Accounting by limited liability partnerships

A topical summary of the new SORP for LLPs

As a reminder, the LLP SORP is effective for periods commencing on or after 1 January 2019. Early adoption is permitted, provided all amendments are adopted from the same date, with some limited exceptions. CCAB, when considering whether the 2017 Triennial Review amendments created any issues specific to LLPs, concluded that only limited changes to the LLPs SORP were required:

‘These include updates to:

  • guidance on cash flow statement presentation to reflect the new requirement to disclose the changes in net debt between the beginning and end of the financial period
  • guidance on accounting by small LLPs to reflect the simpler recognition and measurement requirements available to small entities when accounting for certain loans
  • provide additional guidance on the revised recognition rules for intangibles assets acquired in a business combination
  • guidance on merger accounting to reflect the extended definition of a group reconstruction.’

The small company discounting relaxation for director loans in FRS102 (subject to the conditions in paragraph 57A) has been made available to small LLPs.  

Paragraph 57A states that when ‘members’ capital is classified as a financial liability it may – depending on the terms of the members’ agreement – constitute a financing arrangement and may therefore need to be discounted to present value in accordance with the requirements of paragraph 11.13 of FRS 102'.

However, discounting will not always be necessary as in many instances members’ capital will be repayable on demand or at short notice eg on termination of membership. In addition, there is an exemption for small companies and LLPs in paragraph 11.13A of FRS 102 from the requirement to discount basic loan financing transactions, provided it is a ‘ from a person who is within a director’s group of close family members, when that group contains at least one [member of the LLP who is a person]'.

The meaning of director has not been defined in FRS 102 for an LLP. ‘This SORP recommends that for the purposes of applying the exemption in paragraph 11.13A of FRS 102, a director is taken to mean a member, who is a person, with an equivalent role in the LLP. For some small LLPs that may be all members, for others, it may be a member who is part of a governing body or management board.’

Find out more about the LLP SORP and CCAB guidance