The Institute of Chartered Accountants of India (ICAI) has recently unveiled a draft aimed at establishing auditing standards for limited liability partnerships (LLPs), aligning their accountability and transparency with that of traditional companies. This initiative comes in response to the rapid growth of LLPs across the nation, signaling a significant regulatory shift in the auditing landscape.

Enhancing Accountability for LLPs

Industry experts view these proposed standards as crucial for enhancing regulatory oversight of LLPs, which have become increasingly popular due to their simpler compliance requirements. Presently, LLPs are not bound to adhere to specific accounting and auditing guidelines, leading to concerns about their financial transparency. Moreover, LLPs are currently exempt from the Auditor’s Report Order (CARO), which outlines mandatory audit report formats for companies.

Key Features of the Draft

The draft includes vital amendments reflecting recent developments in auditing standards, alongside new terminology tailored for LLPs. For the first time, the Standards on Auditing (SAs) will be formally recognized under the LLP Act of 2008. The legislation, specifically Section 34A of the LLP Act, empowers the central government to implement auditing standards as per ICAI’s recommendations, following consultations with the National Financial Reporting Authority (NFRA).

• Recent Recommendations: Last November, the NFRA proposed a suite of auditing standards intended to enhance the accountability of LLPs. This included a recommendation for 40 auditing standards and related quality management standards (SQMs) that were recently finalized for companies, making them applicable to LLP audits as well.

The Rise of LLPs in India

The Ministry of Corporate Affairs (MCA) has actively sought to define accounting norms for LLPs, particularly in light of their skyrocketing registrations. The appeal of LLPs lies in their lower compliance burden compared to traditional companies.

• Registration Surge: March 2025 witnessed a record 8,723 LLP registrations, marking a staggering 62% increase compared to March 2024. In fiscal year 2024, LLP registrations soared to 58,990, a 63% rise from the previous year’s 36,249 registrations.

The draft standards are currently open for public feedback until May 1, inviting stakeholders to contribute to shaping the future framework for auditing LLPs in India. This move marks a pivotal step towards establishing a more regulated environment for LLPs, ensuring greater accountability and transparency in the sector.

As the landscape of limited liability partnerships continues to evolve, these new auditing standards will play a critical role in fostering trust and integrity within the business community.