Accounting – the New LLP SORP

The Consultative Committee of Accountancy Bodies (CCAB) has recently issued a revised Statement of Recommended Practice (SORP) on Accounting by LLPs. It takes effect for accounting periods beginning on or after 1 January 2010 and will have the following impact:

• Some balances that previously would have been classified as debt will now be classified as members’ capital (although for most professional practices there will be no change); and
• In some cases, members’ profit shares will be treated as a charge to the profit and loss account rather than as appropriations.

How will this work in practice?

For the majority of legal practice LLPs whose members provide services to the LLP and who receive a profit share in return, their capital will be presented in the financial statements as a liability.  In most cases this is merely a continuation of the way members’ capital has always been reported unless the LLP has an unconditional right to refuse to repay it to the members.  Similarly, in most cases members’ allocation of profit for the year will continue to be shown as a charge to the profit and loss account.

What might change?

Where members’ remuneration is not directly attributed to the services they provide, members’ capital may need to be shown as equity and any remuneration as an allocation of profit.  This could be the case where an LLP introduces a corporate member whose remuneration is linked to the amount of capital subscribed.