NFRA To Identify Risk Parameters Using Data Analytics, Aritificial Intelligence, For Audit Review

To curb possible auditing lapses at the earliest stage, watchdog NFRA is working to identify risk parameters for audit review of companies and their audit firms using data analytics and artificial intelligence. Amid instances of financial misdoings at corporates, the National Financial Reporting Authority (NFRA) is working on ways to ensure that stakeholders concerned get early signals of possible non-compliance.

NFRA Chairperson Ajay Bhushan Prasad Pandey said it has started the exercise to study what can be the risk parameters that can be used for selecting companies and their audit firms for audit review. The regulator, constituted in October 2018, has more than 8,000 listed and other companies under its purview. "The exercise of identifying risk parameters will be an ongoing process and the fixing of criteria for such risk parameters will be dynamic.

Such an approach will also ensure the possibility of some entities gaming the system, if there are fixed risk parameters for a longer period of time, is reduced," Pandey told PTI in an interview. Citing an example, Pandey said that Non-Performing Assets (NPAs) do not come into existence overnight and such things happen over a period of time. So, signals of possible non-compliance need to be identified at the earliest stage.

"There would be different weightages for different risk parameters and we will be using more technology like data analytics and artificial intelligence in this regard," Pandey noted. Besides the internal exercise of identifying the risk parameters, NFRA is also collecting information from different sources, including from other regulators and cases pertaining to fraud, NPAs (Non-Performing Assets) and the insolvency resolution process.

"The purpose of working to identify risk parameters is to ensure that they can also be early warning signals so that the shareholders, regulators, banks, and other stakeholders can take corrective action in time and prevent the companies from going down and protect shareholders and public interest," the NFRA Chairperson said.

The watchdog has been acting against erring auditors and has also come out with various Audit Quality Review (AQR) reports. NFRA's jurisdiction extends to all listed companies as well as large unlisted public companies. It has been set up under Sub Section (1) of section 132 of the Companies Act, 2013. Last month, Corporate Affairs Secretary Rajesh Verma said the government was committed to further strengthening the functioning of NFRA. "The government is continuously focused on further strengthening NFRA and in the process, we are also looking into the recommendations of the Company Law Committee with regard to financial and operational autonomy of NFRA," he had said.

(PTI)