NFRA Says AI Cannot Replace Auditor's Judgment, Warns Against Automation Bias

Technology cannot be expected to exercise professional scepticism on the auditor’s behalf. While it can inform their professional judgement, auditors cannot invoke tech tools to explain an inappropriate conclusion, the National Financial Reporting Authority (NFRA) said on Friday. 
 
In its first paper on “Staff Series on Technology in Audit,” NFRA laid down a principles-based framework for the adoption and governance of technology, including artificial intelligence (AI), generative AI, and agentic AI in statutory audits.
 
“The responsibility for the audit opinion remains with the auditor irrespective of the sophistication of the tools used,” NFRA said in its paper titled General Principles for Technology Adoption in Audit. 

The guidance comes amid increasing use of automated tools and data analytics in audits, intended to ensure that technology enhances audit quality without undermining professional scepticism or auditor accountability.
 
“Fluent and well-presented machine output is likely to invite automation bias, which is the tendency to accept plausible-looking results with less challenge than a human-prepared equivalent would receive. Engagement teams and reviewers must consciously counter this tendency,” NFRA highlighted.

The financial reporting authority stressed that adopting technology requires auditors and audit firms to make identifiable changes to how they govern quality, document work, train staff, and monitor performance. 

The regulator said that the audit firms should establish formal processes for tool validation, monitoring and re-approval, strengthen data protection safeguards, and maintain transparent documentation of technology-assisted audit work. “Where technology use is material to the audit approach, the auditor needs to be able to explain such use.” 
 
NFRA said that an audit firm should have quality control measures to treat technology as a resource whose risks are identified and addressed before deployment. The paper added that auditors must monitor the tool’s performance throughout its working life and re-approve it when warranted, rather than relying indefinitely on an initial approval. CA Sansaar