CCAB Publish Updated Draft of LLP SORP

The CCAB has published an updated draft of its Statement of Recommended Practice Accounting by Limited Liability Partnerships (the LLP SORP). In this blog, we take a look at the key changes proposed.

Whilst a couple of the changes proposed are in response to recent changes to legislation or amendments to underlying standards, the majority are aimed at providing further guidance on particular issues arising when preparing the accounts of LLPs.

The proposed changes are therefore not expected to have a significant impact on LLPs preparing their accounts in accordance with the LLP SORP, as the additional guidance should merely clarify existing treatment.

Sharing of group profits – interests in subsidiaries

The updated draft includes 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.

The guidance clarifies that debt interests will not give rise to non-controlling interest and only equity interests in the subsidiary LLP, not attributable directly or indirectly to the parent, are recognised as non-controlling interests.

The proposed guidance also highlights considerations where members of a parent LLP also members of a subsidiary LLP, and whether such interests should be considered to be non-controlling interests.

Automatic division of profits to members who do not provide any substantive services to the LLP

The SORP steering group determined that the distinction between members that provide services to an LLP and those that do not provide any substantive services to an LLP could be made clearer throughout the SORP.

As a result, a number of paragraphs within the SORP are proposed to be amended for clarity, and new guidance is proposed for situations where there is an automatic division of profits to members that do not provide any substantive services to the LLP. In such cases the guidance suggests the automatic right to a share of the LLP’s profits should be treated as a return on capital.

This additional guidance is most likely to be relevant where members of an LLP have very distinct roles, for example, a property development LLP in which a member provides the funding, whereas another undertakes the development work.

Other changes

The draft LLP SORP has been updated to make reference to the changes to the LLP Regulations which introduced requirements for certain LLPs and groups to make additional climate-related financial disclosures aligned with the TCFD recommendations for financial years beginning on or after 6 April 2022.

It has also been updated to reference the rare circumstances in which Section 26 of FRS 102, Share-based payments, might apply with respect to amounts payable to former members.

The working group did also consider the draft amendments to UK GAAP set out in FRED 83 (Pillar Two model rules) and concluded no changes to the SORP were required.

What next?

Comments are invited until 27 October 2023, after which time feedback will be considered before a revised LLP SORP is published. The draft proposes an effective date of periods commencing on or after 1 January 2024, with early adoption permitted.

Following this, a further revision to the LLP SORP can then be expected during 2024 to reflect the changes to FRS 102 arising from the ongoing periodic review.