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CCAB issues new SORP for Limited Liability Partnerships

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15 Jul 2014

The Consultative Committee of Accountancy Bodies (CCAB) has published a revised Statement of Recommended Practice (SORP) which sets out a new framework for accounting by Limited Liability Partnerships (LLPs) (“the revised SORP”).

The Financial Reporting Council (FRC) has approved the CCAB as the recognised SORP-making body for issuing a recognised SORP for LLPs incorporated in Great Britain under the Limited Liability Partnerships Act 2000.  The members of the CCAB are; The Institute of Chartered Accountants in England and Wales (ICAEW), The Institute of Chartered Accountants of Scotland (ICAS), The Institute of Chartered Accountants in Ireland (ICAI), The Association of Chartered Certified Accountants (ACCA) and The Chartered Institute of Public Finance and Accountancy (CIPFA).  

SORPS issued by the CCAB apply to LLPs preparing accounts under UK GAAP to present a ‘true and fair view’. 

The revised SORP updates the previous SORP (2010) to reflect the requirements of FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. 

The key changes included in the revised SORP as a result of FRS 102 are: 

updating the guidance on business combinations and group accounts (paragraphs 102-119) to reflect the fact that FRS 102 only allows merger accounting to be used for group reconstructions and some public benefit entity combinations;

updating the guidance on contractual or constructive obligations (paragraph 76) and annuities (paragraph 80) to reflect the fact that FRS 102’s requirements relating to financial liabilities differ from current UK GAAP requirements; and

updating references throughout to reflect the introduction of the option to produce a single statement of comprehensive income, including adding an additional exhibit in Appendix 1. 

A number of other changes have also been made to clarify areas of the 2010 SORP “where there were known issues or misunderstandings”: 

clarifying the requirements in relation to automatic division of profits to make it clear that payment is unavoidable where profits are automatically divided among members in accordance with the LLP agreement in force at the time, and that in such instances a liability should be recognised;

clarifying that if a reconciliation of members’ interests is to be shown as a primary statement in place of the statement of changes in equity then comparatives must be shown for all figures presented;

improving the table that follows paragraph 60 to ensure the recommended format not only provides a reconciliation of members’ interests but also meets related Companies Act requirements;

providing more guidance on cash flow statement presentation to reduce divergent practices; and

refining the examples in Appendix 2 to focus on more commonly encountered scenarios and to eliminate some duplication. 

Additionally LLPs will not be required to produce a separate Members’ Report; however the disclosures that would previously have had to be included in the Members’ Report are retained as these are “considered helpful”.  The CCAB comment that “LLPs may still wish to produce a Members’ Report, but the SORP now allows them to include these disclosures elsewhere in the financial statements if they prefer”.

The CCAB highlights that the revised SORP will be kept under review for changes in accounting practice and new developments.  It also highlights that changes to accounting standards since 2 July 2014 have not been reflected in the revised SORP.

The revised SORP will be effective for accounting periods beginning on or after 1 January 2015 and earlier, if an entity chooses to early adopt FRS 102. 

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