National Financial Reporting Authority (NFRA), the country’s sole independent audit regulator, on Monday finalised and decided to recommend to the Central government to notify the auditing standards that would be applicable for Limited Liability Partnerships (LLPs).
It has decided to recommend the 40 Standards on Auditing (SAs) and related Standards on Quality Management (SQM), which were finalised by the authority in its 18th meeting held on 11-12 November 2024, to be applicable to audit of LLPs on a mutatis mutandis basis.
Out of 8 members of NFRA attending the Monday meeting, 7 members—the representatives of CAG, RBI, two independent experts Prof Narayanswamy, Retired Professor IIM Bangalore, Professor Sanjay Kallapur, Professor ISB, Hyderabad, two full-time members of NFRA and chairperson of NFRA— were in support of the proposal.
The ICAI members also supported the proposals (president, ICAI attended, and chairman, ASB and chairman AASB conveyed views vide email) except for their reservations to SQMs, SA 299, SA 600 and SA 800, 810, 805, as expressed by them earlier in respect of the SAs and SQMs finalised in the last meeting and which were reiterated in respect of the proposal under consideration for the audit of LLPs.
Upon the approval of the Centre , these standards are recommended to be effective from April 2026.
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.
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 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.
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.