Plans afoot to put LLPs and cos on par in accounting
Nov 12, 2024
Synopsis
The Indian government is considering implementing new accounting standards for large limited liability partnerships (LLPs) to enhance transparency and accountability. These standards, aligned with those for companies, aim to improve financial disclosures and attract more investors to LLPs.
The government will likely put in place fresh accounting standards for limited liability partnerships (LLPs), especially large ones with annual turnover exceeding Rs 250 crore, to bring the norms closer to those applicable to companies and foster greater transparency and accountability, said people aware of the development.
“Proposals are being deliberated on to extend the Indian Accounting Standards, which are currently applicable to only companies, to certain categories of LLPs as well, albeit with suitable modifications and exemptions,” said one of the persons, who did not wish to be identified.
This could lead to greater and timely disclosures for LLPs on their financial performance and cash flows, apart from taking these practices closer to global standards. The move is expected to also bolster stakeholders’ trust in LLPs, which may eventually draw more investors into them, the people said.
Details have been worked out by the National Financial Reporting Authority (NFRA) and the Institute of Chartered Accountants of India (ICAI). These would be considered and notified by the corporate affairs ministry, the person said.
The new accounting standards could follow the amendments to the LLP Act and the Companies Act that the ministry is planning to introduce in the winter session of Parliament, starting November 25, said another person.
The large partnership firms, called level-1 LLPs, would be subject to greater disclosures than others. There have been discussions to merge the other three levels of LLPs for the purpose of compliance with accounting standards, said the people.
Level-1 LLPs would be those whose turnover (excluding other income) and borrowing exceeded Rs 250 crore and Rs 50 crore, respectively, in the preceding financial year.
India added a record 58,990 LLPs in 2023-24 and another 38,482 until October this fiscal, as investors remained bullish over the country’s robust economic growth prospects over the medium-to-long term.
The spurt in LLP numbers in recent years has also led to calls for them to adopt better accounting standards.
Currently, three sets of accounting standards are prevalent in India. The Companies (Accounting Standards) Rules, 2021, and Companies (Indian Accounting Standards) Rules, 2015, for companies are prescribed by the government, while the accounting standards for non-corporate entities like LLPs are issued by the ICAI.
However, section 34A of the LLP Act now prescribes that the government may, in consultation with the NFRA, prescribe the standards of accounting as recommended by the ICAI for a class or classes of LLPs.
Accordingly, the ICAI had floated an exposure draft on accounting standards for LLPs in October last year for stakeholder comments. Subsequently, both the ICAI and NFRA have held talks for finalising the recommendations.
Separately, the NFRA has convened a meeting on November 25 to firm up audit standards for LLPs.
[The Economic Times]
