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CCAB updates recommended practice for LLPs

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A new edition of the statement of recommended practice for limited liability partnerships has been issued. Steven Collings looks at the main changes that have been introduced.

5th Jun 2024
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The Consultative Committee of Accountancy Bodies (CCAB) issued a new edition of Statement of Recommended Practice – Accounting by Limited Liability Partnerships (LLPs SORP) last month. This revised edition is effective for periods commencing on or after 1 July 2024, with early adoption permissible.

Here are the headline changes made by the CCAB.

Climate-related financial disclosures

The latest edition of the LLPs SORP has been updated to reflect the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46). These regulations apply to certain LLPs that are required to make climate-related financial disclosures in the financial statements for financial years commencing on or after 6 April 2022. These disclosures are aligned with the Taskforce for Climate-related Disclosures (TCFD) recommendations. Specifically, the regulations apply to:

  • a traded LLP or banking LLP which has more than 500 employees
  • LLPs, which are not traded or banking LLPs, which have more than 500 employees and a turnover exceeding £500m.

A traded LLP is one whose transferable securities are admitted to trading on a UK-regulated market (excluding AIM). Parent LLPs will also be in scope if the group headed by the LLP has more than 500 employees. In addition, parent LLPs will also be in scope if the group headed by it has more than 500 employees and an aggregate turnover exceeding £500m.

These disclosures must be made in the strategic report (if one is required to be prepared) or in the energy and carbon report.

Sharing of group profits

Additional paragraphs 119A to 119H have been included within the LLPs SORP to provide guidance on how an LLP that is a parent should account for a subsidiary that is also an LLP in the group financial statements. The parent LLP will be required to consider the appropriate treatment of members’ debt and equity interests in the subsidiary LLP to determine whether a non-controlling interest in the net assets of the group is recognised.

Post-retirement obligations in the context of FRS 103 insurance contracts

The flowchart in paragraph 76B has been updated to require LLPs to consider whether a post-retirement obligation falls in scope of FRS 103 before then going on to consider whether it falls in scope of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Section 26 Share-based Payment followed by Section 21 Provisions and Contingencies and then finally Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues respectively. 

Post-retirement payments to members

Additional guidance has been included relating to scenarios that may be less common to LLPs – for example, where FRS 102, Section 26 Share-based Payment may apply. Paragraph 76A includes a further bullet point confirming that FRS 102, Section 26 requires liabilities in respect of cash-settled share-based payments within its scope to be initially measured at fair value. If a cash-settled share-based payment arrangement relates to services, the liability must reflect the extent to which services have been provided at the balance sheet date.

Members who do not provide substantive services to the LLP

Additional guidance is provided concerning the treatment of profits that are automatically divided between members who do not provide any services to the LLP. Paragraph 34D confirms that the automatic right to a share of the LLP’s profits should be treated as a return on capital, which is the right to share in future profits of the LLP. There is also an additional Example 11 – LLP, which has to automatically divide profits, has certain members who do not provide any substantive services to it – that has been included in Appendix 2 Liability and Equity Elements of Members’ Interests.

Further changes to the LLPs SORP

CCAB has confirmed they will keep the LLPs SORP under review for changes in accounting practice and new developments. The latest edition of the LLPs SORP does not reflect any changes to accounting standards that have been made subsequent to July 2023.

The Financial Reporting Council (FRC) issued the periodic review amendments to UK and Ireland accounting standards on 27 March 2024 and so it is expected that the LLPs SORP will undergo further changes in the foreseeable future to reflect those changes that apply mandatorily for accounting periods commencing on or after 1 January 2026. There was one amendment in respect of supplier finance arrangements in the cashflow statement made by the FRC at the same time as finalising the periodic review amendments which has an effective from date of accounting periods commencing on or after 1 January 2025, which may also be reflected in a subsequent edition of the LLPs SORP.

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