Stage set for rollout of legally mandated accounting standards for LLPs
November 6, 2023
ICAI issues exposure draft, public comments need to be submitted by Nov 27
CA Institute has released an exposure draft for the proposed accounting standards on limited liability partnerships (LLPs).
Public comments on this exposure draft have to 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 would be notified by the Centre 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 recommended by ICAI.
Till date, the Centre has not legally mandated or specified the accounting standards that need to be adhered to by LLPs.
The latest ICAI’s move to release an exposure draft on accounting 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 presentation of financial statements by such structures.
Supervision enhanced
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 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) is not applicable 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.
Currently, there is no legal requirement that LLPs need to adhere to certain accounting standards. So far accounting standards have been prescribed by the government only under the Companies Act 2013.
Auditors while signing financial statements of LLPs were hitherto required by the CA Institute to ensure conformity with the accounting standards specified under the Companies Act.
Commenting on the ICAI move, Amarjit Chopra, former ICAI President, told businessline that ICAI is looking at LLPs as separate category of semi-corporates and wants to tighten the norms applicable to them.
What is an LLP?
Put simply, an 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 liability of the partners is limited to their agreed contribution in the LLP.
Further, no partner is liable on account of 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 is capable of entering into contracts and holding property in its own name.
[The Hindu Business Line]
