The Consultative Committee of Accountancy Bodies (CCAB) has published the 2024 edition of its Statement of Recommended Practice Accounting (SORP) for Limited Liability Partnerships (LLPs).
The Financial Reporting Council (FRC) have appointed CCAB to oversee the SORP for LLPs, to ensure that these entities can prepare financial statements and accounts comparable to those of other businesses including limited companies.
LLPs present unique challenges as they combine aspects of limited companies and general partnerships. Partners are financially liable for the business but only up to the amount of capital they have invested.
Because of this, CCAB routinely updates the accounting guidelines for LLPs, with the latest rules applied to accounting periods due to start on 1 July 2024.
Changes to partner compensation
The latest updates provide new guidelines on distributing group profits and handling post-retirement payments for partnership members.
According to the updated SORP for LLPs, members who contribute capital but do not provide significant services to the business should have their automatic right-to-profit shares treated as a return on capital, essentially as a stake in the LLP’s future profits.
SORP has clarified that post-retirement payments for former members classified as employees are governed by Section 28 of FRS 102. The guidelines also cover the LLP’s obligations towards members post-retirement under FRS 102 and 103.
These include:
Insurance contracts: Contracts with varying liability, such as those where the total amount payable by the LLP depends on the retiree’s longevity.
Share-based payments: Obligations meeting the definition of share-based payments fall under Section 26. For instance, if you are a retiree with an equity interest, you may be entitled to a percentage of the proceeds if the LLP is sold.
Financial reporting requirements
The latest SORP introduces new disclosure requirements for financial reporting, particularly for notes to the accounts, which must now include:
