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Informist, Tuesday, Jul. 7, 2026

 

--NFRA chief: AI-enabled audit functions at cos must be properly harnessed

--CONTEXT: NFRA Chairman Nitin Gupta's comments at FICCI conference

--NFRA chairman: Challenge culture is missing in co boardrooms, audit panels

--NFRA chief:Promise, risks in AI travel together, maybe risk travels faster

--NFRA chairman: AI makes need for independence culture in co boards urgent

--NFRA chief: Cos must ensure tech improves audit quality, not presentation

--SEBI official: Governance must not get obsolete when new tech comes in

--CONTEXT: SEBI Chief General Manager Dangeti's comments at FICCI conference

--SEBI official: Responsibility for AI doesn't shift from human to machines

 

MUMBAI – The promise and risk of the use of artificial intelligence in auditing and finance functions go together, with the risk possibly outweighing the promise, Nitin Gupta, chairman of National Financial Reporting Authority, said on Tuesday. He was speaking at a conference on navigating AI and regulatory landscape in corporate governance organised by the Indian Chambers of Commerce and Industry in Mumbai. Gupta clarified that his comments were his personal views and not necessarily those of NFRA.

 

The risks of AI use might outweigh the promise "because the same system that can flag an anomaly can also manufacture a plausible sounding but entirely hallucinated explanation for it," Gupta said. AI-led automation can compress days of testing into minutes but it "can also compress days of professional scepticism into a single click of accept," he said. "And when the tools move this fast, the temptation is to assume that oversight can be simply retrofitted later," Gupta said. 

 

On the lack of challenge culture in audit firms, and companies' boards and audit committees, Gupta said in substance, corporate governance "can only be exercised by a mind and a culture that is willing to ask uncomfortable questions." An ideal environment inside a company or an audit firm, according to Gupta, would be one in which asking a difficult question is not just tolerated but expected, and where the most junior official, like the senior most officials, "is as much entitled to say 'I don't understand why we are doing this'." The answer to a challenge is engagement and not defensiveness, he said.

 

The NFRA chairman argued that AI makes the need for this culture more urgent because "these systems are by design extremely good at producing confident, fluent and plausible outputs, (and) that fluency can be mistaken for correctness." A board member on an auditor reviewing an AI assisted analysis could find it harder to exercise scepticism because work products already look finished, polished and authoritative, Gupta said.

 

AI technology brings a huge promise in finance and audit functions, according to Gupta. Illustrating his point, he said AI could widen the net of testing in audits from merely samples to populations, and catch patterns that the human eye could not have done. Properly harnessed, AI is one of the most significant opportunities that the audit profession has seen in generations, Gupta said.

 

But he urged independent directors on company boards and audit committees to be diligent when audit firms use AI technology and data analytics. The focus should be on ensuring that these tools improve the quality of audit evidence and not merely improve the presentation of the work done, he said. To do this, questions need to be asked about how the technology has improved audit coverage, what data has been analysed, what exceptions have been identified, how were those exceptions followed up, and which areas continue to require professional judgment, according to Gupta.

 

Speaking at the same conference, Securities and Exchange Board of India's chief general manager Rajesh Dangeti said companies must develop agile governance frameworks capable of responding to emerging risks without losing sight of the risks that are enduring in nature.

 

"Corporate governance should not become obsolete the moment a new technology is introduced, (instead) it should evolve alongside the innovation," according to Dangeti. He said there were risks of an AI model generating inaccuracy.

 

"An algorithm may unintentionally discriminate. A predictive model may amplify existing biases. A trading algorithm may behave unexpectedly. Generative AI may produce convincing but completely incorrect financial information," Dangeti said. Technology may automate decisions, but not accountability, and that accountability continues to rest with human beings, according to the SEBI official.  End

 

Reported by Rajesh Gajra

Edited by Avishek Dutta

 

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