65+ FAQs on ICAI Guidance Note for LLP Financial Statements

A. Meaning and Purpose of Guidance Note for Financial Statements of LLPs

1. What is an LLP and which law governs it in India?

A Limited Liability Partnership (LLP) is a body corporate formed and incorporated under the Limited Liability Partnership Act, 2008. It is a separate legal entity, distinct from its partners, combining the features of both a company and a partnership.

2. Why is an LLP considered a hybrid structure?

An LLP provides the limited liability protection of a company along with the flexibility of a partnership firm, making it a hybrid of both structures.

3. What are the annual compliance requirements for an LLP? Every LLP must:

• •  Maintain annual accounts that give a true and fair view of its financial position.
  • File a Statement of Accounts and Solvency with the Registrar each year in the prescribed form.

4. Why has ICAI issued a separate Guidance Note for LLPs?

Because LLPs are a hybrid between companies and partnerships. Their ownership, capital contribution, and reporting requirements differ from both companies (Schedule III) and traditional partnerships. Hence, ICAI provided a dedicated structure for LLPs by way of issuing a separate Guidance Note (GN).

5. What is the overall objective of this Guidance Note?

To bring uniformity, enhance comparability, and improve the quality of financial reporting in LLPs while aligning with Accounting Standards (AS). The Guidance Note, issued by the Accounting Standards Board of ICAI, aims to standardise the formats of financial statements for LLPs. Its purpose is to ensure consistent presentation, while improving the quality and comprehensiveness of financial reporting by these entities.

6. Does the Guidance Note override the LLP Act, 2008?

No. If the LLP Act or any regulator prescribes a specific format, those requirements take precedence. The Guidance Note applies only in the absence of a statutory format.

B. Scope, Applicability, and Audit Requirements for LLPs

7. Which entities are covered by the Guidance Note?

All Limited Liability Partnerships (LLPs) registered under the LLP Act, 2008 are covered.

8. Does the Guidance Note apply to foreign LLPs operating in India?

Yes, it applies to foreign LLPs preparing financial statements under Indian GAAP, provided they are not subject to any specific regulator-mandated format.

9. Is the guidance note applicable to LLPs under liquidation?

If financials are prepared for reporting, this GN should be followed to the extent practicable.

10. From when is the ICAI Guidance Note on financial statements of LLPs compliance mandatory in FY 2024-25?

The Guidance Notes on financial statements of LLPs and Non-Corporate Entities, issued by ICAI, are effective for periods beginning on or after April 1, 2024. However, for the reporting period 2024-25, compliance has been kept voluntary to provide members time to align their systems and practices. From subsequent periods, adoption will become mandatory.

11. Are all LLPs required to get their accounts audited? No. Under the LLP Act, 2008 and Rule 24 of the LLP Rules, 2009, audit of LLP accounts is mandatory only if:

• •  The turnover exceeds Rs.40 lakh in any financial year, or
  • The contribution exceeds Rs.25 lakh.

If an LLP falls below these limits, audit is not compulsory unless the partners voluntarily decide to have one. When an audit is required, the auditor must conduct it in line with the Auditing Standards issued by ICAI. Additionally, if the LLP is subject to tax audit under the Income-tax Act, 1961, the auditor must also issue a tax audit report as per the relevant provisions and ICAI’s Guidance Note on Tax Audit.

• •  Financial Statement Structure of LLPs

12. What is a complete set of Financial Statements (FS) under LLP GN?

• •  Balance Sheet
  • Statement of Profit & Loss
  • Cash Flow Statement (mandatory for large LLPs, optional for smaller ones)
  • Notes, other statements and explanatory material that are an integral part of the financial statements.

13. What is the primary objective of LLP financial statements?

Financial statements of an LLP must present a true and fair view of its financial position and performance while complying with applicable Accounting Standards. This aligns with Schedule III requirements for companies, which also emphasize a true and fair view and compliance with accounting standards.

14. Are LLPs required to follow a standard format for Balance Sheet and Statement of Profit and Loss?

Yes, LLPs must follow the prescribed formats for Balance Sheet and Statement of Profit and Loss. Modifications can be made if required by Accounting Standards or specific statutory requirements, similar to Schedule III for companies which allows additional disclosures for clarity or compliance.

15. How should notes to accounts be presented in LLP financial statements?

Notes should provide narrative descriptions, disaggregated information, and details of items not recognized in the statements.

Each line item in the Balance Sheet or P&L must be cross-referenced to the notes. This is similar to Schedule III, where notes to accounts complement the face of financial statements and provide additional details for transparency.

16. How should rounding of figures be handled in LLP financial statements?

• For LLPs with total income less than Rs.100 crore, figures in the financial statements may be rounded to the nearest hundreds, thousands, lakhs, or millions.
• For LLPs with total income Rs.100 crore or more, figures may be rounded to the nearest lakhs, millions, or crores.
• Once a unit of measurement is selected, it must be applied consistently throughout the financial statements, similar to the uniform rounding approach under Schedule III for companies

17. Are comparative figures required in LLP financial statements?

Yes, except for the first financial statements, comparative figures for all items, including notes, must be presented. This mirrors Schedule III, which requires comparative figures for the previous period.

18. How are assets classified in LLPs?

• •  Current assets: Expected to be realized within operating cycle or 12 months, held for trading, or cash/cash equivalents.
  • Non-current assets: Assets that do not meet the criteria for current classification. This treatment is consistent with the approach under Schedule III for companies.

19. How are liabilities classified in LLPs?

• • Current liabilities: Expected to be settled within operating cycle or 12 months, held for trading, or payable without unconditional deferral rights.
  • Non-current liabilities: Liabilities that do not qualify as current. This classification follows the same principles as under Schedule III for companies.

20. What details should be disclosed for partners’ funds?

• •  Opening balance, contributions, remuneration, interest, withdrawals, share of profit/loss, and closing balance.
  • Agreed contribution should also be disclosed.

21. How should LLPs disclose reserves and surplus?

• • Classified as Capital Reserves, Revaluation Reserve, Other Reserves, and Undistributed Surplus.
  •  Negative P&L balances shown under Undistributed Surplus. Companies under Schedule III also require classification into reserves and surplus, but “Undistributed Surplus” terminology is specific to LLPs.

22. What disclosures are required for borrowings in LLPs?

• • Long-term and short-term borrowings: Classification into term loans, loans from related parties, finance lease obligations, deferred payment liabilities etc.
  •  Must indicate secured/unsecured status, security, and guarantees.

23. How should trade payables and receivables be presented in LLPs?

• Trade receivables: Secured, unsecured, doubtful; overdue for more than 6 months separately disclosed.
•  Trade payables: Particulars related to MSME suppliers must be disclosed per MSME Development Act.

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