The Fast and the Furious:How Blockchain is bringing disruption to the Accounting and Auditing profession
Auditing is to business what a referee is to the football game. Accounting and audit procedures are unquestionably core fundamental components of business.If a company was a person , then accounting, and therefore financial statements and supporting documents are the health status.
Before we take this ride together, I’d like to emphasis that the introduction of any type of disruptive technology within industries doesn't mean the disregard of existing regulatory requirements/standards, and Auditing (Accounting) is no different.
Within the field of business, regulation is not an indication of a monopoly run factory as one would make when thinking about the restrictive regulation in the existing monetary system, which is currently being challenged and undermined by one of many digital and decentralized payment networks such as Bitcoin.
Business regulatory requirements be it in business, are there to protect stakeholders who have to make decisions on the assumptions that those that are running the business are doing so through the application of business and professional ethics, and not excluding the practice of good corporate governance such those proposed in the The King Code Report.
Blockchain and the Audit/Accounting function cannot complement each other accept through the consideration, compliance and implementation of set industry guidelines such as those set by the IFRS (International Financial Recording Standards), IAS(International Audit Procedures) , GAAP(Generally Accepted Accounting Practices) and many more.
Companies that comply with these standards are able to provide confidence to various stakeholders( internal and external) about the good conduct of business operations and the assurity of the business still being a going concern. Compliance of companies to regulations and standards also protects the stakeholders through being able to hold companies accountable for any material misconducts or representations in financial statements, supporting documents and audit reports.
Before we introduce how Blockchain is disrupting the Audit practice, the Audit procedure is briefly highlighted to ensure that we are all travelling in the same direction.
Understanding the Audit Process and equivalent standards:
1.Preliminary Engagement Activities
These are activities performed by an audit team before the acceptance of an audit engagement for a potential client. There are set audit procedures that need to be followed, being:
ISA 210| Agreeing the terms of audit angagements
ISA 220: Quality control for an audit of financial statements
ISA 300: Planning an audit of financial statements
ISA 600: Special considerations- audits of group financial statements
ISA 610: Using the work of internal Auditors
ISA 620: Using the work of an audit expert
ISQC1 : Quality control for firms that perform audits and reviews of financial statements, and other assurance and related services
NB: References for each standards per stage can be found at the end of the article
- Planning
3.A)Establishing the overall audit strategy 3.b Development of an audit plan
4.Obtaining of Audit evidence
5.A) Performance of test of controls 5.B) Performance of Substantive Procedures
6.Evaluation , conclusion and reporting
Pedal to the metal;) #IGotYou Now that you have that fuel injection, keep reading and ridin
Blockchain meets Auditing
Auditing has for a long period of time been the anchor hanging outside of the business speedboat that has restricted the true potential for business to operate at its true agile capability.
Among many, the unchanged double entry system has remained deprived of disruptive innovation, and as a result has been eating at the companies bottom line, including being subject to human error and inconsistent reporting and inconsistent traceable audit procedures. The audit function contributes as much as 25% to company operational costs in banking and has the potential to unlocking billions throughout industries.
One of many key characteristics of the blockchain is the ability to not only establish different privacy/access setting for each user within the Audit process, it also allows there to be a shared, consistent and immutable audit trail of all proceedings without compromising the credibility of the records and process and making it possible for these activities to be conducted closer to real-time as ever. Through the consensus validation mechanism provided by the blockchain, the credibility and transparency is achieved by providing a single, unchallenged perspective to different stakeholders such as internal and external Auditors, regulators and all stakeholders.
This also allows for better business decisions to be made from the use of a higher quality of business and supporting reports/documents, the speed at which decisions can be made and better utilization of human capital within the company.
Additional benefits provided by the Blockhain in the Audit/Accounting profession, and not limited to, include:
Additional benefits provided by the Blockhain in the Audit/Accounting profession, and not limited to, include:
-Ease of transferring both tangible and intangible assets while being able to keep track of ownership
-The use of smart contracts ( which will be discussed in detail in a future blog)
-Efficient inventory system
-Traceable audit trails
-Immutability of records
-Automation and,
-The ability to remove the human factor from the accounting and audit field
Auditing and Accounting is a business operation that touches each and every single legally registered and operating business in the world, and it of great important to start exploring how the role that Blockchain is going to play in your company to ensure that you have the competitive advantage from being an knowledgeable and experienced early adapter.
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