NFRA sets up advisory panel on audit quality, AI and technology risks

Nine-member committee will advise NFRA on AI, automation and cybersecurity risks, audit standards, technology environments and areas warranting sectoral focus

The National Financial Reporting Authority (NFRA) on Friday constituted an advisory committee on 'audit quality, assurance and technology' to look into the risks and practical implementation issues arising from the use of data analytics, automation, artificial intelligence and machine learning in the conduct of audits among various other audit quality related matters.

 

The nine-member Committee comprises professionals, CFOs, Audit Committees, Technology Experts including Shyamala Gopinath-Ex-Deputy Governor, Reserve Bank of India & Independent Director, Bharat Goenka-CFO, Hindalco Industries,  M P Vijay Kumar, Executive Director & CFO, Sify Technologies, Sanjeev Sood, Chief Assurance Executive, Axis Max Life Insurance and  Robin Banerjee- Chairman, Nucleon Research Pvt. Ltd among others.

 

 

This is the third such Committee set up by NFRA, the first being the Technical Advisory Committee, which was constituted in 2020 and whose term ended in December 2022.

 

In July 2024, NFRA had constituted an Advisory Group of eminent experts to advise on Auditor-Audit Committee resources.

 

The committee would give its advice and inputs to NFRA on identification of audit areas, sectors and emerging risks that may warrant thematic or sectoral focus. It would make suggestions on cybersecurity and cloud-related risks affecting audit platforms, the integrity and confidentiality of audit documentation, and the security of client data.

 

The advisory panel would also give recommendations on implementation and consistent application of the Standards on Auditing, the Standards on Quality Control and Quality Management, related assurance and review standards, and the applicable ethical requirements, including questions arising from their adoption in practice.

 

The audit implications of audited entities’ technology environments, including enterprise resource planning (ERP) systems, automated and application controls, application programming interfaces (APIs), system logs, digital-payment systems, blockchain are among areas that the committee would look into as well.

 

A parliamentary committee in a recent report tabled in the monsoon session said that NFRA should undertake sectoral studies to identify industry-specific accounting and audit challenges and, where necessary, develop sector-specific accounting guidance for key sectors such as oil, energy, and insurance, with a view to strengthening transparency, enhancing investor confidence, and improving the overall effectiveness of audit regulation and supervision.

 

The government has taken various steps to strengthen NFRA in the Corporate Laws (Amendment) Bill aiming to bring the regulator on a par with other regulators such as Sebi, Competition Commission of India and Insolvency and Bankruptcy Board of India.

 

The provisions in the Bill for instance, empower NFRA to make its regulations that govern its functioning and delegate its powers and functions to any of its members or officers. The latter is meant to create a division of functions within NFRA with respect to investigation and disciplinary action.