Applicability of Audit of LLP

As per section 34(4) of LLP act, 2008, accounts of LLP are required to be audited,
If the total turnover of LLP in any financial year exceeds Rs. 40 lakh, or

the total contribution exceeds Rs. 25 Lakhs, or

in any case, the partners so decide.

Here my query is...

Whether contribution as per MCA records / LLP Agreement ?

Or balance of capital(Fixed and current)as per books ?

Whether contribution means the amount mentioned in the LLP deed at the time of forming LLP or it means the balance of fixed capital and current capital as on the date of the year end?

Some practical (funny) issues:

1) Since profit (loss) for the year is transferred to partners' capital accounts the balance of the capital account may be negative, even though total contribution as per LLP deed might be exceeding Rs. 25 lakhs.

2) If two separate accounts are maintained for fixed capital / contribution and current accounts, the balance of current accounts might be exceeding Rs. 25 Lakhs, even though the balance of fixed capital / contribution might be less than 25 lakhs.

3) Sometimes, there are loan accounts of partners as well.

The intention of the legislature appears to be the total balance of capital accounts (fixed + current).

Kindly go through above and help in solving the query.

Great question! The applicability of audit for LLPs under Section 34(4) of the LLP Act, 2008 hinges on “total contribution” and “turnover.”

Let me clarify the issue around “contribution” as per your query:

📌 What does “Contribution” mean for LLP audit applicability?

Official Position & Practical Interpretation

Contribution as per LLP Agreement (MCA Records)
- The LLP Agreement and MCA filings record the initial and subsequent contributions made by partners at formation or later capital infusion.
- This is the committed capital amount each partner has promised to contribute.
Capital Account Balances in Books (Fixed + Current Capital)
- This reflects the actual net amount in the books of LLP including:
  - Initial contribution
  - Profit or loss transferred to partners’ capital accounts
  - Drawings
  - Additional contributions if any
- The capital accounts can fluctuate and even become negative due to losses or withdrawals.

⚖️ Which to consider for audit applicability?

Legislative intent and practical interpretation suggest the total contribution means the aggregate of contributions as per LLP Agreement and MCA filings (i.e., committed capital), not the net capital account balance which fluctuates.
This interpretation is consistent because:
- The “contribution” is about the capital commitment from partners, i.e., what has been agreed upon and recorded with the Registrar.
- The audit threshold is intended to capture the size of the LLP’s capital base, not the temporary accounting fluctuations like losses or drawings.

🧐 Addressing Your Practical Issues:

Issue	Clarification
1) Negative capital balance	Ignore fluctuations due to profit/loss in capital accounts. Consider committed capital.
2) Separate fixed/current capital accounts	Combine these amounts only if both relate to partners’ contribution per LLP deed/MCA.
3) Loan accounts of partners	Partner loans are not treated as contribution. They are liabilities, not capital.

📋 Summary

Parameter	Use for Audit Applicability?
Contribution in LLP deed / MCA filings	✔ Yes — this is the basis
Capital account balances (net of P&L)	✖ No — fluctuations ignored
Partner loans	✖ No — not contribution
Total turnover	✔ Yes — as per financial statements

💡 Practical Tip

To determine audit applicability, check the contribution figure as per LLP agreement or MCA Form 2 filings (which shows partners’ capital contribution).
Ignore temporary accounting effects like losses or drawings in capital accounts.
Document your rationale in the audit working papers.