Regulatory Accounting is the tool that allows us to have homogeneous information on the income, costs and expenses of each of the services subject to regulation, in a permanent and standardized manner.It allows obtaining structured information, from which the regulator can know the cost structure of each company, to seek uniformity of information that allows comparisons between companies in the sector with similar characteristics in order to determine the efficient costs for the provision of services.
Regulatory account.
A regulatory account is an accounting account , with the help of which an additional cost characteristic of a certain accounting object can be obtained. Adjustment account Can be used in two ways:
a) is independently reflected in the balance sheet as a regulator to the main account;
b) clarifies the assessment of the object, reflected in the main account; it is the revised estimate that is presented in the balance sheet.
A regulatory account that has a debit balance is called a counter-passive account (usually it specifies the main account given in the liabilities side of the balance sheet).A regulatory account that has a credit balance is called contractive (usually specifies the main account given in the asset balance).
The Regulator uses the accounting reports for: Tariff Review: based on current or historical costs Determination of the cost of connection, access to the network or stages (esp. vertical integration), efficiency indicators Avoid Cross Subsidies: regulated to non-regulated activities and linked/related companies Control economic-financial situation.
What Is Regulatory Accounting;10 Benefits To Regulate for Accounting system.
- Establish simple principles that make the accounting of transactions more transparent and homogeneous vs. traditional accounting
- Present more detailed information on income and expenses than traditional accounting
- Develop on this basis a clear methodology for rate calculation and economic-financial analysis of the regulated company, open to third-party scrutiny
- Facilitate comparison with other regulated companies and consistent analysis of efficiency levels or indicators
- Strengthen the information system in periods of low voltage (excluding rate reviews).
- Reduce the discretion of the Regulator: problem of contractual opportunism, once the company has invested, the Regulator has incentives to take the rates to the point where the Regulated Party covers only the variable costs of production.
- Reduce the uncertainty about future income and with this the costs of borrowing or obtaining new capital
- Limit the discretion of the Regulator and public authorities.
- Improve exposure to third parties esp. users and their associations
