What are the Requirements for Appointing Auditors in an LLP?

The Limited Liability Partnership (LLP) structure in India offers the flexibility of a partnership while providing limited liability protection to its partners. While compliance requirements for LLPs are relatively lighter compared to companies, appointing an auditor is an important responsibility that LLPs must comply with under specific circumstances.

This article provides a comprehensive guide on the requirements for appointing auditors in an LLP, who needs to appoint, when to appoint, eligibility criteria for auditors, and the procedural steps involved.

1. Understanding Audit Applicability for LLPs

Not all LLPs are mandatorily required to appoint auditors. The requirement depends on the financial threshold of the LLP.

As per the LLP Act, 2008 and relevant notifications:

• If an LLP’s annual turnover exceeds Rs. 40 lakh OR its contribution exceeds Rs. 25 lakh, an audit of its accounts is mandatory.
• If an LLP does not cross these thresholds, the audit is not compulsory unless the partners voluntarily decide to get the accounts audited.

This exemption makes the LLP structure particularly attractive to small businesses and startups.

2. Who Can Be Appointed as an Auditor for LLP?

Only a Chartered Accountant (CA) in practice is eligible to be appointed as the auditor of an LLP.

Eligibility criteria:

• Must be a practicing Chartered Accountant holding a Certificate of Practice (COP).
• Audit firms where all partners are CAs are also eligible.
• Auditors should not be disqualified under Section 141 of the Companies Act, 2013, as applicable to LLPs.

3. When Should an Auditor be Appointed?

The timeline for the appointment of an auditor depends on the age of the LLP and whether the audit requirement is applicable.

• For newly incorporated LLPs: The first auditor should be appointed by the partners any time before the end of the first financial year if the audit is applicable.
• For existing LLPs that newly cross the audit threshold: The auditor should be appointed before the due date of filing Form 8 (Statement of Accounts & Solvency) which is 30th October of each financial year.

4. Process of Appointing an Auditor in an LLP

Here is the step-by-step process for appointing an auditor in an LLP:

Step 1: Assess Audit Applicability

• Review the LLP’s financials: Check if the turnover exceeds Rs. 40 lakh or contribution exceeds Rs. 25 lakh.

Step 2: Partner’s Meeting

• Call a meeting of partners as per the LLP agreement.
• Pass a resolution for the appointment of the auditor.

Step 3: Issue Appointment Letter

• Issue a formal appointment letter to the auditor mentioning the scope of the audit, audit period, and professional fees.

Step 4: Obtain Consent and Eligibility Certificate

• The auditor must provide a consent letter and a certificate confirming eligibility under the applicable laws.

Step 5: Intimate ROC (optional)

• While there is no separate form to intimate the Registrar of Companies (ROC) about the appointment of an auditor in an LLP, the auditor’s name and details are disclosed in Form 8.

5. Key Documents Involved in Auditor Appointment

• Partner's resolution for appointment.
• Appointment letter issued to auditor.
• Consent letter from auditor.
• Eligibility certificate from auditor.
• Form 8 disclosing auditor details (filed annually).

6. Audit Reporting Requirements

The appointed auditor will:

• Conduct the audit as per applicable standards.
• Prepare the Audit Report.
• Provide the audited financial statements and audit report to the LLP partners.
• The audited financials are filed with ROC through Form 8.

7. Penalty for Non-Compliance

Non-compliance with audit requirements can attract penalties:

• If an LLP fails to file Form 8 or files incorrect details, the LLP and its designated partners are liable to pay a penalty of Rs. 100 per day till compliance is met.
• Continued failure to comply with audit requirements may lead to stricter actions under the LLP Act.

8. Points to Keep in Mind

• Audit requirements are applicable each year — hence, assess applicability annually.
• Appointment of the auditor is a collective responsibility of the partners.
• Ensure the appointment and audit are completed well before filing deadlines.
• Only registered practicing CAs should be appointed.

9. Voluntary Appointment of Auditors

Even if your LLP is below the audit threshold, you may voluntarily appoint an auditor. Voluntary audits are useful for:

• Improving credibility with banks and investors.
• Strengthening internal financial discipline.
• Preparing for future growth.

11. Conclusion

Appointing an auditor is an important compliance step for LLPs that cross the prescribed thresholds. LLP partners must be proactive in assessing applicability, appointing a qualified auditor, and ensuring timely audit and filing of returns.

At TAXAJ, we assist LLPs in end-to-end compliance services, including auditor appointment, preparation of resolutions, and ROC filings. If your LLP needs assistance with audit compliance, contact our team today.

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