The National Financial Reporting Authority (NFRA) released its first comprehensive guidance on technology adoption in audits on Friday, establishing a principles-based framework for artificial intelligence, generative AI, and agentic AI in statutory audits. According to reports from Business Standard, this marks the audit regulator's first systematic approach to addressing the growing use of automated tools and data analytics in auditing processes.
NFRA emphasized that technology cannot replace professional judgement, scepticism, or auditor accountability in its guidance titled 'General Principles for Technology Adoption in Audit'. As reported by Business Standard, the authority stated that the responsibility for audit opinions remains with the auditor irrespective of the sophistication of tools used, and auditors cannot invoke technology tools to explain away inappropriate conclusions. This position was reinforced by NFRA Chairperson Nitin Gupta, who confirmed that NFRA has "started our process" in the Rajesh Exports matter, emphasizing that technology may assist decision-making but cannot replace fiduciary responsibility.
The regulator highlighted significant risks associated with technology adoption, particularly automation bias - the tendency to accept plausible-looking results with less challenge than human-prepared equivalents. According to Business Standard, NFRA warned that fluent and well-presented machine output is likely to invite automation bias, requiring engagement teams and reviewers to consciously counter this tendency. The guidance stresses that audit firms must establish formal processes for tool validation, monitoring, and re-approval when technology use is material to the audit approach.
NFRA stressed that audit firms cannot rely on vendor terms of service or tool convenience as substitutes for their own responsibility to protect client and personal information. As reported by Business Standard, the authority emphasized that firms must strengthen data protection safeguards and maintain transparent documentation of technology-assisted audit work. The guidance requires quality control measures to treat technology as a resource whose risks are identified and addressed before deployment, with auditors monitoring tool performance throughout its working life.
Jaspreet Bedi, Senior Partner – Audit & Assurance at Nangia & Co LLP, noted that NFRA has ensured accountability remains human while sending a clear signal that AI cannot serve as a convenient alibi for weak judgments or deficient audits. According to Business Standard, the guidance acknowledges that while technology provides genuine gains in audit efficiency, it introduces risks including automation bias, opaque outputs, model drift, data privacy exposure, and the risk that reliance on technology may narrow rather than deepen professional scepticism. NFRA Chairperson Nitin Gupta used the wider governance debate to underline the importance of board independence, particularly in promoter-driven companies, emphasizing that corporate environments should encourage difficult questions and that even junior officials should feel entitled to raise them.
