Hazlewoods are pleased to announce a six-part series on current topics of financial business interest, entitled Legal Focus. This week, we will be releasing a daily guide produced specifically for the legal sector.
On 15 July 2014 the Consultative Committee of Accountancy Bodies (CCAB) published a new version of its statement of recommended practice (SORP) on accounting for limited liability partnerships (LLPs).
The new SORP, which is effective for accounting periods commencing on or after 1 January 2015, has been updated to remove all references to old UK generally accepted accounting practice (UK GAAP) and takes account of the introduction of financial reporting standard 102 – The financial reporting standard applicable in the UK and Republic of Ireland.
It applies to all LLPs incorporated in the UK that prepare their accounts under either FRS102 or the FRSSE. It does not apply to LLPs that have adopted international financial reporting standards (IFRS).
That’s a lot of acronyms – what does this mean for LLPs?
Well first of all, FRS102 is a brand new accounting standard, which replaces all of the current FRSs and SSAPs.
It is a single standard with 35 sections, covering the various different items previously dealt with in separate standards, and is a mere 342 pages long, compared to the 3,000 or so pages of current UK GAAP. Most large and medium sized UK entities will need to apply FRS102 when they prepare their accounts in future.
FRS102 will introduce a number of changes to financial statements, including:
- Requiring more intangible assets to be recognised separately from goodwill when there is a business combination. These could include values on things like brands and client lists.
- A presumption that the useful life of goodwill and intangible assets (the write off period) is no more than five years, unless a reliable estimate can be made.
- Changes to the formats (and titles) of the Profit & Loss Account and Balance Sheet, such as introducing a Statement of Financial Position, a Statement of Comprehensive Income and a Statement of Changes in Equity.
- Changes to the accounting treatments available on reconstructions and mergers.
In short, the new SORP explains how FRS102 will impact on an LLP’s accounts. As a result, there are changes to the presentation and disclosures required for members’ remuneration on the face of the P&L Account (or Statement of Comprehensive Income), considerable changes to the classification of items appearing on the LLP’s cash flow statement, and changes to the treatment of members’ retirement benefits.
The SORP also gives guidance on the use of merger accounting on conversion from partnership to LLP and in the event of business combinations or group reconstruction, and requires additional disclosures of remuneration to key management personnel, including employees.
This release has been prepared as a guide to topics of current financial business interests. Hazlewoods strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by Hazlewoods.