you already had regulatory deferral accounts in your books (because of rate regulation), you don’t have to throw them out.
You can carry them into IFRS — but with some extra rules on how to show and explain them.”
In short: IFRS 14 lets you keep your regulatory deferral balances when moving into IFRS, instead of starting from zero.
Get expert guidance on carrying forward regulatory deferral accounts under IFRS 14.
Book your First Consultation For FreeLet’s use a Kenyan example.
Say you’re Kenya Power. The government regulator (EPRA) sets electricity tariffs. But sometimes:
These differences don’t disappear. They’re parked in a special account called a regulatory deferral account balance. Later, as tariffs change, you recover or pay back those amounts.
So IFRS 14 simply says: “You can keep showing these balances separately when you adopt IFRS — don’t hide them.”
We’ll help you show regulatory balances accurately and transparently in your financial statements.
Book your First Consultation For FreeThe goal is comparability and transparency.
Without IFRS 14, your statements might look misleading — like you made huge profits or losses, when in reality, it’s just a timing issue caused by the regulator.
| Year | Occurrence |
|---|---|
|
2014
|
The IASB (global accounting board) issued IFRS 14 as a temporary standard.
|
|
2016
|
IFRS 14 became effective worldwide
|
|
In Kenya |
ICPAK adopted it for companies under full IFRS, but remember: it only applies to first-time adopters of IFRS who are in rate-regulated industries.
|
| Who Does IFRS 14 in Kenya Apply To? | |
|---|---|
|
IFRS 14 only applies if:
|
– You are a first-time adopter of IFRS. – You are in a rate-regulated industry (think Kenya Power, water utilities, or telecoms under price caps). |
|
It does not apply if you’re:
|
– Already reporting under IFRS (you can’t suddenly adopt IFRS 14 later). – An SME using the IFRS for SMEs standard. |
When you apply IFRS 14 in Kenya, you can’t just show numbers. You must show AND explain.
Here’s what the standard asks for — with simple examples:
| What You Must Do | Description | Easy Example |
|---|---|---|
|
1. Show the balance clearly
|
– Let people see how much is sitting in your “regulatory deferral account.” – Don’t hide it under “miscellaneous.” |
Kenya Power shows: “Fuel costs to be recovered later – KSh 200M.”
|
|
2. Show how the balance moved this year
|
– Explain how the balance changed this year. – Let people see what changed. |
Profit & loss shows: “Added this year: KSh 45M.” meaning more fuel costs were added this year.
|
|
3. Tell the story in words
|
– Numbers alone don’t explain much. – Tell people why the balance exists and when it will be sorted. |
“Fuel costs went up faster than tariffs. EPRA will let us recover this money in the next 2 years.”
|
|
4. Show a mini summary (opening → closing)
|
– Think of it like a short statement of account.
|
Example: – Opening: 185M – Added: 45M – Recovered: (30M) – Closing: 200M |
|
5. Share assumptions & risks
|
– Be honest about what you’re expecting and what could go wrong.
|
“We assume EPRA will approve new tariffs in 2025. If delayed, recovery drops by KSh 18M.”
|
In short:
IFRS 14 in Kenya is all about transparency.
It’s like saying:
“Here’s how much we’ve spent, why it’s not yet recovered, and when we expect it back.”
Let Mugo & Co. guide you on audit-ready IFRS 14 disclosures that your regulators and investors trust.
Book your First Consultation For FreeIf there’s one company in Kenya where IFRS 14 really makes sense, it’s Kenya Power.
The Situation
Fuel prices go up in global markets. Kenya Power has to keep the lights on, so it pays the higher fuel costs today.
But here’s the catch: electricity tariffs are not set by Kenya Power — they’re set by EPRA (Energy and Petroleum Regulatory Authority).
So, even though costs went up in March, EPRA may only approve new tariffs in September. That creates a timing gap.
The IFRS 14 Treatment
Instead of recording a straight loss in March, Kenya Power uses IFRS 14 regulatory deferral accounts to “park” those unrecovered fuel costs on the balance sheet.
Here are how the entries on the various Financial statements will look like:
| Entries on the various Financial statements: | |
|---|---|
|
On the balance sheet:
|
“Regulatory deferral account (asset) – KSh 2.5B”
|
|
On the profit & loss Statement (P&L):
|
“Movement in regulatory deferral account – KSh +500M”
|
|
In the notes to Financial Statements
|
“These balances represent fuel cost under-recoveries arising from tariff regulation by EPRA. Approval for recovery is expected within the next 12 months through tariff adjustments.”
|
What This Disclosure Achieves
By following IFRS 14 in Kenya, Kenya Power shows:
In simple terms:
Regulatory deferral accounts under IFRS 14 in Kenya are like a regulator-approved IOU.
In other words, the company has already spent money (e.g. fuel costs), but the regulator allows it to recover that money later from customers through future tariffs.
Kenya Power is saying:
“We spent this money today, but EPRA has promised we’ll get it back from customers in future bills. Until then, it sits here as a regulatory deferral account.”
Mugo & Co. can help you navigate first-time IFRS adoption in Kenya’s regulated sectors.
Book your First Consultation For FreeQ1: What is IFRS 14 Regulatory Deferral Accounts about in Kenya?
IFRS 14 is an interim standard issued by the IASB. It allows first-time adopters of IFRS in regulated industries to continue recognizing and disclosing regulatory deferral account balances when they transition into IFRS.
Q2: What are regulatory deferral accounts?
Regulatory deferral accounts represent timing differences that arise when regulators control how much a company can charge customers. These balances capture costs (or income) incurred today that will be recovered from or refunded to customers in future periods.
Q3: Which companies in Kenya must follow IFRS 14?
Only first-time adopters of IFRS operating in regulated sectors, such as utilities and water service providers, are eligible to apply IFRS 14.
Q4: What’s the difference between IFRS 13 and IFRS 14?
Read our full guide on IFRS 13 in Kenya for deeper insights.
Q5: What’s the difference between IAS 14 and IFRS 14 in Kenya?
Q6: Is IFRS 14 in Kenya a permanent standard?
No. IFRS 14 is an interim standard. It was introduced to provide temporary relief for first-time IFRS adopters in regulated industries until the IASB completes its broader project on rate-regulated activities and issues a comprehensive standard.
Latest IASB Update on IFRS 14:
The IASB is currently working on a new permanent standard on Rate-Regulated Activities. Once issued, it will replace IFRS 14.
Entities in Kenya should therefore treat IFRS 14 as a transitional measure and prepare for eventual changes.
If you’re running a regulated business in Kenya and switching to IFRS, IFRS 14 is your safety net.
Instead of wiping out your regulatory balances and confusing stakeholders, you carry them forward — but with clear disclosure. This way, your numbers stay both credible and comparable.
At Mugo & Co, we help Kenyan businesses navigate these tricky IFRS transitions — making sure your reports tell the full story, without getting lost in accounting jargon.
Work with Mugo & Co. for clear, compliant regulatory deferral account reporting in Kenya.
Book your First Consultation For FreeNeed help navigating IFRS 14 or preparing compliant financial statements in Kenya?
Reach out to Mugo & Co for expert IFRS advisory and audit support.
Your first consultation with us is absolutely free.
This guide is for general information only and does not constitute professional advice. For tailored guidance on IFRS 14 and related compliance matters, please consult a qualified advisor or auditor.
IFRS 14 — Regulatory Deferral Accounts
IFRS 14 Regulatory Deferral Accounts
IFRS 14 – Regulatory Deferral Accounts
IFRS 14 Regulatory Deferral Accounts | ACCA Global
Applying IFRS for IFRS 14 Regulatory Deferral Accounts | EY – Global
Applying IFRS for IFRS 14 Regulatory Deferral Accounts
Industry Leaders Delivering Client-Focused Solutions with Proven Expertise and Excellence.
Woodland Business Park, 4th Floor, Suite 15, Kiambere Road, Upperhill, Nairobi
info@mugo-co.com
+254 736 570 370
Copyright © 2025 Mugo & Company | All Rights Reserved.
Mugo & Company – Experts in assurance services in Kenya since 1984.
