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CCAB publishes updated draft of LLP SORP

Author: ICAEW Insights

Published: 10 Aug 2023

Draft LLPs Statement of Recommended Practice follows stakeholder feedback from the 2021 consultation, guidance in a number of areas affecting the financial statements of LLPs.

CCAB has published an updated draft of its LLPs Statement of Recommended Practice (SORP) for comment, which includes guidance on share-based payments, treatment of debt and equity interest in subsidiaries and the treatment of profits to members who do not provide substantive services to the LLP.

SORPs are sector-driven recommendations on financial reporting, auditing and actuarial practices. The purpose of the SORP is to deal with issues that are specific to LLPs and ensure that, as far as possible, LLPs present financial statements that are comparable with those of other entities.

The draft LLPs SORP has been updated in response to stakeholder feedback received as part of the 2021 LLPs SORP consultation. Based on that feedback, the LLPs SORP Steering Group is proposing to add guidance for the following areas:

Amounts payable to former members

Guidance has been added to consider certain narrow scenarios in which Section 26 ‘Share-based Payment’ of FRS 102 ‘The Financial Reporting Standard applicable in the United Kingdom and Republic or Ireland’ might apply. 

Sharing of group profits – interests in subsidiaries

Guidance has been added to cover cases where a parent LLP has a subsidiary that is also an LLP and that will therefore need to be consolidated into the parent’s group accounts. Guidance is proposed in relation to the appropriate treatment of members’ debt and equity interests in the subsidiary LLP for the purpose of determining whether a non-controlling interest in the net assets of the group is recognised. 

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

An LLP may have two distinct types of members, all providing capital to it: those that provide services in return for a share of profits and those that do not provide services, but still receive a share of profits. Guidance has been added to the SORP on the treatment of profits which are automatically divided to members who do not provide any services to the LLP. 

In addition to the above proposed changes, the LLP SORP has been updated to reflect the new requirements for certain LLPs to provide climate-related financial disclosures in either the strategic report, if one is prepared, or in the energy and carbon report otherwise. It is proposed that the updated SORP would be effective for periods commencing on or after 1 January 2024. 

Kate Wolstenholme, Chair of the CCAB LLPs SORP Steering Group, said: “The Steering Group carefully considered the feedback received during the 2021 consultation of the LLPs SORP and agreed that further guidance would be helpful in a number of places. We believe the proposed additional guidance will improve the overall usefulness of the LLPs SORP. We encourage constituents to consider the exposure draft carefully and we look forward to hearing their views on it.”

CCAB is the LLP SORP-making body and is made up of five member bodies, of which ICAEW is one alongside ACCA, ICAS, CIPFA and Chartered Accountants Ireland. Sally Baker, ICAEW Head of Corporate Reporting Strategy, said: “As a member of CCAB, ICAEW encourages affected members, plus those working in member firms, to consider the impact of the proposed changes to the LLP SORP and to provide their views by responding to the consultation. 

“Comments are particularly encouraged in relation to the proposals requiring certain LLPs to provide climate-related financial disclosures and the additional guidance proposed relating to amounts payable to former members, the sharing of group profits and the automatic division of profits to members who do not provide substantive services to the LLP.”

Comments are invited by email: executive.office@ccab.org.uk; the consultation will close on Friday 27 October 2023


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