Module: | SEBI LODR & Corporate Governance Frameworks
Q34: Consider the following statements regarding the guidelines for the use of Artificial Intelligence (AI) by statutory auditors issued in late 2025:
1. Audit firms are required to maintain a formal register of all approved AI and machine learning tools utilized in their statutory audit engagements.
2. Inputting sensitive, unredacted client financial data into public, open-source Large Language Models (LLMs) constitutes a breach of professional confidentiality.
3. Auditors are strictly prohibited from using generative AI to draft final audit opinions without substantial, documented human review and professional skepticism.
Which of the above statements is/are correct?
2. Inputting sensitive, unredacted client financial data into public, open-source Large Language Models (LLMs) constitutes a breach of professional confidentiality.
3. Auditors are strictly prohibited from using generative AI to draft final audit opinions without substantial, documented human review and professional skepticism.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; documenting the AI tools used ensures transparency and quality control.
Statement 2 is correct; feeding confidential data into public LLMs violates the core ethical principle of client confidentiality under the Chartered Accountants Act.
Statement 3 is correct; while AI can assist in analysis, the final audit opinion must remain the product of human professional judgment and skepticism.
Historical/Related Context: The rapid proliferation of generative AI tools in 2024 and 2025 led to several instances of data leaks and hallucinated legal precedents globally, prompting the ICAI to issue strict boundaries to protect audit integrity.
Causal Reasoning: An audit opinion is a legal assurance provided to shareholders.
If an AI hallucinates an accounting conclusion and the auditor blindly signs it, the fundamental chain of accountability and trust in capital markets is destroyed.