International financial reporting standards (IFRSs) have begun to influence the accounts of UK limited liability partnerships (LLPs), even those that continue to follow UK accounting standards for the preparation of their accounts. Why? Because UK accounting standards are being updated to ‘converge’ with IFRSs and one such convergence issue has been introduced via FRS25: financial instruments disclosure and presentation. This in turn has required a revision of the LLP statement of recommended practice, which provides specific guidance for applying UK accounting standards to LLPs.
The main impact of these rule changes are the requirements, in certain circumstances, to present members’ profit shares as expenses of the business, and balances due to members, either in respect of ‘members’ capital’ or in respect of undistributed profits, as liabilities of the partnership, rather than equity in the partnership. The new presentation applying FRS25 often shows no profits and net assets of nil. So what practical measures can firms take to mitigate potentially adverse reactions to this revised presentation?
