Blockchain has gained popularity in the recent years and it is intriguing to see how it is being deployed in the real world. Today we shall discuss what role this new technology has in the auditing sector and should we really be concerned about the benefits it provides.
But before we get ahead of ourselves, we need to understand the fundamental theory behind blockchain technology. Why has it gained such popularity? I have worked at a blockchain company and yet the technology still confuses me at some point. So don’t worry if you don’t understand it. We have all been there.
The word Blockchain does not give much away. At least not when you first read it. One of the most common ways to describe the word blockchain is that it is a distributed ledger, where one can find relevant information on every transaction that has been processed. It is an open distributed ledger, which means that it records a transaction in a public, permanent and verifiable way. An easy way to put this is that once a transaction is recorded, it cannot be tampered with unless all the blocks have been altered altogether; there is no central administration.
Now that we have a basic understanding of the technology, we will be moving forward to see how blockchain affects the auditing sector. Since blockchains are defiant to modification, it can be a source of verification for reported transactions. It will automate the process of manually verifying transactions, as there will be no need to do so; all ledgers are publicly available and easy to authenticate. An example I can quote from a recent Deloitte article: “instead of asking clients for bank statements or sending confirmation requests to third parties, auditors can easily verify the transactions on publically available blockchain ledgers such as
http://www.blockchain.info or http://www.blockexplorer.com’. This proves to be a cost effective and time efficient solution because it gives an absolute certainty over the historically recorded data.
Blockchain aids accountants in such a way that it provides them certainty of all transactions, giving them more time and resources to concentrate on other aspects of the business such as planning and valuation. By eliminating the reconciliation process and verification of historically recorded transactions, blockchain gives the possibility to bring more areas into consideration. Areas considered too hard or uncertain to evaluate. Since book keeping and reconciliation work is eradicated, it gives the accountants more time to focus on the interpretation of these records, bringing together the true worth and economic value of those said records.
Such technological advancements are bound to shift the skills represented within the sector. Due to the elimination of some processes in auditing, other value-adding areas will likely experience an expansion. For blockchain to have a proper impact on the company, the scope of the auditors’ role will broaden. Auditors will need to expand their skills because they will need to be informed about how to advise on blockchain adoption and consider its impact on their businesses and clients. Due to this, some professional qualifications, such as ACA, have also included blockchain in their curriculum.
To summarise, blockchain does have a lot of potential in auditing, but it does not replace the auditor’s role, as there is still a need to manually interpret the recorded transactions and gain meaningful insight from such data. Though there have been advancements with the technology, businesses are yet to use it to its full potential and it could take years to see some significant impact.