Blockchain and its potential impact on audit

Blockchain is a shared, distributed ledger that facilitates the process of recording, and tracking assets in a business network. Tangible as well as intangible assets both can be tracked .

Why Blockchain ??

1. Time between Transaction and settlement can be long.
2. Cash is useful only in local transactions and settlement can be long
3. Duplication of efforts and the need for third party validation and presence of intermediaries add to inefficiencies.
4. Huge transaction volumes

To address these challenges and others, the world needs payment networks that are fast and that provide a mechanism that establishes trust, requires no specialized equipment, has no chargebacks or monthly fees, and provides a collective bookkeeping solution for ensuring transparency and trust.

The emergence of bitcoin

One solution that has been developed to address the complexities, vulnerabilities, inefficiencies, and costs of current transaction systems is bitcoin — a digital currency that was launched in 2009 by a mysterious person (or persons) known only by the pseudonym Satoshi Nakamoto.

Unlike traditional currencies, which are issued by central banks, bitcoin has no central monetary authority. No one controls it. Bitcoins aren’t printed like dollars or euros; they’re “mined” by people and increasingly by businesses, running computers all around the world, using software that solves mathematical puzzles. Rather than rely on a central monetary authority to monitor, verify, and approve transactions and manage the money supply, bitcoin is enabled by a peer-to-peer computer network made up of its users’ machines, akin to the networks that underpin BitTorrent and Skype.

Bitcoin has several advantages over other current transaction systems, including the following:

? Cost-effective: Bitcoin eliminates the need for intermediaries.

? Efficient: Transaction information is recorded once and is available to all parties through the distributed network.

? Safe and secure: The underlying ledger is tamper-evident. A transaction can’t be changed; it can only be reversed with another transaction, in which case both transactions are visible.

The birth of blockchain

Bitcoin is actually built on the foundation of blockchain, which serves as bitcoin’s shared ledger. Think of blockchain as an operating system, such as Microsoft Windows or MacOS, and bitcoin as only one of the many applications that can be run on that operating system. Blockchain provides the means for recording bitcoin transactions — the shared ledger — but this shared ledger can be used to record any transaction and track the movement of any asset whether tangible, intangible, or digital. For example, block- chain enables securities to be settled in minutes instead of days. It can also be used to help companies manage the flow of goods and related payments, or enable manufacturers to share production logs with original equipment manufacturers (OEMs) and regulators to reduce product recalls.

Bitcoin and Blockchain are not the same. Blockchain provides the means to record and store bitcoin transactions, but blockchain has many uses beyond bitcoin. Bitcoin is only the first use case for blockchain. The government’s report suggests blockchain is inherently more secure than other data management systems as there are multiple copies, but distributed ledgers are not invulnerable to cyber-attacks.

Impact on Auditing and Accounting services :

With blockchain technology validation could be provided independently, potentially by an independent network validating transactions that have been recorded on the blockchain. The role of audit could move further up in the value chain, into providing more of a governance role around the various types of block chains that are going to be used.”

Blockchain will remove some of the transnational and checking parts , essentially this provides that third validation point which dint exist before and that's how the auditor role have stepped in.

One of the most compelling use-cases for blockchains is their ability to provide a live, indelible record of financial transactions, such as derivatives trades, which could give accountants the ability to perform, in effect, real-time, ‘smart’ audits of the capital and risk positions of banks and other financial services clients. It’s likely that, on the other hand, in the medium-to-long-term, blockchain-driven solutions could reduce the need for many lower-quantum, high-volume manual audit processes.

• As per Deloitte report, "Methods for obtaining sufficient appropriate audit evidence will need to consider both traditional stand-alone general ledgers as well as blockchain ledgers. Additionally, there is potential for greater standardization and transparency in reporting and accounting, which could enable more efficient data extraction and analysis. Independent auditors will need to understand blockchain technology as it is implemented at client sites, whether clients are pursuing blockchain business opportunities, implementing blockchain business applications, or applying blockchain in accounting.