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Blockchain Promises Accountants, Auditors and Their Clients Better Data Sooner And Cheaper


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By Michael Scott

While blockchain tech is poised to disrupt a wide variety of industries, it is also poised to dramatically impact those professions that serve all industries.

One area that appears primed for massive change is the accounting field. Here, the ability of blockchains to provide a live, indelible record of financial transactions could allow accountants to execute real-time audits of banks’ capital and risk positions, mitigating the need for manual, time-intensive audit processes.

This accounting-blockchain convergence shows great promise for boosting fiscal accuracy, reducing fraud and improving data transparency, among other benefits. Moreover, it could virtually eliminate the need for bookkeepers, auditors and other third parties, creating greater economies of scale and efficiencies within the business and financial worlds.

These impacts are particularly relevant to the auditing subspecialization — a service predicated on trust and critical to protecting shareholders and investors. But as a few news-making scandals have demonstrated, manipulation and bias can still leak in, adversely impacting the integrity of the auditing process.

Currently, private auditors involved in verifying the accuracy of financial statements can be caught in a conflict of interest: the act of collecting fees from clients that they are simultaneously conducting audits on. This practice is problematic on two fronts. First, there can be a temptation on the part of auditors to cast financials in a favorable light in order to retain high-paying clients. Second, auditing practices can be error-prone given the need to reconcile large amounts of complex information from multiple sources.

It’s here where blockchain technology’s value emerges to address the human vulnerability issues in ledger entry reliability and trustworthiness. Blockchain technology provides automated third-party verification by a distributed network, ensuring that all transactions are accurate, complete and unalterable.

In a move signaling the future promise of blockchain technology in the accounting and auditing world, the global accountancy firm Deloitte announced that it will be building a talent pool of 50 blockchain developers in Dublin, Ireland, over the next 12-18 months. Known as the EMEA Financial Services Blockchain Lab, this project, ensuing from Deloitte’s fintech initiative called The Grid, will allow the Big 4 firm to examine blockchain possibilities specific to accounting and related trust-based services.

Another company at the epicenter of efforts to integrate blockchain technology into the accounting world is San Francisco-based Subledger. Subledger provides businesses with a scalable, blockchain-based, double-entry accounting ledger solution delivering real-time data on finances and performance.

Said Tom Mornini, founder and CEO: “Accountants are currently involved in a lot of transaction processing, reconciliation and control activities that are fraught with error possibilities, both unintended and intended. This scenario could change significantly if blockchain technology gets adopted on a widespread basis in this space. It’s a major game-changer for sure.”

Mornini said that far and away the most interesting work he’s been involved in is a cryptographically provable exchange trading engine. “Picture a scenario where trades like those that take place on Nasdaq on a daily basis are bundled into blocks and published with cryptographic chains that show exactly what trades were executed and when and why. That holds huge potential in terms of transparency around everyone knowing that the [trading] exchange is operating in the way that it should be.

“One of the problems with trading engines, in addition to getting the trading right, is that you also have to be able to do the accounting well, accurately and at high speed. That’s ultimately what we are aiming to address.”

Despite pockets of promising conversation, Mornini said that efforts to align blockchain and accounting are still pretty sparse at the moment outside of support for business process and regulatory interface. “The Big 4 accounting guys have made a surprising amount of noise about the blockchain but I haven’t seen anyone really demonstrate anything. They clearly know that it will affect their future, although I’m not quite sure that they are clear as to how.”

With respect to what he sees at the ultimate game changer, Mornini said:

“In short, I believe Bitcoin in the not-so-distant future is going to be the common ledger that companies reconcile their internal books against, versus the bank records. The Bitcoin blockchain offers this super-easy way to build accounting systems that automatically reconcile against reality. The value proposition here is that these records will be not only be more statistically accurate and representative of reality, but because they will be produced every ten minutes, they’ll be guaranteed to be in lockstep with reality.”

According to Mornini, the equities market plays a game whereby four times a year, everyone gets out the popcorn and starts waiting for their earnings to come in, to see if their prognostications about the future were correct.  He said that he’s often amazed at how so many people are interested in trying to predict the future when they all agree that it’s the one thing that nobody can do.

“Wouldn’t a stock that gave you real-time accounting results be worth a premium over its competitors, that [only give you] a peek at their business once a quarter or four times a year? That to me seems like a much lower risk scenario for the holders of the shares. And lower risk usually means a higher price.”

Concluded Mornini: “Accounting mechanisms that currently exist in the marketplace today are poorly suited to current business volumes and time-to-information demand. Even worse, they are almost entirely predicated on humans operating the software. This is where the blockchain and cryptocurrency transaction tools offer the greatest opportunities for change.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.




This article appears in: News Headlines , Technology , Big Data , Blockchain



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