Section 34: Maintenance of Accounts Books, Audit and other books etc.
The Limited Liability Partnership shall maintain that proper account books as may be prescribed of its existence affairs related for each year on the cash basis or accrual basis and as per double entry system as per accounting and the same can be maintained in its registered office that may be prescribed.
Within a six months period from each financial year, every limited liability shall prepare a statement of account and the financial year prescribed for solvency as described financial year date as may be prescribed in such form.
Within the prescribed time every limited liability, the prepared account statement solvency pursuant to sub-section(2) the registrar every year in such manner and accompanies and form accompanied as may be prescribed by such fees.
The audited limited liability partnership accounts in accordance with such rules as may be prescribed.
Provided that the Central Government may, Official gazette notification exempt any class or fro the sub-section requirements of limited liability partnership classes
Any limited liability partnership that fails with the section provisions to comply shall be punishable with the fine which should not less than twenty-five thousand rupees but that may exceed to five lakhs rupees and
Limited liability partnership every designated partner shall be punishable with the fine that shall not be minimum rupees ten thousand but that may exceed to one lakh rupees.
Analysis of Section 34
Section 34 provides an LLP shall maintain such account proper books as may be prescribed relating to the affairs of its existence for each year on basis of cash or basis of accrual and according to the accounting double-entry system and shall maintain the same for such period as its registered office as may be prescribed.
Rule 24(1) of the LLP provides that all LLP shall keep account books that are sufficient to show and the LLP transactions explanation and are such as to:
a, disclose with accuracy that is reasonable, at any time, the LLP financial position at that time and
enable the designated partners to ensure that the Account any Statement and prepared Solvency under this rule prepared complies with the LLP Act requirement.
Further, Rule 24(2) of the rules of LLP provides that the account books shall contain:
an all sums particulars of received money and by the LLP expended and in accordance matters of the expenditure and the receipt take place;
b, the assets record and the LLP liabilities.
c, cost statement of goods purchased, work-in-progress, inventories, goods that are finished and sold the cost of goods and
d, any other particulars may decide the partners.
Rule 24(3) of the rules of LLP stipulates that the accounts books which an LLP is needed to keep shall be preserved for 8 (eight) years from the date on which they are made.
From the above, it may be observed that
these rules apply to every LLP;
every LLP is needed to keep the accounts book that is sufficient to show and explain the transactions of LLP.
the LLP shall maintain its accounts book that is sufficient to show and explain the transactions of LLP.
the LLP shall maintain its account books at its registered office;
the LLP accounts books shall be maintained on double entry accounting system and shall be prepared either on (i) basis of cash or (ii) accrual basis.
such accounts books should disclose, with accuracy reasonable, the financial LLP position at any given point of time;
such accounts books must be kept in such a way so to enable the designated partners to ensure thereof compliance in terms of the LLP Act provisions.
such accounts books contain referred particulars in Rule 24(2) of the Rules of LLP;
partners may decide for particulars additional to be provided in the account books;
such accounts books have to be preserved for a period of 8 (eight) years from the date on which they are made.
Account statement and Solvency:
Section 34(2) provides that all LLP shall, with a 6 months period from each financial year end, prepare an Account Statement and Solvency for the mention financial year as at the last day of the mentioned financial year in such form as may be prescribed and such statement shall be signed by the LLP designated partners.
For instance, if an LLP financial year closes on 31st March 2010, the LLP shall cause to prepare the Account Statement and Solvency for the financial year 2009-10 (1st April 2009 to 31st March 2010) by 30th September 2010.
The Account statement and Solvency has to be prepared by every LLP in the prescribed Form #8.
Further, the disclosures under section 22 provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) may be made as an attachment to Form #8( Refer Annexure 7.1)
The Account statement and Solvency shall be signed by the designated LLP partners. Rule 24(6) of the rules of LLP rules provides that Statement of an LLP’s of Account and Solvency shall be signed on behalf by its designated partners of the LLP.
Further, Rule 24(7) of the rules of LLP provides that the Account Statement and an LLP solvency shall be signed by the LLP designated LLP partners and each designated partner shall be taken its approval to be party unless he shows that he took every designated partner shall be taken to a party to its approval unless he shows that he took every reasonable step to prevent their being signed and approved. This provision reflects a marked shift in the Government approach, which seeks to cast the onus of the Account statement approving and solvency by all the partners designated. If a designated partner has dissent, he needs to know that he took all steps reasonable to prevent their being signed and approved. In any other case, each designated partner shall be a party to be taken to the account statement approval and Solvency.
The requirement of account statement filing and Solvency with the Registrar.
Section 34(3) provides that all LLP shall file within the time prescribed the Account statement and prepared solvency pursuant to Section 34(2) with the Registrar in such form every year and manner and accompanied as may be prescribed by such fees.
The provisions relating to the Account statement filing and Solvency, with the Registrar, apply to every LLP.
Rule 24(4) of the rules of LLP provides for Section 34(3) purposes every LLP shall file the Account Statement and solvency with the Registrar in Form #8, within a thirty-day period from the six months of the financial year end to which the Account statement and relates solvency.
For instance, an LLP if the financial year closes on 31st March 2010, the LLP shall cause to the Account statement to file and Solvency for the financial year 2009-10 (1st April 2009 to 31st March 2010) with the registrar by 30th October 2010, i.e., within 30 days from the 6 months end of the financial year (i.e., within 30 days from September 30th 2010).
Rule 24(5) of the rules of LLP provides that the fees to be paid to the Registrar in section 34(3) pursuance for the Account statement filing and Solvency shall be as mentioned to the LLP rules in Annexure ‘A’.
Section 34(4) of the LLP Act provides that the Central Government may, by notification in the Official Gazette, any class exempt or LLPs classes from this sub-section requirement.
Rule 24(8) of the LLP Rules gives that every LLP accounts shall be audited in accordance with these rules.
Exemption to small-size LLPs.
As per of the first proviso to Rule 24(8), the following LLPs are not needed to get their audited accounts:
Turnover criteria: LLPs whose turnover does not exceed, in any financial year, rs 40,000 (Rupees forty lakhs) or
Contribution criteria: LLPs whose contribution does not extend rs 25,00,000 (Rupees twenty-five lakhs)
It, however, may be noted that the exemption above limits is for the statutory purpose audit of the limited liability partnerships. For the purpose of audit of tax, the Income Tax Act, 1961 provides that all person-
a, carrying on business shall, if his total sales, gross receipts or turnover, as the case may be, in business exceeds or exceed (sixty lakh rupees) in any previous year; or
b, carrying on profession shall if his gross receipts in profession extend (fifteen lakh rupees) in any previous year;
get his such previous year account audited by an accountant before the date specified and furnish by that date of such audit report duly signed in the prescribed form and accountant verified such and such particulars as may be prescribed setting forth.
Accordingly, of income tax for the purpose, a limited liability partnership shall be needed to get audited its account in terms of provisions of Section 44AB of the Income-tax Act, 1961. For taxation of the limited liability partnership, please refer chapter on ‘Limited Liability partnership Taxation’ in this book.
The second proviso to Rule 24(8) of the rules of LLP states that if LLP partners( which is exempted from the audit requirement) decide to get LLP audited such accounts, the accounts shall be audited in accordance with these rules.
The third proviso to Rule 24(8) of the rules of LLP requires that where the partners of such an LLP do not decide for an audit of the LLP accounts, such an LLP shall include in the Statement of Account and Solvency a statement by the partners to the effect that the partners acknowledge their responsibilities with the LLP act requirements for complying and the rules of LLP in accordance to preparation of account of books and a certificate in Form #8.
Rule 24(9) of the rules of LLP prescribes the Auditor qualification who audit. Accordingly, a person shall not be qualified as an auditor of an LLP for appointment unless in practice he is a Chartered Accountant.
Auditor’s appointment for each financial year to be made:
Rule 24(10) of the rules of the LLP prescribes that an auditor or auditors of an LLP shall be appointed for each financial year of the LLP for auditing its accounts.
Designated partners to appoint the auditor:
Rule 24(11) provides that the designated partners may appoint to audit an auditor or auditors.
First financial year:
In the first financial year, the auditor’s appointment who audit has to be made at any time before the end of the first financial year.
Subsequent financial year:
For any subsequent financial years (other than the first financial year), the appointment of an auditor has to be done at least 30 days before each financial year-end. For instance, if the financial year of an LLP closes on the 30th September, then the appointment of an auditor has to be made by the 31st August of that year.
Filing of an auditor of the casual vacancy:
The designated partners may appoint an auditor or auditors to fill a casual vacancy in the auditor office, including in the case when the turnover or an LLP contribution extends the specified limits under sub-rule 8 of Rule 24. This provision suggests that if during any financial year the LLP turnover exceeds rs 40,00,000 (Rupees forty lakh) or, as the case may be, the partner’s contribution exceeds Rs 25,00,000 (Rupees twenty-five lakh), the designated partners shall appoint the LLP auditors. In such a case, the provision of Rule 24(11)(a) shall apply for the first financial year in which the turnover or an LLP contribution exceeds the specified limits.
Filing of casual vacancy of an auditor caused by the removal:
Rule 24(11)(d) provides that the partners designated may appoint auditors or auditor who audits to fill up the vacancy caused by an auditor removal.
Partners in certain cases to appoint auditors:
Rule 24(12) provides that in case the partners designated have failed to appoint the auditor who audits under Rule 24(11), the partners may appoint an auditor or auditor.
Tenure of an auditor of the office:
Rule 24(13) gives that the auditor who audits or an LLP auditor shall hold office in accordance with the terms of their or his appointment and shall continue to hold such office till the period:
the appointed new auditor’s; or
b, they are again appointed.
If the terms of any auditor who audit, of appointment suggest any time for which the auditor shall hold office, the auditor’s term shall come to an end of such time-period on the expiry. In absence of such mentioned time-period as to the tenure of the office of the auditor, Rule 24(13) provides that the auditor existing shall continue to hold the office of the auditor, till the LLP time has either appointed the new auditor(s) and audit for the relevant financial year or reappointed the existing auditor of the financial year. Rule 24(10) requires that the LLP has to re-appoint/appoint for each financial year an auditor. Rule 24(10) requires that the LLP has to appoint/re-appoint an auditor for each financial year. In view of this, the appointment/re-appointment of the auditor(s) for each financial year has to be made.