NFRA moves to extend company audit rules to limited liability partnerships
New Delhi, Nov 25, 2024
Experts noted that while specific standards on auditing exist for companies, such standards are yet to be notified for LLPs
The National Financial Reporting Authority (NFRA) on Monday recommended that the auditing standards proposed for companies be made applicable to limited liability partnerships (LLPs) as well, according to a press statement.
The decision to make these recommendations to the Ministry of Corporate Affairs was made during its 19th board meeting.
“The authority decided to recommend the 40 standards on auditing (SA) and related standards on quality management, which were finalised by the authority in its 18th meeting held on November 11-12, 2024 for the audit of companies, to be applicable to the audit of LLPs on a mutatis mutandis basis,” the press statement said.
While all board members, including the Reserve Bank of India, Comptroller and Auditor General of India, and the Institute of Chartered Accountants of India (ICAI), supported all the proposals, ICAI shared its reservations about three, including SA 600, SA 800, and standards on quality management. The institute had opposed these proposals with respect to companies in the last board meeting of NFRA as well.
The proposals relate to group and joint audits. ICAI is concerned that these could lead to a concentration of work in the hands of a few large firms and duplication of work.
NFRA’s press statement said, “Upon the approval of the central government, these standards are recommended to be effective from April 1, 2026.”
Currently, the auditor of an LLP is required to conduct the audit and issue the auditor’s report in accordance with the auditing standards issued by the Auditing & Assurance Standards Board of ICAI.
In August 2021, Parliament passed the Limited Liability Partnership (Amendment) Bill to encourage the startup ecosystem and further boost the ease of doing business by converting offences into civil defaults and changing the nature of punishment from fines to monetary penalties.
The amended Act 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.
LLPs are often a preferred form of entity since they provide an alternative corporate business form that 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’, LLPs are called a hybrid of a company and a partnership.
Experts said that while there are specific standards on auditing for companies, such standards are yet to be notified for LLPs.
[The Business Standard]
