Accounting for Infrastructure Regulation: An Introduction

by Groom, Eric; Rapti, Richard Schlirf; Pardina, Martin Rodriguez

• ISBN13: 9780821371794
• ISBN10: 0821371797
• Format: Paperback
• Copyright: 2008-04-25
• Publisher: World Bank

Summary

This title provides a practical guide for regulators, policy-makers, and utility managers for establishing regulatory accounts that can be the cornerstone for better, more complete, and more reliable information. It sets out the essential accounting features of regulatory accounts and provides practical guidance on controversial areas such as cost allocation, asset valuation, and depreciation. It emphasizes the essential requirements for consistency with Generally Accepted Accounting Principles (GAAP).

Table of Contents

Foreword	p. ix
Acknowledgments	p. xi
Abbreviations	p. xiii
Why Accounting Information Matters	p. 1
Objectives of public service regulation	p. 3
External and internal regulatory information	p. 5
Limitations of traditional accounting information for regulatory purposes	p. 8
Information exchange and participation: The need for processes and mechanisms	p. 12
Case Studies	p. 15
Case study 1: Privatization of an electricity and water operator in Africa-Initial contract not sufficiently specific	p. 15
Case study 2: Regulating operators in Latin America-Manual deficiencies led to inconsistent cost accounting by different utilities	p. 18
Case study 3: Efficient model company regulation in a Latin American country-Deficiencies of benchmarking information and the need for regulatory accounting information	p. 21
Corporate Information and Financial Accounting	p. 27
Corporate information systems	p. 27
Statutory financial statements	p. 29
Additional reading and resources	p. 41
Management and Cost Accounting	p. 43
Objectives of management and cost accounting	p. 43
Cost classifications	p. 45
Cost allocation	p. 53
Additional reading and resources	p. 61
Why Do Regulatory Accounting?	p. 63
Regulatory accounting and its objectives	p. 64
General presentation of information needs	p. 65
Limitations of traditional and management accounting of the regulated company	p. 68
Consistency between statutory accounts and regulatory accounts	p. 69
Regulators' behavior and principles to follow	p. 70
Using accounting costs in tariff determination	p. 71
Regulatory accounting and auditing of regulated companies	p. 77
Additional reading and resources	p. 80
Core Issues in Regulatory Accounting	p. 83
Separation of activities	p. 84
Regulatory asset base determination	p. 92
Depreciation policies of the regulatory asset base	p. 98
Related-party transactions and transfer pricing	p. 102
Additional reading and resources	p. 108
Scope of a Regulatory Accounting System	p. 111
Contents of regulatory accounting guidelines	p. 111
Information exchange processes	p. 121
Need for competencies, tools, and time and methodology	p. 128
Legitimizing the regulatory methodology	p. 131
Additional reading and resources	p. 132
Understanding Financial Statements: Ratio Analysis	p. 135
Liquidity ratio analysis	p. 136
Activity ratios	p. 137
Capital structure (leverage ratios)	p. 138
Profits and profitability	p. 139
Regulatory Model	p. 141
What are regulatory models?	p. 142
Matching regulatory objectives and instruments	p. 146
What regulators need to know about the operator's finances	p. 150
Conclusion	p. 151
Examples of Guidelines and Templates	p. 155
Australia: Electricity Industry Guideline	p. 155
Australia: Regulatory Accounting Statements-Templates	p. 156
United Kingdom: Ofwat Regulatory Accounting Guideline	p. 167
United Kingdom: Ofwat Regulatory Accounting Statements-Templates	p. 167
Impacts of Alternative Depreciation Profiles	p. 175
Perspectives on depreciation	p. 175
Regulatory approaches to depreciation	p. 176
Alternative approaches to depreciation	p. 177
Estimation of asset lives	p. 178
Impact of different approaches to calculating depreciation	p. 179
Data requirements	p. 184
Principles for depreciation	p. 184
List of Sample Performance Indicators	p. 187
Cost Allocation: Illustration of a Step-by-Step Approach	p. 189
Identify cost objectives	p. 189
Identify direct costs	p. 189
Classify indirect costs and allocate cost pools to cost objectives	p. 189
Regulatory Asset Base Valuation	p. 193
Valuation approach	p. 196
Regulatory asset base and accounting	p. 198
Bibliography	p. 205
Index	p. 211
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