Are you prepared for the revised LLP SORP?

Guidance for professional firms on the upcoming changes to accounting standards for limited liability partnerships (LLPs).

What is the LLP SORP and why is it changing?

The LLP SORP is the Statement of Recommended Practice that sets out the accounting principles and disclosure requirements for LLPs in the UK and Ireland. It is based on Financial Reporting Standard 102 (FRS 102) and applies to all LLPs that are not required to use UK adopted international accounting standards.

The LLP SORP is changing in response to stakeholder requests for additional guidance, and the revised LLP SORP will be effective for accounting periods beginning on or after 1 July 2024, with early adoption permitted.

How will the revised LLP SORP affect professional firms?

Depending on each firm’s specific circumstances and accounting policies, the revised LLP SORP will have various implications for professional firms. Some of the key effects are:

• The treatment of parent LLPs’ interests in their subsidiaries – considering whether they are interests of the parent itself or of its members (potentially giving rise to non-controlling interests), and providing further guidance on accounting for profit sharing;
• Post-retirement benefits to members – which may fall to be treated as either share-based payments, provisions, insurance contracts or financial instruments, depending on their nature;
• The treatment of profit shares payable to members that do not provide services to the LLP – which may fall to be treated as a return on investment, with amounts subscribed recognised as financial instruments measured at fair value.

What do professional firms need to do to prepare for the revised LLP SORP?

In preparation for the revised LLP SORP, professional firms need to take the following actions:

• For each entity in a group, analyse the rights and obligations in relation to profit shares and capital subscribed to identify potential non-controlling interests and the trigger points for profit to flow through the group;
• Analyse the nature of the obligation for each category of post-retirement benefit – how does the obligation accrue and how is it satisfied?
• Analyse whether the profit entitlements of any non-working members are debt or equity; and whether the current structure best meets business needs;
• Review existing accounting policies and, in the light of the above analysis of rights and obligations, assess whether they are consistent with the revised LLP SORP;
• Identify and quantify any adjustments that may be needed to comply with the revised LLP SORP, and consider the impact on the financial statements.

How we can help

The lead time is short, as the revised LLP SORP will apply to 30 June 2025 year ends and any relevant short periods of account. If your firm is an LLP and you’d like tailored advice to prepare for the changes to the LLP SORP, please get in touch with our professional firms specialists.