The Enron Scandal in 2001 caused the global audit industry to lose one of its most prized assets; public trust. Despite rebuilding its reputation over the years, new challenges and changes in technology have changed the rules of the game. If a repetition of the Enron incident is to be avoided and auditor fraud kept in check, the industry must evolve with the times.
New and efficient systems for managing public firms’ accountability must be adopted. Conventional auditing processes can be somewhat hectic. Verifying the audit evidence of transactions between companies and third parties require manual efforts from auditing firms. Considering the current pain points in audit, integrating new technologies like blockchain into auditing could help automate the process and speed up verification time. The potential of blockchain technology is not limited to financial auditing and extends to the entire accounting sector.
Experts have tagged blockchain as a natural solution for auditing issues because the audit industry is a sector that demands trust and transparency, which are already key tenets of blockchain technology. These blockchain inherent attributes coupled with the perks of speed and transparency are the reasons why a distributed ledger based audit solution is an attractive alternative to traditional auditing systems.
According to a local news report by CTEE, the ‘Big Four’ – audit heavyweights, KPMG, Deloitte, Ernst & Young, and PricewaterhouseCoopers (PwC) have teamed up with 20 Taiwanese banks to test a blockchain based solution for auditing interim financial reports of public companies. The pilot phase of this project focuses on building a system for efficient streamlining of the external audit confirmation processes; a term used to describe the process of collecting and verifying audit evidence for a group of companies.
The development of the pilot phase involved a partnership between the bank consortium and Taiwan’s Financial Information Service Co. (FISC) which seeks to leverage essential features of the blockchain like immutability and decentralization to create a new and secure system for automating the verification process of auditing companies. Under this new platform, public companies’ transaction data are transferred to a blockchain that is accessible to audit firms while the banks act as validators.
If successful, FISC predicts that this new approach will speed up confirmation time from the typical two weeks to “within a day,” since audit firms will be able to access and evaluate the financial status and fiscal health of companies in real time.
PwC, a member of the audit ‘big four’ has been very keen on developing blockchain projects. In April, the company unveiled a blockchain validation solution which combines proprietary continuous auditing software with a pending patent risk framework. The project focuses on providing risk and control measures for private businesses operating in the blockchain space. The validation software was deployed in a limited set of use cases to verify its performance and test for irregularities.
The success of this and many other blockchain based projects continue to prove that the technology is a valuable solution for many of the world’s centralized problems. In fact, a recent Deloitte study on blockchain technology has concluded that it will eventually become “a standard operational technology across the financial, manufacturing and consumer industries” and that businesses that ignore the technology are “at risk of falling behind.” Whether the motivation is fear of losing out or a drive for piloting innovation, the blockchain ‘gold rush’ is currently seeing a tremendous surge in ground-breaking solutions across a wide range of industries.