Blockchain from an auditor's view

What is the Blockchain? This must be one of the most searched questions in the past 3-4 years. By now most of us already have a basic understanding of it, however for the sake of repetition, a quick reminder: Blockchain is a type of database known as a distributed ledger that operates on a consensus basis. In its simplest form, a blockchain can be considered to be a distributed ledger which contains the relevant details for every transaction that has ever been processed. Now that we got this out of the way, how could Blockchain be used from auditors?

One big problem is that auditors have never been able to provide 100% assurance. We always talk about “reasonable” assurance instead.  And to get to that reasonable assurance, what auditors do is use sample methodologies (there is a whole science behind these methodologies). However, if we understand the main concept of blockchains, which is that they are inherently resistant to modification of any stored data, then if blockchain technology is used then the balances between accounts will be observable in real time with time stamping features and verified 100% by the system (blockchain).

This will resolve problems inherent in the current audit processes, and assist auditors focus on the “real” risks, rather than trying to find smart ways to sample a huge number of transactions. Furthermore, it will also assist in limiting the ability to perform fraudulent activities, as companies facing a pending audit will not be able to reverse engineer documentation as all transactions that were not verified by the blockchain, will fall through. Also, given that there is a unique encryption key for each copy of the ledger, hacking is theoretically impossible.

Having the above in mind, audit Firms are examining the opportunities that blockchain has to offer more seriously now,  and this will only benefit the stakeholders as they will be able to receive a higher quality of service and at the same time be more comfortable with the financial results presented to them, at least from a transaction point of view.

As with every major change in the profession, only time will show. One thing is for sure, times are exciting for the profession 

Read more:http://www.bakertilly.com.cy/media/1277953/Blockchain-from-an-auditor-s-...

Author: Mr. Moisis Aristidou - Director at Baker Tilly in the Audit and Assurance services - [email protected]