NFRA To Complete 10 Audit Firm Inspections In FY26, Exploring AI To Boost Oversight

(MENAFN- Live Mint)

NEW DELHI: The National Financial Reporting Authority (NFRA) is exploring the use of artificial intelligence (AI) in overseeing statutory audits and plans to complete inspections of ten audit firms in the current financial year, the highest in its seven-year history, said chairperson Nitin Gupta in his first media interview since taking charge last July.

Gupta said NFRA is taking“baby steps" in testing AI, which could later be deployed on a larger scale.“The idea is to expedite the overall workflow and make it more efficient."

The move would enable the regulator to analyse more financial statements on critical accounting policies, questionable transactions, and auditors' professionalism in a fast-moving economy.

This financial year, NFRA aims to inspect ten audit firms, up from six in FY25, said Gupta who previously served as the chairperson of the Central Board of Direct Taxes (CBDT).

Also Read | ICAI vs NFRA: Two audit standards, one decision on group aud

Earlier inspections covered 12 firms, including Deloitte Haskins & Sells LLP, Price Waterhouse Chartered Accountants LLP, Lodha & Co., BSR & Co., SRBC & Co., and Walker Chandiok & Co. LLP, with reports published between December 2023 and March 2025. Inspection reports are not disciplinary orders and do not entail penalties.

NFRA inspections focus on areas with inherent risks of material misstatement, such as related party transactions, impairment of non-financial assets, and internal controls over revenue recognition.

Through inspections, NFRA monitors compliance with auditing standards, evaluates audit quality, and offers suggestions for improvement. It also allows the regulator to assess whether the audit firms' structure and processes are independent and are compliant with the Companies Act and the audit quality rules besides checking whether the firm has maintained the required audit documentation. The deficiencies flagged by the watchdog enable auditors to correct their processes. Since the inspection reports are made public, it offers insights for all the audit firms in the country to address gaps in their operations.

Queries emailed to the audit firms on Monday seeking comments for the story remained unanswered till press time.

AI-driven audit oversight

Experts said leveraging AI will help in audit oversight.

“Leveraging AI-driven tools enhances oversight of statutory audits in India by enabling rapid extraction of financial data from diverse formats, deeper analysis of complex disclosures, automated validation of accounting standards and regulatory requirements, consistent identification of non-compliance, irregular patterns, better assessment of audit quality and proactive fraud detection," said Keshav Sehgal, partner, Ashok Maheshwary & Associates LLP, Chartered Accountants.

Also Read | NFRA pushes for stronger auditor-audit committee coordination in compan

“Overall, AI -driven oversight supports stronger regulatory supervision, improved transparency, and greater confidence in India's audit framework," said Sehgal.

NFRA recently tied up with IndiaAI, an initiative of ministry of electronics and information technology, to develop AI capabilities with private sector participation. It is a“smart, proactive step toward modernizing audit oversight in India," said Sehgal.

Capacity building and new standards

A part of NFRA's regulatory work will be on capacity building and advocacy, Gupta said. This is expected to step up quality of auditors' professional service and in turn, reduce the need for stringent enforcement actions, especially on small auditors.

Gupta said that the regulator will hold a workshop in February in Kolkata to sensitise the professional community of auditors about the level of compliance expected from them. NFRA last year held three such workshops in Hyderabad, Indore and Bangalore, which the Chairperson said were“widely received."

“All our efforts are conceived from the perspective of improving the quality of statutory audit," explained Gupta, adding that capacity building was an essential part of it.

Gupta added the regulator will bring more guidance tools for auditors and audit committees in companies, led by independent directors, to effectively communicate with each other on crucial aspects of audits.

Also Read | Audit watchdog NFRA highlights firms' weaknesses, areas for improvem

At a meeting on 22 December, NFRA approved a new reporting format under accounting standard Ind AS 118 dealing with 'presentation and disclosure in financial statements,' which corresponds to International Financial Reporting Standard (IFRS ) 18, that prescribes a new format for presentation of financial statements.

The new template for financial statements will seek to provide investors with a clearer picture of what's driving profits and where the money goes. The new format will require businesses to show all income and expenses in three defined groups: operating, which deals with the core business activities; investing activities dealing with returns or losses; and financing, which deals with items like interest paid or received, Mint reported on 1 August 2025, when ICAI cleared it before sending it to NFRA.

This standard will now be sent to the ministry of corporate affairs for notification, said Gupta.

MENAFN26012026007365015876ID1110650307