How Blockchain May Play a Part in The Next Audit Revolution

An Introduction to Blockchain Technology

For the past 20 years, technology has connected people or businesses in a direct manner. They shared documents, posted to social media, and communicated through the internet. However, blockchain technology focuses on value. It is most commonly associated with Bitcoin and other crypto assets. Blockchain records and controls transactions, a ‘block’ or a record holds the details of the transaction’s timeframe and the correlation with the previous ‘block’(Chanda, 2022). Blockchain offers secure smart contracts to undertake a wide range of transactions of rights and property. Hence, the data can’t be manipulated.

Blockchain Technology’s Key Challenges and Features

The key challenges in blockchain technology is understanding the concepts and how it works in industries, especially in the financial services sector. With the existing infrastructures of organizations and lack of understanding technology are major hindrances to the adoption of blockchain. Adopting blockchain requires a major cultural shift from the traditional ways of performing. Data privacy and security are also key points in adopting blockchain.

In blockchain technology, anything that is stored is permanent, immutable, and indelible. The stored information on the blockchain gives us a level of transparency which has never been seen before. Blockchain technology is commonly referred to as a “trust machine” since it guarantees that the record cannot be manipulated. One other key feature is decentralized nature – no one person, entity, or government owns or controls the information. Hence, all participants have access to the same information and users can choose to share it or not.

Blockchain’s Correlation with Accounting

For accountants, blockchain provides transparency over ownerships of assets and the existence of obligations as well as improve efficiency. Blockchain has the potential to reduce the costs of ledgers and provide absolute certainty over the ownership and history of assets. In addition, blockchain could help free up resources to concentrate in planning and valuation instead of recordkeeping.

Blockchains allow to record and settle transactions at the same time of the occurrence. Therefore auditors can receive information real-time and consistent. Blockchain technology eliminates the need to enter accounting information to various databases as well as removes the need for auditors to reconcile disparate ledgers which is time efficient and error free.

Accountants will work on assessing the real economic interpretation of blockchain records as well as merging the record to economic reality and valuation. Blockchain records might verify an asset’s ownership, however, the location and worthiness of its condition is still questionable. Therefore, eliminating reconciliations and providing certainty upon transaction history may allow enhancement in blockchain accounting. Bookkeeping and reconciliation work can be replaced by blockchain technology. Thus, this could threaten accountants working in the industry as well as adding plus points for those focused on providing value anywhere else.

Blockchain’s Effect to Auditors

The Institute of Chartered Accountants of India or ICAI believes that Blockchain has the potential to improve auditing and accounting significantly. Blockchain is also called a distributed ledger arrangement which records transactions occurring. It is important to understand how blockchain technology affects audit. With the help of blockchain technology, they can help consultants with their clients in navigating, implementing and regulating.

On the other hand, if some or all the transactions are visible on blockchain, auditors performing confirmations of a company’s financial status would be less necessary. This act would lead to a great change in the way audit works. In an audit, a combination of data analytics can help with the transactional level involved. Thus, the auditor can focus more in considering higher level questions. An example of auditing is not just checking the transaction detail of the monetary amount, but also how it is classified and recorded.

Auditor’s Future in the Adoption of Blockchain

Currently, the ‘big four’ accounting firms are researching on how blockchain technology can improve the auditing process. The auditing process is predicted to be faster, cheaper, and clearer. Hence, accessibility would be improved. Revenues and expenses of multiple companies audited would be in a blink of an eye since companies are recording all the data’s detailed transactions (EY’s Willis, 2016).

As it is mentioned before, the adoption would require a major cultural shift as part of the framework needs to be renewed and regulatory authorities would be opposed. Thus, a collaboration between regulators and Auditing companies is fundamental so that the technology could be executed. Blockchain will revolutionize the operation of auditors as it improves the quality of audit. However, an auditor’s job of being objective will still be critical and relevant.