NFRA board meet to weigh global audit standards for LLPs, may align with company norms: Source

Currently, LLPs are governed by the LLP Act, 2008

The National Financial Reporting Authority (NFRA) is expected to consider applying company audit standards to limited liability partnerships (LLPs) at its board meeting on November 25. The regulatory body recently revised the audit and quality management standards for companies to align them with global benchmarks, and it is now weighing similar updates for LLPs, which are governed by less stringent regulatory frameworks, sources said.

“On November 25, the NFRA board is set to deliberate on the LLP audit standards, with a structured proposal on the table. The board will likely reach a final decision regarding the LLP audit norms, which will then be recommended to the Ministry of Corporate Affairs (MCA). LLPs may have revised standards like the 40 Standards on Auditing proposed for companies,” an official told Moneycontrol.

If adopted, these standards would extend company audit requirements to LLPs, especially larger ones, possibly including specific benchmarks for turnover or capital contribution to determine applicability. Sources indicate that the NFRA board could consider the implementation of Standards on Quality Management and Standards on Auditing 600 (SA 600) in line with international standards, which address the responsibilities of the group auditor under global standard ISA 600, for LLPs that meet designated thresholds.

“The ICAI, which previously opposed revising corporate auditing standards to meet international norms, is reportedly open to such standards being extended to LLPs, with exception to SA 600,” the source added.

LLPs are governed by the LLP Act, 2008, which imposes comparatively lighter compliance requirements than the Companies Act. Given the rise of LLPs in critical sectors and a growing preference for registering businesses as LLPs, the NFRA sees a need for bolstered transparency and accountability. "Introducing these standards could provide improved investor protection and align the audit environment for LLPs more closely with global practices," the source noted.

The board’s decision could affect a wide spectrum of LLPs, particularly large and economically significant entities. This meeting follows a two-day NFRA session held on November 11-12, where standards for companies, including SA 600 and quality management, were updated to reflect international standards.

The NFRA board consists of 11 members, including representatives from the Comptroller and Auditor General of India, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (Sebi), the Institute of Chartered Accountants of India (ICAI), two independent experts, two full-time NFRA members, and the NFRA chairperson.