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Proposed auditing standards for LLPs: CA Institute seeks public comments by January 6

After taking steps towards framing accounting standards for Limited Liability Partnerships (LLPs), the CA Institute has now released an exposure draft for the proposed auditing standards on LLPs.

The CA Institute’s Auditing and Assurance Standards Board (AASB), which has issued the exposure draft, has invited public comments by January 6, sources said.

The Limited Liability Partnership Act 2008 prescribes that the Centre may, in consultation with the National Financial Reporting Authority (NFRA), prescribe the auditing standards as recommended by ICAI.

In the latest exposure draft, the CA Institute’s AASB said that all the 35 auditing standards recommended in the case of corporates should apply “mutatis mutandis” to the audit of LLPs.

Till date, the Centre has not legally mandated or specified the accounting standards or auditing standards that need to be adhered to by LLPs.

The latest ICAI move to release an exposure draft on auditing standards for LLPs comes at the behest of the government, which has been taking several measures to tighten the regulatory framework around LLPs.

It also comes on the heels of the CA Institute issuing a recommendatory format for presenting financial statements by such structures.

The government recently enhanced its supervision over LLPs, requiring them to become more transparent and declare the “beneficial interest” holders, if any, on the contributions of their Partners.

Over the last few years, there has been an increased preference to set up LLPs due to several advantages, including lower compliance for such structures.

LLP formation has boomed because company disclosures have become more stringent, and moreover CARO (Auditor report order) does not apply to LLPs, implying lesser questioning from auditors, said experts.

Between April 2022 till September 2023, about 64,000 LLPs have been incorporated in the country.

WHAT IS A LLP?

Put simply, a LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.

The LLP is a separate legal entity and is liable to the full extent of its assets, but the liability of the partners is limited to their agreed contribution to the LLP.

Further, no partner is liable for the independent or unauthorised actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

The LLP can continue its existence irrespective of changes in partners. It can enter into contracts and hold property in its own name.

CA Institute has released an exposure draft for the proposed Limited Liability Partnerships (LLPs) accounting standards.

Public comments on this exposure draft must be submitted by November 27, the Institute of Chartered Accountants of India (ICAI) has said.

The idea is to recommend a dedicated set of accounting standards for LLPs that the Centre would notify in consultation with the National Financial Reporting Authority (NFRA), sources familiar with the developments said.

The objective is to specify the mandatory accounting standards for LLPs in line with the LLP Act 2008.

Currently, the LLP Act 2008 prescribes that the Centre, in consultation with NFRA, would specify the accounting standards for LLPs as ICAI recommends.

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