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On 14 December 2018, the Consultative Committee of Accountancy Bodies (CCAB) issued a revised Statement of Recommended Practice – Accounting by Limited Liability Partnerships (LLPs SORP).  The SORP has been amended to reflect changes to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland due to the FRC’s triennial review.  A link to the revised LLP SORP can be found here.

The revised SORP is effective for periods commencing on or after 1 January 2019 (in line with FRS 102 (March 2018) which incorporates the amendments arising from the triennial review).  Early adoption is permissible, provided all amendments are applied from the same date, with some limited exceptions.

The notable changes to the LLP SORP include the following:

Cash flow statement

FRS 102 (March 2018) Section 7 Statement of Cash Flows contains a requirement (at paragraph 7.22) for an entity producing a cash flow statement to present a reconciliation of net debt. Additional guidance has been included in the revised SORP at paragraph 74C which clarifies that although ‘loans and other debts due to members’ are considered to be borrowings for the purposes of the definition of net debt, they are not external financing. The revised SORP recommends that LLPs present in the notes to the financial statements an analysis of the movements in net debt for the period, with appropriate subtotals to show the changes in net debt before members’ debt separately from debt relating to members. There is a presentation example for the net debt reconciliation on page 30 of the revised SORP.

Loans to small LLPs

When members’ capital has been classified as a financial liability, there may be a need to discount that liability to present value using a market rate of interest for a similar loan (i.e. if it constitutes a financing arrangement).  FRS 102 (March 2018) contains an exception to this requirement in paragraph 11.13A for small entities (including LLPs), stating:

‘As an exception to paragraph 11.13, the following financing transactions may be measured initially at transaction price:

a)      a basic financial liability of a small entity that is a loan from a person who is within a director’s group of close family members*, when that group contains at least one shareholder** in the entity; and

b)      a public benefit entity concessionary loan (see paragraph PBE11.1A).’

*In this context, a director’s group of close family members shall be the director and the close members of the family of that director (see glossary definition of close members of the family of a person). This includes a person who is the sole director-shareholder of an entity.

**For small LLPs this shall be read as a member who is a person.


Paragraph 57A of the revised LLP SORP confirms that discounting will not be required where the members’ capital is repayable on demand or at short notice (e.g. on termination of membership).

The exemption from discounting in FRS 102 (March 2018), paragraph 11.13A also applies to small LLPs (‘small’ as defined in the Companies Act 2006). However, paragraph 57A of the revised LLP SORP confirms that the meaning of ‘director’ has not been defined in FRS 102 for an LLP. Accordingly, the SORP recommends that for the purposes of applying the exemption in FRS 102 (March 2018), paragraph 11.13A, a director is taken to mean a member, who is a person, with an equivalent role in the LLP. For some LLPs that may be all the members; whereas for others it may be a member who is part of a governing body or management board.

Business combinations and group accounts

The revised LLP SORP includes an additional paragraph 108A to reflect the new recognition requirements for intangible assets acquired as part of a business combination in FRS 102 (March 2018).

FRS 102 (March 2018), paragraph 18.8 states that intangible assets must be recognised separately from goodwill if they are separable and arise from contractual or other legal rights subject to the recognition criteria in FRS 102 (March 2018), paragraph 18.4 being met.

Some entities wishing to recognise more intangible assets separately from goodwill can do so through the accounting policy choice contained in FRS 102 (March 2018), paragraph 18.8.  To qualify for separate recognition, the intangible asset must still meet the recognition criteria in FRS 102 (March 2018), paragraph 18.4 but the intangible asset need only be separable OR arise from contractual or legal rights.

This particular issue could be relevant for certain business combinations involving LLPs when two LLPs come together, but no cash is paid and no additional amounts of purchase consideration are identified. The Basis for Conclusions in the revised LLP SORP acknowledges that where this is the case, and substantial intangible assets are recognised on acquisition, it can give rise to negative goodwill.  Negative goodwill arises when the cost of a business combination is less than the fair value of the net assets recognised at the date of acquisition. As a consequence, paragraph 108B of the revised LLP SORP suggests that an LLP may conclude that it is preferable to have a policy of NOT recognising such additional intangible assets.

Definition of a group reconstruction

The definition of a group reconstruction was extended in FRS 102 (March 2018) to include the transfer of the business of one group entity to another; and the transfer of the business of one group entity to a new entity which is not a group entity but whose equity holders are the same as those of the parent. This extended definition does not change the accounting treatment set out in paragraph 5 of Appendix 4 of the LLP SORP, the appendix has been updated to reflect the revised definition.

Category: Accounting and standards, Audit

About the Author ()

Steve Collings is the audit and technical director at Leavitt Walmsley Associates Ltd and the author of 'Interpretation and Application of International Standards on Auditing'. He is also the author of 'IFRS For Dummies' and 'The AccountingWEB Guide to IFRS'. More about Steve's publications can be found by clicking on the 'Published Work' tab on the homepage. Steve is also a regular contributor of articles to www.accountingweb.co.uk, the UK's largest resource for professional accountants on a free subscription basis and is a member of the Society of Authors. Steve is an Editorial Board member for Wiley Insight IFRS and sits on the AAT's Financial Reporting Technical Panel. In 2011 Steve was named 'Accounting Technician of the Year' at the British Accountancy Awards and won 'Outstanding Contribution to the Accountancy Profession' by the Association of International Accountants in 2013. Follow Steve on Twitter - @stecollings

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