Article By Eloisa Marchesoni
Although blockchain is closely associated with the cryptocurrency, Bitcoin, it is always good to keep in mind that the technology has the potential to be applied to a wide spectrum of industry fields.
One of these is accountancy. The reason why today’s accountants should worry about broadening their knowledge about blockchain is that it has two characteristics, which are crucial for their profession: transparency and immutability. It could be of tremendous benefit to the integrity of an accounting firm for their registers to be easily accessible to authorized persons only. Of course, there must be rules that also regulate the way that authorized entities can access financial registers, and blockchain technology uses ‘smart contracts’ to conform to these rules.
Experts suggest that blockchain technology is the next step for the accountancy and auditing industry, and this for a good reason, which certainly did not escape the attentive eyes of the ‘Big Four’, the four largest professional service networks in the world. They are already making an effort to implement blockchain in some of the services they offer to their customers. Here is a brief review of how each of them has decided to look into the future of auditing, through this technology.
In an effort to drive the development of blockchain in auditing, Deloitte has set up The Blockchain Center of Expertise and The Blockchain Lab. As a result, there is a chain specifically developed by Deloitte and a number of other applications based on it, suitable for facing most challenges associated with supply chain and auditing services. In addition, Deloitte has developed the Minimum Vital Ecosystem, which allows the key actors of the ecosystem thus created to interact and exchange important information: it is a source of information from which accountants can retrieve data for the evaluation of the companies that they serve.
EY is another large professional services firm who wants to use the Blockchain technology to transform the way the company itself approaches the accounting system. To begin with, EY started accepting Bitcoin (BTC) as a means of payment in its Swiss office, but this could only be the natural consequence of the fact that it has developed a solution to resolve transactional conflicts, which makes use of blockchain-based smart contracts. In fact, practically speaking about its direct application to the world of online advertising, such a solution consists in the live, broadcasted registration of online sales transactions between multimedia content creators and advertisers, thus also allowing to easily go about royalty controversies without the interference of intermediaries. EY has even come up with The EY Blockchain Analyzer, which is able to pick up and organize encrypted transactions of whichever organization, making it possible to run simple, external auditing controls on the organization.
KPMG has focucsed its efforts with blockchain on looking for ways to increase service efficiency, reduce fraud and improve customer experience. In addition, the audit giant is is currently experimenting with blockchain-based services, developing a real service suite, called Digital Ledger Services, of which the major users will be banks and financial institutions.
Last but not least, is the experience in blockchain of PricewaterhouseCooper, (PwC), which, among the services it offers to companies, is trying to ensure to its customers the reporting of risks, continuous monitoring of transactions and all sorts of other guarantees through the powerful help of the Blockchain technology. PwC has recently made public its intention to offer Blockchain-based auditing services, focusing on an implementation of ground-up as well as third-party solutions.
You should now be wondering exactly what benefits blockchain is able to offer to professional service companies, and not just to those that fall under the category of the ‘Big Four’. These potential advantages are numerous:
Well-designed chains make up fast and powerful databases. Getting data in and out of the system can be done more efficiently than if the process were carried out through the interaction with legacy accounting software applications.
Reduction in errors
The reduced likelihood of error in the use of blockchain is allowed by its innovative system of data entry. In fact, once the data is registered in the chain, smart contracts could automatically carry out many accounting functions, reducing human error.
Easier dispute resolution
By using smart contracts, accountants can automate many of the tasks associated with reconciliation, making this task less onerous at the end of the month, quarter, year, etc.
An increase in efficiency and a reduction of errors translate into cost reduction. As a result of the initial costs of adoption, auditing firms may expect to get quick savings compared to any conventional accounting system.
The immutability of these chains makes it extremely difficult to perpetrate fraud using the blockchain platform. In order to modify a record, the same change should be made simultaneously on all copies of the ledger, which is as practically unachievable as it theoretically sounds.
Improved regulatory compliance
The increased security offered by DLT can greatly simplify the burden of any business in trying to meet regulatory demands. As more and more regulatory authorities themselves are opting for the adoption of the blockchain technology, the usage of DLT could even become mandatory in some crucial financial sectors.
Reduction in complexity and frequency of auditing.
One aspect of DLT about which accountants should be thrilled is its ability to reduce human auditing frequency. Thanks to the power of smart contracts, many auditing functions can in fact be automated, reducing the time that an auditor must devote to examining the records.
The ‘Big Four’ have proven to be committed, now more than ever, to exploring how the auditing industry can benefit from the blockchain vanguard. Many enthusiasts of this technology and of cryptocurrencies argue that blockchain may represent the new frontier for all those companies that need to eliminate operational bottlenecks, including the delaying action of intermediaries. It may become crucial that the follower companies as well consider the possibility of adopting blockchain into their activities, since planning to take a position in the crypto-space must not only be regarded as an interest of the bigger players, but rather as real necessity for every market actor that does not want to be locked out of the economy in the long term.