Artificial intelligence (AI) has seamlessly integrated into our daily lives, driving innovation and decision-making across industries. While its benefits are undeniable, AI also introduces inherent risks that require careful regulation. To address these concerns, the European Union Artificial Intelligence (AI) Act, which officially took effect on August 1, 2024, is being implemented in phases over the next few years. As the world’s first comprehensive AI regulation, it introduces a structured compliance framework for organizations deploying AI. Designed to ensure the ethical and safe deployment of AI systems, the Act introduces a risk-based regulatory framework that categorizes AI applications into four levels: unacceptable risk, high risk, limited risk, and minimal risk. By setting clear compliance obligations, the EU aims to promote innovation while preventing potential harms associated with AI-driven decision-making.

What is Driving Regulators to Introduce the EU AI Act

The rapid adoption of AI across industries has raised concerns about bias, lack of transparency, and ethical misuse. Key drivers for the Act’s implementation include:

Sector-Specific Implications of the EU AI Act

The AI Act primarily affects industries utilizing high-risk AI applications, such as healthcare, financial services, manufacturing, and public administration. Healthcare AI must comply with stringent transparency and accuracy requirements, while financial services must ensure fairness in risk assessments and credit scoring. In manufacturing and supply chains, AI-powered automation must adhere to privacy and reliability standards. AI in HR technology and recruitment requires bias detection mechanisms to ensure fairness. Meanwhile, public sector applications, including facial recognition, face strict regulatory oversight to protect fundamental rights and public safety.

How the EU AI Act is Transforming Audit and Assurance

As AI regulations tighten, the role of audit and assurance providers in ensuring compliance becomes critical. While the Act does not explicitly mandate external audits and independent assessments for high-risk AI applications, it requires conformity assessments, which in some cases can be conducted internally. However, for certain AI systems, third-party evaluations are expected to become a widely adopted compliance practice, creating new responsibilities for auditors and assurance professionals.

1. AI Governance and Compliance Audits

Assurance providers will need to develop specialized AI governance frameworks to assess:

• • Algorithmic transparency: Ensuring AI models operate as intended without hidden biases.
  • Data integrity: Verifying that AI training datasets comply with GDPR and sector-specific privacy laws.
  • Explainability and documentation: Auditors will have to evaluate how AI decisions are logged and explained to stakeholders.

2. Risk Assessments for High-Risk AI Systems

Under the AI Act, high-risk AI applications (such as those in financial services, healthcare, and recruitment) require regular risk assessments. Assurance providers must:

• • Develop standardized risk assessment models for AI validation.
  • Conduct bias audits to prevent discriminatory outcomes.
  • Provide continuous monitoring solutions to track AI performance over time.

3. Integration with Existing Regulatory Frameworks

The AI Act overlaps with existing compliance frameworks, including:

• • GDPR (data privacy and protection).
  • EU financial regulations (for AI in financial services).
  • ISO standards for AI risk management.

Audit firms must integrate AI governance into existing regulatory assurance processes, ensuring a harmonized compliance approach.

4. Ethical and Responsible AI Auditing

Auditors will increasingly serve as ethical AI advisors, guiding organizations on:

• • AI fairness and bias mitigation strategies.
  • Responsible AI development and deployment.
  • Transparency measures to build public trust.

5. Upskilling Audit Professionals for AI Assurance

Given the technical complexity of AI systems, audit firms must invest in AI expertise. Key areas include:

• • AI model validation techniques.
  • Advanced data analytics for AI risk assessment.
  • Legal and regulatory knowledge of AI governance.

KNAV Comments

Audit is built on compliance and integrity, and as AI reshapes industries, auditors must evolve alongside it. The EU AI Act is more than just a regulatory framework—it sets the stage for a new era of AI governance, where accountability, fairness, and transparency are essential. To stay competitive, auditors must not only adapt but lead the charge in AI compliance.

While the Act introduces new regulatory obligations, it also presents opportunities for assurance providers to enhance their expertise. By developing specialized AI audit frameworks, integrating robust risk assessments, and upskilling their teams, auditors can help organizations navigate AI regulations effectively, ensuring compliance while fostering responsible innovation.