Blockchain Technology in Financial Accounting: Enhancing Transparency, Security, and ESG Reporting
Deloitte celebrates its 175th anniversary in 2020, and audit has undergone multiple sea changes in those years. At each inflection point, it has re-established its vital role in building trust and confidence in the capital markets and in the investing public. Today, we are racing toward yet another inflection point that holds tremendous promise and potential for the future of audit. This means that it’ll also save you and your bookkeeper tons of time while also making it easier to audit your own financial records. If an organization modifies a transaction’s data in the blockchain, the purpose and content of an independent auditors report it’ll affect the hash value.
About Blockchain & Digital Assets at Deloitte
This will be an immediate red flag that someone tampered with the data. Blockchain’s immutable nature comes from the fact that once a public consensus validates a transaction into the blockchain, it’s virtually impossible to alter or delete the transaction. Blockchain’s decentralized nature also helps act as proof that a transaction happened. Blockchain is still relatively new, with the development of software being rather dynamic; however, figure 6 lists and briefly describes some of the products in the marketplace that attempt to integrate blockchain technology. Using a personal home computer in 2015, it would take about 98 years to mine just one Bitcoin.
Paying 1 bitcoin for a business car has different tax implications than sending a friend 1 bitcoin for their birthday. Standard accountancy requires a significant time investment from all organizations in the supply chain. Businesses keep their own ledger to ensure business’ financial records are accurate and compliant. As blockchains allow recording and settlement of transactions to occur at the same time as the transaction itself, auditors can obtain data in real-time and in a consistent, recurring format.
The Future
Deloitte COINIA also assists with off-chain verification of private key ownership by using an innovative, custom-developed workflow to confirm the integrity of a signed message. The tool is compatible with multiple public blockchains and digital assets, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Ripple, Dash, and all ERC20 tokens, with more being added on demand. Today, the use of blockchain in the financial field is still largely in an investigative stage. From what I’ve seen, nearly all major financial organizations are exploring how to best implement blockchain technologies into their infrastructure, with tech giants who have traditionally been tied to the financial industry beginning to roll out various products.
Applications of Blockchain in Financial Accounting
Contrary to what may be supposed of tech erasing opportunities, the automation of auditing allows for bookkeepers and accounting professionals to increase their advisory services to interpret results and train clients. In addition, unforeseen add-on tech and services will be needed and created. The agile design of Deloitte COINIA also means it can be used today not only for crypto assets but also for a broader base of digital assets, and beyond, as they are supported by the business community in the future.
- Audit technologies can help reduce the length and complexity of audits.
- As blockchain technology continues to advance and new and different uses are found, it will be up to the accountancy profession to ensure that its promises of transparency and accountability are fulfilled.
- To create the Merkle root, hashes of two records are hashed together to produce a hash of the combination, and then the process is repeated moving up the tree until all the records in the block are represented in one hash.
- Blockchain’s decentralized nature also helps act as proof that a transaction happened.
- Companies such as Verady have already created bridge technology between crypto assets, exchanges and accounting software.
The impact of blockchain technology on audit
This is done securely using a consensus protocol, or a set of rules based on mutual agreement. Audit technologies can help reduce the length and complexity of audits. It is also very likely that, in the next few years, more audits will be augmented by cognitive technologies, which confer many of the same benefits and may portend even greater potential than other technologies for the audit. It’s clear that technology is changing the way organizations do business across all functions and industries. But there are particular pairings of tool and team that carry game-changing potential.
However, with the blockchain comes a number of additional demands, especially as it becomes more and more embedded within mainstream finance. Along with data analytics and machine learning, the blockchain will make some more tedious tasks easy to automate, but accountants will be needed to ensure accuracy and provide the analysis of the information their employers or clients need. As with any profession, expertise is what accountants get paid for, and now, such expertise will be needed more than ever to analyze financial results rather than focusing on the mundane tasks of reconciling and verifying transactions.
