Revised Limited Liability Partnerships Statement of Recommended Practice now in force
The Consultative Committee of Accountancy Bodies (CCAB), of which ICAS is a member, has published a newly revised edition of the Limited Liability Partnerships (LLPs) Statement of Recommended Practice (SORP).
The purpose of the SORP is to deal with issues that are specific to LLPs and ensure that, as far as possible, they present financial statements that are comparable with those of other entities.
Climate change reporting requirements
The SORP has been updated to reflect the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46). These regulations require certain LLPs and groups to make climate-related financial disclosures aligned with the Taskforce for Climate-related Financial Disclosures’ (TCFD) recommendations.
LLPs within the scope of the climate-related financial disclosure requirements, must now report this information in the strategic report (if one is required to be prepared) or in the energy and carbon report.
Further guidance on mandatory climate-related financial disclosures, including information on the scope criteria and required content of the disclosures, is available in the UK government’s non-binding guidance ‘Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs’.
Financial statements preparation and other amendments
Additional guidance on the preparation of financial statements has been added in relation to:
- The sharing of group profits and amounts payable to former members.
- Post-retirement obligations in the context of FRS 103 ‘Insurance Contracts’.
- Certain scenarios when section 26 ‘Share-based Payment’ of FRS 102 (the Financial Reporting Standard applicable in the UK and Republic of Ireland) might apply to post-retirement payments to members.
In the case of a contractual obligation that meets the definition of a share-based payment, this will fall within the scope of section 26.
For an LLP whose members have equity interests, an example of a share-based payment might be where a former member is entitled to a specified percentage of disposal proceeds if the business of an LLP is sold within a specified period following the member’s retirement, to be paid by the LLP to the former member. This would meet the definition of a share-based payment transaction as a result of the former member having provided services to the LLP.
- The treatment of profits which are automatically divided to members who don’t provide any substantive services to the LLP.
The SORP now specifically recognises that there may be situations where all members of the LLP contribute capital, but certain members may not provide any substantive services to the LLP. For example, where a member of the LLP only provides capital, this doesn’t constitute a substantive service.
In cases where a member doesn’t provide substantive services to the LLP, the automatic right to a share of the LLP’s profits (reference should be made to paragraphs 46 and 48 of the SORP) should be treated as a return on capital which is the right to share in future profits of the LLP. This is illustrated in example 11 at appendix 2 of the SORP.
Minor amendments have also been made to the LLPs SORP to enhance its clarity.
Effective date
The updated SORP is effective for periods commencing on or after 1 July 2024 (with early adoption permitted).
ICAS Technical Bulletin
This article was originally published in our ICAS members’ Technical Bulletin, issue no. 177 (May 2024).
