The Institute of Chartered Accountants of India (ICAI) issued exposure drafts of 35 Standards on Auditing (SAs) which are proposed to be made applicable for audits of limited liability partnerships (LLPs) in India. This move comes after section 34A was introduced in the Limited Liability Partnership Act 2008 which allows the central government to prescribe auditing standards for LLPs as recommended by the ICAI.
Currently, the SAs issued by the ICAI and notified by the National Financial Reporting Authority (NFRA) under section 143(10) of the Companies Act 2013 are applicable for audits of companies. The ICAI is of the view that the same Standards may be made applicable to LLP audits as well.
Key Highlights
The exposure drafts issued are essentially the text of the existing SAs (numbered SA 200 onwards) with minimal changes to replace references to “company” with “LLP”. The list covers all 35 Indian Auditing Standards related to general principles, risk assessment and response, audit evidence, documentation, reporting etc. Some of the key SAs covered are:
i) SA 220 – Quality Control for an Audit
ii) SA 240 – Auditor’s Responsibilities Relating to Fraud
iii) SA 260 – Communication with Those Charged with Governance
iv) SA 299 – Joint Audit of Financial Statements
v) SA 570 – Going Concern
vi) SA 700 – Forming an Opinion and Reporting on Financial Statements
Invitation to Provide Comments
The ICAI has invited comments from stakeholders on the exposure drafts latest by January 6, 2024. Comments can be submitted electronically through a web form, by email to the AASB Secretariat or by post.
The comments received will be considered by the Auditing and Assurance Standards Board (AASB) of ICAI to finalize the SAs before recommending them to the government for notification and applicability to LLP audits.
Analysis and Implications
The proposal to make India’s robust Standards on Auditing applicable for LLP audits is a welcome move. Though LLPs are not as common as companies, the number of registered LLPs crossed 2 lakhs in 2021-22 highlighting their growing adoption.
Prescribing similar auditing standards ensures consistency in audit quality and alignment with global best practices. It enhances the credibility of financial information reported by LLPs which is relevant to various stakeholders like tax authorities, banks and creditors.
Making only minimal changes to align the text with LLP terminology preserves the technical rigour of the standards while facilitating their applicability for LLP audits.
Overall, this initiative reinforces ICAI’s thought leadership and commitment to developing auditing standards suitable for emerging forms of business entities. It signifies continued evolution of India’s audit regulation framework.
Conclusion
The exposure drafts intend to plug a regulatory gap wherein no auditing standards were prescribed under law for LLP audits even though the LLP Act contains audit provisions. If notified after the consultation process, the Standards on Auditing will empower auditors with clear benchmarks to conduct high quality LLP audits on par with company audits. This will boost confidence in reported LLP financial information for public interest.
ICAI Announcement dated 22/11/2023: Exposure Drafts of Standards on Auditing for Limited Liability Partnerships