 "Ajay Bhushan Pandey, Finance secretary")
Ajay Bhushan Pandey, chairperson of the National Financial Reporting Authority (NFRA), on Wednesday said that the agency is working on establishing an innovation lab or sandbox to support auditing techniques.
Pandey said that NFRA is also focusing on encouraging the development and introduction of artificial intelligence (AI) tools for auditing. He added that these tools must be made widely accessible.
He also said that there is a need to enhance the trust in financial and non-financial reporting systems in India.
CA. Ranjeet K. Agarwal, President-ICAI with NFRA Chairman Dr Ajay Bhushan Pandey & others addressing delegates at the Inaugural Session of the Conference on “Financial Reporting & Governance Framework: Building Trust” organized by Confederation of Indian Industry at Mumbai today. pic.twitter.com/LVKUE5knVV
— Institute of Chartered Accountants of India - ICAI (@theicai) March 13, 2024
Speaking at a conference on ‘Financial Reporting & Governance Framework – Building Trust’, organised by the Confederation of Indian Industry (CII) in Mumbai, Bhushan also highlighted that there was a need to build more faith in corporate governance for corporates and all stakeholders.
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“NFRA intends to engage with audit committees and independent directors at the time of inspections to gather perspective as a part of larger efforts to improve audit quality as well as corporate governance,” he said.
Pandey added, “Amid the fourth industrial revolution, the growing use of technology in various facets of audit, ranging from detection of frauds to identification of related-party transactions (RPTs), NFRA is looking at establishing an innovation lab or sandbox to support cutting-edge auditing techniques.”
Notably, a sandbox allows live testing of new products or innovations under the sight of a regulator.
Under it, several stakeholders experiment with rules which lie inside as well as outside the regulatory framework, without impacting its normal working.
Several regulators, including the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (Irdai), are also encouraging the use of regulatory sandboxes.
In 2019, the RBI issued a ‘Draft Enabling Framework for Regulatory Sandbox’ for public comments. This sandbox is aimed at ensuring protection for fintechs to promote their innovations.
Later in the same year, Irdai issued a notification ‘Insurance Regulatory and Development Authority of India (Regulatory Sandbox) Regulations, 2019’ to facilitate innovation in the insurance sector.
The NFRA chief on Wednesday said that “the five lines of defence of financial reporting and sound corporate governance” were management, audit committee and independent directors, auditors, investors and regulators. “All five lines of defence need to be vigilant and work together to build trust,” he said.
Pandey added that the investor community expects auditors to exercise “professional scepticism” and follow the path of “trust but verify.”
He said that Indian audit firms must start “risk-based” pricing for their audits. He also highlighted that there is a need for global convergence on reporting standards.
There must be assurance of high-quality financial and non-financial reporting and corporate governance in the corporate sector, he added.
Speaking at the event, N Venkatram, chairman, CII National Committee on Financial Reporting and partner, Deloitte India said, “The focus on adaptive regulation should be sustained, keeping pace with innovation and technological progress.”
In an interview with Business Standard earlier this month, Pandey said that NFRA would directly engage with auditors as well as companies where it finds issues with financial statements.
