“The blockchain does one thing: It replaces third-party trust with mathematical proof that something happened.”
Over the past few years, blockchain and the industry it represents has ingrained itself to a certain extent into society. As with any other major change in life, some advocate for it and some against. Regardless of which side of the fence you find yourself on, it seems apparent that blockchain and the industry it represents is here to stay. Based on this conclusion, it might be prudent to spend some time assessing what impact this could have on society and your business. As part of this thought process, we have envisioned what the impact could be on the audit industry going forward.
In a nutshell, blockchain represents trust. A system within which there is no centralised third party responsible for overseeing transactions on the chain. The chain is made up of numerous transactions that are validated on the chain by independent node operators[i]. Once the transaction has been validated, it is recorded on the chain, and the transaction can never be removed or amended. Collectively these chains are referred to as the general ledger, which ties back to the audit industry.
Due to the nature of the ledger referred to above, and the fact that transactions are validated and recorded in a manner that cannot be altered later, the ledger represents the perfect audit trail. There seems to exist a natural fit regarding what the blockchain represents and what auditors deem to be acceptable audit evidence. However, in order for auditors and the industry to align, financial infrastructure needs to be developed on the blockchain. This Is currently the aim of numerous blockchain companies around the globe.
In many instances, the development referred to above represents the combination of blockchain with cryptocurrencies, which in turn leads to programmable money. The result of further development could lead to the establishment of financial operating models on the blockchain going forward, which would have far-reaching impacts on the way business is conducted today. For example:
Auditors will need to be able to read and understand the ledger. Practically, auditors will need to have a thorough understanding of program languages going forward in order to audit these new financial operating systems. Auditors and business owners alike will need to upskill themselves in this new technology to make the most of the opportunities that will be presented as the technology matures and becomes better developed.
At this stage, the implications above are merely concepts yet to be implemented or proved to be feasible. The possibilities, however, are exciting and would represent a cosmic shift in the way businesses and audits are conducted in the future.
Please reach out to your relationship partner to discuss further.
[i] The process of validating transactions can be quite complex and has been simplified for the purpose of this article