NFRA tests AI use as audit inspections hit record high
Jan 27, 2026
The National Financial Reporting Authority (NFRA) is exploring the use of artificial intelligence (AI) in overseeing statutory audits and plans to complete inspections of 10 audit firms this fiscal year, the highest in its seven-year history, said chairperson Nitin Gupta in his first media interview since taking charge last July.
Gupta said the audit oversight agency is taking “baby steps” in testing AI that could later be deployed on a larger scale.
“The idea is to expedite overall workflow and make it more efficient,” he said.
The move would help the regulator analyse more financial statements on critical accounting policies, questionable transactions, and auditors’ professionalism in a fast-moving economy.
This fiscal year, NFRA aims to inspect 10 audit firms, up from six in FY25, said Gupta, who had earlier headed the Central Board of Direct Taxes.
Earlier inspections had covered 12 firms, including Deloitte Haskins & Sells, Price Waterhouse Chartered Accountants LLP, Lodha & Co., BSR & Co., SRBC & Co., and Walker Chandiok & Co., with reports published between December 2023 and March 2025. Inspection reports are not disciplinary orders and don’t 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.
The regulator assesses whether the auditors’ structure and cesses are independent and are compliant with the Companies Act and quality rules, besides documentation.
The deficiencies flagged enable auditors to correct their processes.
Since the reports are made public, it offers insights for all audit firms to address their gaps.
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 norms and regulatory requirements, consistent identification of non-compliance, irregular patterns, better assessment of audit quality and proactive fraud detection,” said Keshav Sehgal, partner at Ashok Maheshwary & Associates LLP, Chartered Accountants.
NFRA has tied up with Indi-AAI, an initiative of ministry of electronics and information technology, to develop AI capabilities. It is a proactive step toward modernizing audit oversight in India, said Sehgal.
On 22 December, NFRA cleared a new reporting format under Ind AS 118, which corresponds to International Financial Reporting Standard (IFRS) 18 that prescribes a new financial statement format.
This format will be sent to the corporate affairs ministry for notification, Gupta said.
[The Hindustan Times]
