Having considered the stakeholder feedback, CCAB concluded that further guidance should be added to the LLPs SORP to help determine whether a division of profits is made on a discretionary basis, as opposed to on an automatic basis. In addition, it concluded that confusion has arisen over the meaning and use of certain terms within the SORP. As a result of this review, CCAB is proposing:
- Changes to the definitions included in the SORP relating to divisions of profit.
- Further consequential amendments throughout the SORP to ensure consistency of terminology.
- Additional guidance to help determine when an LLP has an unconditional right to avoid delivering cash or other assets to members.
- Changes to the ordering of the SORP to ensure that the guidance on the division of profits is presented together, reduce duplication, and improve the overall flow of the document.
CCAB also identified some diversity in practice for how automatic and discretionary divisions of profit are presented in the cash flow statement. To address this diversity, CCAB is proposing:
- Additional guidance which sets out the basis for alternative classifications of cash flows relating to profit distributions.
- A requirement for LLPs to disclose their accounting policy for classifying share of profits in the cash flow statement and that cash flows be classified consistently from period to period.
CCAB is also taking this opportunity to propose other minor clarifications to the SORP where appropriate. This includes updates to reflect the requirement for large LLPs and groups to produce an energy and carbon report as part of the annual report.
The proposed changes would be effective for financial years beginning on or after 1 January 2022.
Kate Wolstenholme, Chair of the CCAB SORP LLPs Steering Group, commented: “We believe the proposed changes to the LLPs SORP will provide helpful guidance to help users when assessing whether a division of profit is automatic or discretionary. CCAB has also taken this opportunity to streamline the LLPs SORP which we believe improves the overall structure and flow of the guidance. We encourage constituents to consider the exposure draft carefully and we look forward to hearing their views on it.”
Comments are invited by e-mail to sharon.grant@ccab.org.uk. The deadline for submission of comments is 24 September 2021.
The consultation draft can be accessed here
For more information on UK GAAP visit icaew.com/financialreporting