Blockchain technology: Changing the way auditing works

The audit comes in various forms it can be a security audit or financial audit or even compliance and regulatory audit. For all these audits, there is one technology which is holding enormous potential in making an impact, and this technology is none other than the most popular technologies of all times, blockchain.

In this article, we will be discussing the impact of blockchain in enhancing the auditing process.

Cost-effective verification process

We are well aware of the fact that the data stored over a blockchain ledger is unchangeable. Over such ledger the transactions between the participating parties can be recorded in an efficient, safe and feasible manner, that can be thereafter used to verify the credentials of clients. This will thereby make the verification process faster and cost-effective.

Continuous on-time assessment

Gone are those days when auditors had to wait for it for the end of the year or month to carry out the audit. By the use of blockchain technology, it is now possible to perform an audit whenever it is required.

Preventing duplicate transactions

By the use of blockchain, the entry of duplicate transactions can be prevented. All the transactions will be uniquely entered into the database and will be easily accessible. The addition of duplicated data is rejected when found in the nodes.

Transparency and immutability

By the use of blockchain technology, the transactions can be recorded in a clear way, in which every participating member will be aware of all the processes taking place while the auditing is being done. Besides this, there will be no human errors due to the automated auditing process.

Challenges in the Auditing profession

Even though blockchain brings transparency, immutability and security in the transactions, but still the occurrence of frauds cannot be eliminated. This is all due to the following challenges that come into the picture:-

No way to reverse transactions

Suppose in a case, if a user accidentally transfers an amount (in the form of digital currency) to someone’s account, then there’s no way to reverse the transaction. To avoid such situations, the auditor needs to keep an eye over all the activities that are taking place, which is a very complicated task.

No reporting authority

Since there is no involvement of any of the central authority, no one can report any mishappenings to anyone. Therefore, it’s all up to the participating parties, how they settle the issue as there is no central authority to take a fair decision. In this case, it is the sole duty of the auditor to make sure that the process is operating effectively.

Impossible to recover the account if Private key is lost

If in any case, a user loses his private key, then the user loses his access to his virtual currency account. All of his amounts will remain inaccessible forever and cannot be recovered easily. In such cases, it becomes quite challenging for the auditors to prevent the occurrence of such situations.

Views about the impact of blockchain in enhancing the auditing process?

“Allow auditors to verify a large portion of the most important data behind the financial statements automatically. The cost and time necessary to conduct an audit would decline considerably and vastly automate accounting processes in compliance with the regulatory requirements.” - Deloitte

“Blockchain is a self-sustaining…technology for managing and recording transactions with no central bank or clearinghouse involvement.” -Price Waterhouse Coopers

“Take invoicing, for example. This process can be complex and error-prone, requiring cumbersome (and time-consuming) reconciliation between the transacting parties… a blockchain-backed invoicing network …would hold an unchangeable invoice record for all parties, enabling near real-time invoicing reconciliation and settlement.” - Accenture

Summary

There are still many questions that are running into the minds of many that, How quickly and efficiently will the blockchain technology will replace the financial reporting and How efficient it will be? Well, let us inform you that Blockchain has already been adopted by the CPA Auditors.

However, it may not be able to replace the financial reporting completely due to the reason that the Financial statements give a clear idea about the functioning of capital markets, equity financing and the management’s assertions which are not easy to calculate over a Blockchain platform.

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