Blockchain a game changer for audit processes
In combination with an ever growing set of demands from boards and executive management for deeper insights into strategic risks, analytics and robotics are top priorities for chief audit executives looking to offset the mounting workload of themselves and their teams. By leveraging effective data analytics strategies, a business can boost efficiency, while improving the quality of evaluation risks and controls receive, as well as placating stakeholder scrutiny. Data analytics can be applied across three key areas. In terms of planning, it can be used for effective risk profiling, the testing of data via simulation, and statistical sampling. Finally, it can enhance reporting of risk quantification, real-time exception management, and root cause investigations, to provide better understanding of how to avoid future breaches. Data analytics is subsequently gaining a growing foothold in internal audit.
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- Integrating IoT with blockchain: a trust and security game changer
- Blockchain Technology: A Game Changer for Healthcare?
- Are smart contracts a job killer for auditors?
- Data analytics to become a game changer for internal audit
- BharatPe founder Ashneer Grover's wife also goes on leave amid company conducting independent audit
- FBR: embracing the digital
- Financial Times Home
Integrating IoT with blockchain: a trust and security game changer
The simple reason why audits are unavoidable is because we humans are corruptible and fallible. Our motives are based on self-interests and hence we agree that audits are required to provide users of the financial accounts with trust — the element that greases the wheels of our society. What makes smart contracts a game changer is that trust is embedded into the technology.
It shifts trust from people to trust into the technology. So if smart contracts are by nature programmed to have trust built into it, and the need for trust is the reason why audits are required in the first place, why on earth do we need an audit anymore? My glory days being an auditor is being behind me but witnessing the birth of such a disruptive technology for the audit profession tickles my fancy. Can smart contracts entirely replace the exercise of an audit and what are the possible new roles for the auditor who recognizes that all advents in technology require adaptation and evolution?
So allow yourself to be your own judge on whether smart contracts are a threat or rather a welcoming change to the profession. Take the conventional contract you are familiar with first. It is a document that sets out the terms and conditions agreed by two parties. Once the conditions have been met, or put differently, once the promise has been delivered by one party, the other party fulfils their contractual responsibility by releasing the payment. On the other hand, a smart contract is simply lines of code that again sets out the terms but also controls the execution of the contract.
This is achieved by coding a set of conditions into the contract which when triggered results in automatic self-executing actions. The difference between other software codes is that now the contract is run and stored inside a blockchain. And blockchain is the reason why we can trust the smart contract. If the technology is complicated, just remember that the main idea is simple.
Which is with smart contracts, you do NOT need to have an intermediary between the parties to ensure the terms of the contract have been met or that the promise has been delivered. A traditional contract is legally enforceable according to the regulation of its jurisdiction, but smart contracts are not rooted in any specific location due to its use of a distributed network spread out over multiple locations.
Blockchain smart contracts instead allow real time verification by the auditors since the accounting entries are now stored on a public ledger.
This has the potential to eliminate the labour intensive manual data extraction and instead allow the allocation of more resources to higher risk areas at the time of audit. When auditing financial statements, it is not feasible to audit and check every single item in the financial statements. Therefore auditors use sampling to test selected items in order to draw conclusions about the entire population.
Since you now have real-time data access as outlined above, you no longer have to obtain assurance on balances and transactions by means of an independent confirmation letter. There is no longer need to send circularisation letters for receivables, payables since the balances are now automatically reconciled.
This automation will speed up audit procedures, drive cost efficiencies and ultimately decrease the lag time to issue an audit opinion on the accounts. While smart contracts allow the data stored to be tamper-proof, it cannot provide sufficient audit evidence that the information contained within it is inherently trustworthy. That is the recorded transactions may still be incomplete and inaccurate. Therefore auditors will need to ensure whether the recorded entries actually exist and the transaction has economic substance.
An excellent paper prepared by CPA Canada and the American Institute of Certified Public Accountants AICPA on the Impact of Blockchain Technology on the Audit Profession lays out the following 4 reasons as to why blockchain technology should not be viewed as a silver bullet when it comes to the nature of the transaction, since the transaction may still be;.
The auditor will need to have an understanding of the underlying consensus mechanism i. Auditors are required to obtain sufficient audit evidence whether the accounting estimates prepared by management and disclosed in the accounts are reasonable. Such estimates can be susceptible to uncertainties and management bias, and hence auditors have to review the assumptions made even if they are recorded on the blockchain. Therefore auditors will have to use their professional judgement to determine which audit assertions can be supported by smart contracts.
However auditors will still be required to test the effectiveness of controls used by their clients to prevent and detect material misstatements. Further issues may arise on smart contracts built on public blockchains as described above, as auditors may not be able to obtain an understanding of the general IT controls implemented and the effectiveness of these controls, since the network is not controlled by one single authority.
Knowing how smart contracts work will be key to evaluate and assess the effectiveness of internal controls. So where do auditors go from here? If the first glimpse into smart contracts could have insinuated that auditors would become jobless, from the above it is clear the exercise of the audit to provide assurance to the shareholders will continue to remain relevant.
Instead the role of the auditor will evolve. A smart contract audit involves investigating the smart contract code to find security flaws and vulnerabilities before the code is publicly deployed. The audit therefore provides assurance that the smart contract is delivering what is being promised.
Once in place, the smart contracts will self-execute and will be difficult to stop. Therefore if developed incorrectly, they could result in substantial losses. The DAO attack back in has proven that smart contracts are prone to being exploited by hackers. The hack was not due to a problem inherent with the technology but rather from a coding loophole.
Right now should be a time of optimism for auditors. We have an emerging technology at our disposal which will enlarge the scope of auditing and enhance the level of assurance for users of the financial accounts. With smart contracts application in auditing still at an embryonic phase, that means competent personnel are hard to find. In order to accelerate the adoption of this technology, we do not only need the expertise of coders, regulators, legal specialists.. We need the experience and knowledge of professional audit minds to come together to work in the best interests of stakeholders and business owners.
In my opinion, smart contracts will not make auditors less relevant, although it will impact what they do and how they do it. We already have smart contracts, maybe soon we will have smart audits. Skip to content. Articles About Podcast Contact Menu. Linkedin Instagram Twitter. Are smart contracts a job killer for auditors? July 1, Table of Contents. Photo by Kea Mowat on Unsplash.
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Like most people, you have closely associated it with cryptocurrencies like bitcoin. But what exactly is blockchain technology? Blockchain technology is a structure that stores transaction records, known as blocks, into different databases called chains in a network that is connected through peer-to-peer nodes. As an accountant, you may have dealt with a ledger; now, blockchain technology is also a ledger, except it is entirely digital. The owner will authorize every transaction in this ledger through a digital signature which subsequently authenticates the transaction and protects it from tampering. In simpler terms, it is like a google spreadsheet that has been shared among many computers in a network. The interesting angle is, anyone can view the data but they cannot change or corrupt it.
Blockchain Technology: A Game Changer for Healthcare?
Such is the case with the rise of blockchain technology and, perhaps as a surprise to its pioneers, its emergence as one of the most genuinely transformative innovations to follow the financial crisis. Go figure. Of course, blockchain itself is industry agnostic, lending its utility to the entire spectrum of commerce and applications. It only figures, then, that blockchain is already taking root in the fertile soil of accounting and finance , lending new convenience, security, and function as it goes. Thanks to a system of checks and balances, blockchain verifies the validity of the data as it goes. Users can write new information onto a blockchain, but previous information can't be edited or changed in any way. The technology makes data unassailable which fosters the trust of users so important in allowing the system to succeed and spread. So, what, exactly, do all of these complicated sounding words and concepts mean for the auditing space?
Are smart contracts a job killer for auditors?
Data analytics to become a game changer for internal audit
A blockchain is a growing list of records , called blocks , that are linked together using cryptography. The timestamp proves that the transaction data existed when the block was published in order to get into its hash. As blocks each contain information about the block previous to it, they form a chain, with each additional block reinforcing the ones before it. Therefore, blockchains are resistant to modification of their data because once recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks. Blockchains are typically managed by a peer-to-peer network for use as a publicly distributed ledger , where nodes collectively adhere to a protocol to communicate and validate new blocks. Although blockchain records are not unalterable as forks are possible, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance.
However, as the underlying technology, blockchain is anticipated to have near-boundless potential that will be as influential a disruptor as the internet was. Blockchain is a digital database that stores chronologically ordered records called blocks. Blocks are public and are distributed to all users, who are known as nodes. Imagine a database of monetary transactions between users. If valid, the transaction will then be assigned to a block and the block is added to the blockchain.
BharatPe founder Ashneer Grover's wife also goes on leave amid company conducting independent audit
Part 1 focused on machine learning and artificial intelligence. When the price of crude oil is low, the high cost of upstream oil exploration and development coupled with downstream efficiency challenges forces most companies to reduce costs. The oil and gas industry presents a particularly compelling opportunity to leverage blockchain technologies due to the high transactional values and therefore risks and economic pressures to reduce costs.
FBR: embracing the digital
Blockchain continues to create a lot of buzz within financial services FS , for its ability to provide robust and secure solutions that minimize risk exposures. With the emergence of several blockchain infrastructure providers, the perceived potential for the application of distributed ledger technology DLT has been soaring. Collateral management is one such domain where trials for the application of blockchain have displayed promising results. With the potential to increase efficiency, improve regulatory control and eliminate unnecessary intermediaries, blockchain can introduce a fundamentally different approach to data management and validation in the domain of collateral management. A catch-all phrase for DLT, blockchain is a new type of database system that removes the need for trusted third parties to act as governance and enforcement bodies. Using cryptography and distributed messaging protocol, blockchain creates shared ledgers and decentralizes the approach to data management.
Financial Times Home
Blockchain technology could become a game changer for Know Your Customer compliance, according to experts from Synechron. Banks face an array of regulations that they must comply with, set by regulators aiming to keep the banking industry efficient and curb excessive risks. The requirements necessitate the collection of huge amounts of data from every client, including operational, legal and financial information, all of which needs to be validated, alongside conducting standard background, tax and credit checks. Due to the severity of the issue, however, this process does not end at the point of on boarding — and the continuous surveillance of clients in order to remain vigilant of irregularities also takes up a lot of time. Banks are subsequently lumbered with high levels of onboarding costs, being made even harder by the lack of standardisation across the industry — something which, in previous eras was probably impossible to alter, thanks to the monumental manual effort that would be required, as KYC is predominately a non-digital process. This contributes to additional risks of non-compliance in KYC requirements, with the consequences and costs that coincide with those risks blighting global banks.
By Lana Busby. While sometimes spoken of in the same breath as bitcoin, the scope of blockchain technology goes far beyond the management of digital currencies. The information contained in each new block is unalterable as it is connected to preexisting blocks via timestamping credentials, thus protecting all data in the network from revisions or tampering.