Accounting Standards and Guidance

Statements of Recommended Practice (SORPs)

Accounting by limited liability partnerships (LLPs) 2017

THE APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRACTICE (GAAP) TO LIMITED LIABILITY PARTNERSHIPS

BUSINESS COMBINATIONS AND GROUP ACCOUNTS

Considerations on transition from an existing undertaking (including from a partnership)

113.

Deleted

114.

Both start-up businesses and existing undertakings, including partnerships and limited companies, may choose to incorporate as LLPs. This SORP requires that where there is a transfer of an existing undertaking to an LLP, it should be accounted for using the merger accounting method provided that the transfer meets the definition of a group reconstruction and the conditions of paragraph 19.27 of FRS 102.

115.

Single-entity LLPs that are formed for the purpose of the transfer of existing undertakings or partnerships, which meet the definition of a group reconstruction and the requirements of paragraph 19.27 of FRS 102 should, as noted above use merger accounting for the initial transfer of business, and reflect the transfer of the assets and liabilities at book value.25 They should also disclose comparative pro-forma amounts in the financial statements of the first period after incorporation. Those comparative amounts should be stated on the basis of the accounting policies adopted by the LLP. The initial statutory reporting period may or may not be a 12-month period.

116.

In some cases there may be a hiatus between the formation of the LLP and the transfer of the existing undertaking. Where this occurs, and the merger accounting method is used, the principles of merger accounting are such that the net assets at book values should be reflected in the financial statements at the date of the transfer, and the results should be included for the period from the transfer to the end of the accounting period. A pro-forma profit and loss account (or statement of comprehensive income), including corresponding amounts, should be given for the whole of the original entity's accounting period spanning the transfer. These issues are considered in Appendix 4.

117.

The restatement of comparatives to consistent accounting policies will often result in a difference between the amount reported as attributable to owners by the predecessor undertaking (eg, the total interests of partners in the predecessor firm shown by its final balance sheet), and the members' interests in the opening balance sheet of the LLP. This SORP requires that such differences are not dealt with in the financial statements of the LLP.

117A.

When identifying adjustments to comparatives that may be needed, this SORP requires that an entity should consider:

whether any accounting policies applied by the predecessor undertaking need to be amended because they are not in accordance with FRS 102;

whether any other accounting policies applied by the predecessor undertaking are to be amended voluntarily; and

whether any changes to members' rights arise on transition and, if so, their effects. For example, profit distributions and repayments of capital may have been discretionary for the predecessor undertaking but will be non-discretionary for the LLP. In such a scenario, members' interests previously reported as equity by the predecessor undertaking may be reported as liabilities by the LLP.

118.	The disclosures required by section 19 of FRS 102, SI 2008/1913 schedule 3, 7–16A and SI 2008/1912 schedule 4, part 1, 7–16A will be required.

119.	Existing groups that use merger accounting for a group reconstruction that puts a new LLP at the top of the group should present corresponding amounts in the financial statements of the period of the merger, as required by paragraph 19.30 of FRS 102.

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