Is Audit mandatory for LLP?

Introduction 

According to the Corporate Affairs Ministry, Limited Liability Partnership has gained a remarkable popularity as recently LLP registration increased almost 8% year-on-year in India. LLPs offer a freedom of a partnership with the benefits of limited liability. While performing compliances for LLP with various legal and financial requirements many owners face several problems. Especially when it comes to file audits for LLP. This blog will cover the Account Audit requirement for the LLP.

What is an Account Audit?

An Account Audit refers to the study of the books of account to reconfirm if the data is accurate or not. In order to conduct an audit of a LLP, they should hire an auditor. The audit of a company's financial statement aims to let the auditor express his/her perspective. 

In simple terms, an audit is a study of the financial report of the organization. An audit is required to check if the documents and reports of the company are accurate and valid. To conduct an audit the auditor has to refer to various books of accounts, bills, vouchers, etc. However, LLPs are required to conduct an audit on specific matters unlike companies, where audit is mandatory regardless of company size. 

Is Account Audit Mandatory for LLP? 

No, an account audit is not always mandatory for limited liability partnership. There are certain criteria only to which audit is mandatory for an llp and that threshold should be met otherwise certain forms such as Form 11 and Form 8 are to be submitted by LLP. If the criteria of an LLP does not fall in these categories, it is not mandatory to get its account audited. It reduces the compliance burden for small businesses and startup companies. The criteria in which an audit is mandatory for LLP is as follow: 

1. Turnover Exceeds ₹40 lakh: If the turnover of a limited liability partnership company outdo Rs. 40 lakh in any financial year then an audit of the financial statement becomes mandatory. 

OR

1. Capital Contribution exceeds ₹25 lakh: Also, if the capital contribution of a LLP exceeds Rs. 25 lakh any time in a financial year then an audit for the financial year becomes mandatory. 

Account Audits are not compulsory for LLPs if they do not exceed the limit of turnover and capital contribution. However, if LLP wants to get its accounts audited, the audit will be conducted as per LLP Rules i.e, by Practicing CA. If audit by practicing CA is not required and hence not done, the accounts shall contain a statement by partners that the partners acknowledge their responsibilities of requirements of rules relating to accounting records and preparation of accounts. 

What is the due date of the Account Audit of LLP?

In order to complete an account audit there are two different forms: Form 8 & Form 11.

The due date to file these forms are different. The due date to file form 11 for FY 2023-24 is 30th May of 2025 whereas the due date to file form 8 for FY is 30th october of 2025. 

Fee & Penalty Structure of Form 8 & 11

Account audit is not a mandatory audit until the limit of turnover exceeds ₹40 lakh and capital contribution ₹25 lakh. In order to complete an account audit of llp, there is a certain fee one needs to pay to file form 8 & 11. However, in case of delay there are certain penalty structure one need to know: 

Fee Structure for form 8 & 11:

Penalty Structure for form 8 & 11: 

Importance of an Audit in LLP Compliances 

An audit is not compulsory for small and startup companies but conducting for audit can help you in improving the overall financial compliances. Following are the importance of audit in LLP Compliances: 

• Financial Standing: It provides a company’s financial health and helps in avoiding potential risk, inability or disparity of a company. It is usually required by the banks for loans.

• Credibility: It helps in increasing the credibility of the company. Also it helps in attracting investors to raise funds and obtaining loans. 

• Smooth future compliances: Once you complete the audit of your company, it helps you in further compliance. It makes it easy to comply with other regulations.

Conclusion 

Audit is a process in which books of accounts are Vetted. The LLP needs to hire a Chartered Accountant to conduct the audit. The audit of accounts is compulsory for LLPs with a turnover of ₹40 lakh or a capital grant of ₹25 lakh or more. LLPs that fall into these categories are required to conduct audits. 

Frequently Asked Questions 

• What do you mean by Account Audit?

An Account Audit refers to the survey of the books of accounts of a company for the financial year. 

• What is the purpose of an audit?

The purpose of an audit is to check if the financial statement of the company is authentic. 

• Is Audit mandatory for LLP?

No, an audit is not always mandatory for LLPs if the turnover doesn’t exceed ₹40 lakh or capital contribution doesn’t exceed ₹25 lakh. 

• Why is an audit important?

An Audit is important as it increases the credibility and helps in smooth future compliances.