NFRA recommends revised audit standards for LLPs, ICAI objects to some changes

New Delhi: The National Financial Reporting Authority (NFRA) on Monday recommended audit standards for limited liability partnerships (LLPs), although the accounting and auditing self-regulator Institute of Chartered Accountants of India (ICAI) expressed reservations about some of the proposals, the ministry of corporate affairs said in a statement.

The ministry said in the statement about NFRA's Monday meeting that these standards will be effective from 1 April 2026 upon the Union government's approval. 

The proposed standards are similar to those already recommended by NFRA for companies. NFRA had earlier this month recommended revised audit standards for companies to be notified, with changes to some of the standards issued by ICAI, despite objections from the accountants' body to some of the changes, Mint reported on 12 November. 

Also read |  NFRA’s revised norms could lead to audit market concentration: ICAI

ICAI’s concern is that the proposed revisions in the audit standard for consolidated financial statements of business groups could lead to concentration of the audit market around big audit firms at the expense of other auditors, Mint reported on 14 November. Audit concentration refers to a big chunk of the audit market going to the top audit firms, a trend seen in economies like the US and the UK.

NFRA, formed in 2018, has taken the lead in revising the audit standards and getting them notified as government rules under the Companies Act, a requirement that was written into the law in 2013.

The new Companies Act of 2013 requires audit standards of ICAI to be notified as government’s rules in consultation with and after recommendations by NFRA.

Forty auditing standards

The ministry said that NFRA on Monday decided to recommend the 40 auditing standards and related standards on quality control, which were finalised by NFRA at its two-day meeting earlier this month for audit of companies, to be applicable to audit of LLPs too, with the needed changes. 

NFRA has a 12-member board out of which three are from ICAI. Out of eight members of NFRA attending the meeting, seven, including representatives of Comptroller and Auditor General of India (CAG), RBI, two independent experts, two full-time members of NFRA and Chairperson Ajay Bhushan Pandey were in support of the proposal, the statement said. 

Also read |  NFRA Board revises all audit standards despite ICAI dissent

The statement said that ICAI members also “supported the proposals except for their reservations” to standards on quality control and audit standards dealing with group financial statements (SA 600), joint audits (SA 299), financial statements prepared under special frameworks (SA800), single financial statements and account items (SA 805) and summary financial statements (SA 810). 

These reservations, the statement said, were as expressed by them earlier about company audit and quality management standards finalized in the last meeting and which were reiterated on Monday in the case of audit of LLPs.

Queries emailed to ICAI seeking comments for the story remained unanswered at the time of publishing.  

Also read |  Govt prepares to notify new audit standards