NFRA likely to propose audit norms for LLPs at Nov 25 board meeting

The National Financial Reporting Authority (NFRA) has called a meeting of its board members on November 25 to discuss the audit standards for limited liability partnerships (LLPs), according to official sources.

 

The meeting will be attended by representatives of the Institute of Chartered Accountants of India (ICAI), which had earlier drafted a Guidance Note on financial statements of LLPs.

 

This meeting would follow the two-day board meeting being held on Monday and Tuesday to get the views of the members on its proposed revisions to the Standards on Auditing 600 (SA 600) to match the international standards (ISA 600). 

 

The accounts of every LLP are audited in accordance with Rule 24 of LLP, Rules 2009.

 

These rules provide that any LLP, whose turnover does not exceed, in any financial year, Rs 40 lakh, or whose contribution does not exceed Rs 25 lakh, is not required to get its accounts audited. 

 

However, if the partners of such LLPs decide to get their accounts audited, the accounts shall be audited only in accordance with such rule. 

 

LLPs are often a preferred form of entity since they provide an alternative corporate business form. It gives the benefits of limited liability of a company and the flexibility of a partnership. 

 

Since LLPs contain elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’, they are called a hybrid of a company and a partnership.

 

Experts said while there are specific standards on auditing for companies, such standards are yet to be notified for LLPs. 

 

NFRA, along with ICAI, would recommend the audit guidelines of LLPs to the Ministry of Corporate Affairs (MCA), which would then notify them.  

 

Currently, the auditor of an LLP is required to conduct the audit and issue the auditors’ report in accordance with the auditing standards issued by the Auditing & Assurance Standards Board of ICAI.

 

In August 2021, Parliament had passed the Limited Liability Partnership (Amendment) Bill to encourage the startup ecosystem and further boost ease of doing business by converting offences into civil defaults, and the nature of punishment provided in the said sections from fines to monetary penalties. 

 

The amended Act had inserted a new Section 34A to empower the central government, in consultation with NFRA, to prescribe "Accounting Standards" or "Auditing Standards" for a class or classes of LLPs.

 

The regulator is also expected to make recommendations to the MCA on the changes in around 35 standards of audit, including the ISA 600, based on the views of members. The standards would then be notified by the ministry.