LLPs will need to invest in updating their accounting practices and systems
The new LLP SORP is effective for periods commencing on or after 1 July 2024.
Early adoption is permitted, provided all amendments are adopted from the same date, with some limited exceptions. CCAB emphasised that any changes to accounting standards made subsequent to July 2023 have not been reflected in this SORP. This includes the proposed changes to FRS 102 relating to revenue recognition and lease accounting.
The following table from the SORP summarises the choices available to LLPs while preparing their accounts under different accounting standards:
|
Micro-LLPs Turnover ≤ £632,000 Balance sheet total ≤ £316,000 Employees ≤ 10 |
Small LLPs Turnover ≤ £10.2m Balance sheet total ≤ £5.1m Employees ≤ 50 |
Other LLPs Breaches two of the three small entity thresholds |
Apply FRS 105 only |
✓ |
|
|
| Apply the small entities regime (section 1A of FRS 102) together with the recognition and measurement requirements of this SORP and the disclosure requirements of paragraphs 63 and 64 of this SORP | ✓
|
✓ |
|
| Apply FRS 102 and all the requirements of this SORP | ✓ |
✓ |
✓ |
| Apply FRS 101 only | ✓ Qualifying entities only |
✓ Qualifying entities only |
✓ Qualifying entities only |
| Apply IFRSs only | ✓ |
✓ |
✓ |
The key changes and updates include:
Climate Related Financial Disclosure regulations
The SORP has been updated to reflect the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46) which require certain LLPs and groups to make climate-related financial disclosures aligned with the Taskforce for Climate-related Disclosures (TCFD) recommendations. These changes have already been in effect through the regulations for periods commencing on or after 6 April 2022 and hence are already in force, but the LLP SORP has just been updated with these regulations.
Automatic division of profits
Paragraph 34D inserted and it clarifies that where a member does not provide any substantive services to an LLP, but nevertheless has an automatic right to a share of the LLP’s profits, this should be treated as a return on capital. Example 11 has been added to Appendix 2 to clarify the position.
Clarification on members’ rights
Under the SORP, members’ participation rights in the earnings or assets of an LLP should be analysed between a financial liability or equity, in accordance with section 22 of FRS 102. Depending on the terms of the members’ agreement, members’ participation rights may give rise to equity or liabilities or both.
Amounts becoming due to members in respect of liability participation rights following an automatic division of profits should be presented as an expense within profit or loss.
Amounts becoming due to members in respect of equity participation rights, following a discretionary division of profits, should be debited directly to equity in the year in which the division occurs. Such amounts should not be presented as an expense within profit or loss.
The basis on which each element of remuneration has been treated in the accounts should be disclosed and explained in the notes to the financial statements.
Guidance on post-retirement obligations
The flowchart on paragraph 76B has been updated for guidance applicable to a particular obligation. Now this includes the uncommon circumstances in which FRS 103 Insurance Contracts applies as well as when the requirements of section 26 Share-based Payment of FRS 102 apply.
Further guidance and examples are included within the paragraph 87A-87D for more post-retirement benefits and liabilities for their recognition and measurement for the application of section 26 of FRS 102.
However, there is no change in the existing accounting treatment with the new further guidance.
Guidance on interest in subsidiary LLPs
To provide guidance on the appropriate treatment of members’ debt and equity interests in a subsidiary LLP for the purpose of determining whether a non-controlling interest in the net assets of the group is recognised, eight new paragraphs 119A to 119H have been added to the LLPs SORP.
The 2024 SORP for LLPs introduces several significant changes aimed at enhancing the transparency and comparability of financial statements. These changes, while beneficial for stakeholders, will require LLPs to invest in updating their accounting practices and systems.