Published On: Oct 10, 2019 • Last Updated: Oct 10, 2019 • 4.6 min read •
Limited Liability Partnership (LLP) is a corporate structure combining features of company and partnership firm. LLP registration enables a separate legal structure and is liable to the full extent of its assets but the partners are liable to the extent of their agreed contribution in LLP. Partners are not liable for each other’s misconduct or negligence. Also, they have the right to manage the business directly.
One of the necessary requirements is to have an LLP auditor for auditing the books of accounts. Auditors play an important role that helps to determine the financial position of the business during a particular financial year and to ensure that all the statutory compliances have been fulfilled during the year.
Audit of LLP:
It can be of 2 types- (i) Audit as per LLP Act, 2008 ; (ii) Tax audit as per Income Tax Act, 1961
1. Audit as per LLP Act, 2008–
LLP audit is mandatory where the turnover exceeds ₹40 lakhs in a financial year OR where the contribution exceeds ₹25 lakhs in a financial year. The Auditor of LLP must be a Chartered Accountant in practice. Auditor is appointed every year at least 30 days before the end of Financial year (except for the first financial year where auditor can be appointed anytime before the end of financial year). Audit of LLP under the Act is done in accordance with Rule 24 of LLP, Rules 2009.
2. Audit as per Income Tax Act, 1961–
LLP audit is mandatory where the turnover exceeds ₹1 crore in case of business while ₹50 lakhs in case of profession. In this case, LLP is required to file income tax return in ITR-5 on or before 30th September of the assessment year.
Role of Auditors in LLP
An auditor audits the financial statements of LLP to express an opinion that the financial statements for the period under audit provide a true and fair view and that the users of financial statements can rely on these statements. So, LLP auditor conducts audit keeping in mind the applicable Accounting Standards and Audit Standards in the following manner:
Understand the business environment of LLP and acquire knowledge about the accounting policies and internal control procedures adopted by it.
Establish the expected degree of reliance that can be placed on the internal controls.
Decide and discuss the audit procedures to be followed by the audit team and co-ordinate the work to be performed.
Conduct fieldwork that involves –
vouching of business transactions,
verification of assets and liabilities,
checking of various ledgers,
checking of various compliances like compliances under LLP Act; income tax compliances; GST compliances; etc.,
conducting procedures like sampling and ratio analysis,
checking internal audit report of LLP [internal audit is the audit conducted within the organization for understanding the loopholes and improving them]
referring the previous year’s audit report for comparison of various aspects,
performing procedures like external verification [for verification of balances from third parties] or management representation [for obtaining evidence that management understands it’s responsibility towards the presentation of true financial statements and approves the same]
Form an opinion on the true and fair view of the financial statements audited.
Report all the necessary disclosures in the audit report [format of audit report depends on the type of audit – tax audit under the Income Tax Act, 1961 or statutory audit under the LLP Act, 2008].
conducting the audit, LLP auditor has to pay attention to the following
Obtain sufficient and appropriate audit evidences for the material transactions;
Consider the risk of fraud and error in the financial statements;
Consider the internal controls in LLP;
Evaluate appropriateness of accounting policies used and reasonableness of accounting estimates made by the management;
Evaluate overall presentation of the financial statements.
Below is a sample format/specimen that an LLP auditor can use for providing audit opinion and reporting other legal matters in the audit report:
LLP Auditor has to conduct the audit with due care and any negligence on part of the Auditor comes across as professional misconduct. The auditor will be held guilty of professional misconduct if one fails to provide sufficient evidence that he/ she conducted the audit with due care and without negligence. Action by ICAI [The Institute of Chartered Accountants of India] will be initiated in this case.
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About the Author
CA Saba Naaz
CA in practice, Partner at S. Saraf & Associates, Gurugram, also a blogger at indiantaxhub.blogspot.com. I am passionate about sharing knowledge by writing articles for students and professionals both. I deal in income tax, GST, corporate compliances, audit and accountancy.