ICAI Phase II: New Financial Statement Format Mandatory for All LLPs from FY 2026-27
From April 1, 2026, all LLPs and non-corporate entities—regardless of turnover—must prepare financial statements per ICAI Guidance Notes. Phase II removes the ₹5 crore threshold. Here's what LLP partners need to know for FY 2026-27 compliance and Form 8 filing.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: ICAI Accounting Standards)-certification) Board (ASB) Guidance Note on Financial Statements of Limited Liability Partnerships (LLP) and Guidance Note on Financial Statements of Non-Corporate Entities — Phase II effective: April 1, 2026. Source: ICAI Council 451st Meeting (March 30–31, 2026), https://www.icai.org/post/asb-announ-310326. Last reviewed by CA Harun Raaj: August 2026.
Phase II Removes All Turnover Thresholds
The Accounting Standards Board (ASB) of ICAI confirmed at its 451st Council meeting (March 30–31, 2026) that Phase II of the phased rollout of two guidance notes took effect from April 1, 2026.
The two instruments are:
- Guidance Note on Financial Statements of Limited Liability Partnerships (LLPs)
- Guidance Note on Financial Statements of Non-Corporate Entities (partnership firms, sole proprietorships, HUFs, charitable trusts)
These guidance notes prescribe a structured accounting framework for entities not governed by the Companies Act 2013. Phase I (from April 1, 2025) applied only to entities with turnover exceeding ₹5 crore. Phase II removes that threshold. From FY 2026-27 onwards, every LLP and non-corporate entity—regardless of size—must comply.
Compliance Timeline and Affected Entities
Concrete example: An LLP with two partners and ₹18 lakh annual revenue, previously exempt under Phase I, must now prepare a full Balance Sheet and Profit & Loss statement in the ICAI format, disclosing partner transactions separately, and adopting accrual-basis accounting from FY 2026-27.
What the Guidance Notes Require
For LLPs, the guidance note mandates the following financial statement structure:
- Balance Sheet: Partners' capital accounts (current and capital accounts shown separately), secured and unsecured loans, current liabilities, fixed assets (tangible and intangible), investments, and current assets
- Statement of Profit and Loss: Revenue from operations, operating expenses, depreciation, finance costs, exceptional items
- Notes to Accounts: Related-party transactions (particularly partner transactions and remuneration), contingent liabilities, details of secured borrowings, accounting policies, and disclosure of partner-to-partner credits and advances
- Cash Flow Statement: Required above a threshold specified in the full guidance note (verify from icai.org for exact limit)
For non-corporate entities, the guidance note provides an accrual-accounting framework: entities with a profit motive use Profit and Loss format; those without use an Income and Expenditure statement.
Form 8 Filing and Audit Implications
LLPs file Form 8 (Statement of Account and Solvency) under Rule 24 of the LLP Rules 2009 within 30 days from the end of the first six months of the financial year. For March 31 year-end LLPs, the deadline is October 30, 2026 for FY 2026-27.
Financial statements attached to Form 8 must now follow the ICAI guidance note format. Two critical consequences:
- Audit reporting: If your LLP has a statutory auditor (mandatory for LLPs with turnover exceeding ₹40 lakh or contribution exceeding ₹25 lakh), the auditor must report departures from the guidance note under SA 700 (Forming an Opinion and Reporting on Financial Statements). Material departures trigger a modified opinion under SA 705.
- ROC interaction: Accounts not meeting ICAI standards may invite Registrar of Companies (ROC) queries on the attached financial statements, delaying approval and creating compliance friction.
Key point: Even LLPs without a statutory audit obligation must prepare Form 8 attachments in the ICAI guidance note format; non-compliance risks ROC scrutiny and audit qualification.
Practical Steps for LLP Partners
- Transition accounting basis (if currently on cash basis) to accrual basis for FY 2026-27. This is mandatory for compliance.
- Restructure the Balance Sheet and P&L templates to match the guidance note structure. Using a cash accounting template will not suffice.
- Segregate partner transactions (loans, advances, remuneration) and prepare detailed notes on related parties.
- Engage a CA to assist with accounts preparation and transition planning. Even if audit is not mandatory, a CA's role in compliance has become more essential.
- Verify statutory audit thresholds under Rule 24 LLP Rules 2009 for your entity's turnover and contribution. If you exceed ₹40 lakh turnover or ₹25 lakh contribution, appoint an auditor and ensure they are briefed on Phase II compliance.
- File Form 8 by the October 30 deadline with accounts in the new format. Late filing invites penalties and ROC follow-up.
What Auditors Must Do
A CA auditing an LLP for FY 2026-27 is responsible for:
- Confirming financial statements are prepared per the ICAI Guidance Note on Financial Statements of LLPs
- Reporting any material departure in the audit report under SA 700
- Considering whether a modified opinion under SA 705 is warranted if non-compliance is not corrected
- Ensuring all required notes disclosures (partner transactions, contingencies, accounting policies) are present and complete
An auditor who signs accounts that do not comply with Phase II guidance — now that the phase is in effect — risks a reportable lapse in ICAI quality review.
If your LLP is preparing accounts for the first time under Phase II, or transitioning from Phase I, professional guidance is not optional — it is essential to avoid audit qualification, ROC query, and potential penalty.
I'm CA Harun Raaj, Visakhapatnam. If your LLP is navigating the Phase II transition or needs help with Form 8 compliance for FY 2026-27, reach out — I can assist with accounts preparation, audit, and ROC filing strategy.
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See Also
Frequently Asked Questions
Does Phase II apply to my small LLP with turnover below ₹5 crore?+
Yes. Phase II removed all turnover thresholds effective April 1, 2026. Every LLP—regardless of size—must prepare financial statements per the ICAI Guidance Note on Financial Statements of LLPs from FY 2026-27 onwards. A two-partner LLP with ₹18 lakh revenue is now in scope.
When must I file Form 8 with the new ICAI format for FY 2026-27?+
Form 8 must be filed within 30 days from the end of the first six months of the financial year. For a March 31 year-end, the deadline is October 30, 2026. Financial statements attached to Form 8 must follow the ICAI guidance note format.
Is my LLP required to switch from cash-basis to accrual-basis accounting?+
The ICAI guidance note prescribes accrual-basis accounting. If your LLP is currently on a cash basis, you must transition to accrual basis for FY 2026-27 to comply with Phase II.
What happens if my LLP's auditor reports non-compliance with the ICAI guidance note?+
A material departure from the guidance note must be reported under SA 700. If the departure is not corrected, the auditor may issue a modified opinion under SA 705. This creates friction with the ROC and signals control weakness in financial reporting.
Does my LLP need a statutory audit if turnover is below ₹40 lakh?+
Under Rule 24 of the LLP Rules 2009, statutory audit is mandatory if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. Below these thresholds, audit is not mandatory. However, whether audited or not, financial statements must be prepared in the ICAI guidance note format for Form 8 filing.
How should partner remuneration and advances be shown in the new format?+
The guidance note standardises the presentation of partners' capital accounts and profit appropriation. Remuneration is disclosed separately in the notes to accounts under related-party transactions. The computation method remains governed by the LLP Agreement and Income Tax Act—the guidance note changes disclosure and presentation, not calculation.
What should a small LLP do if it has been preparing simple cash-basis accounts so far?+
Engage a CA to assist with the transition to accrual-basis accounting and reformat prior year comparatives for FY 2026-27 accounts. Restructure Balance Sheet and P&L templates to match the guidance note structure. Even if statutory audit is not mandatory, professional guidance on transition is essential to avoid ROC query and audit qualification.
If I filed Form 8 for FY 2025-26 without the guidance note format, am I at risk?+
If your LLP's FY 2025-26 turnover was below ₹5 crore, Phase I did not apply and the guidance note was not mandatory. FY 2026-27 is your first year of mandatory Phase II compliance. No retrospective action is expected for FY 2025-26, but ensure full compliance from FY 2026-27 onwards.
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