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Blockchain and financial reporting

Impact of blockchain in the audit function

​As blockchain becomes even more pervasive in accounting and financial reporting, what should financial executives consider about this distributed ledger technology before developing long-term strategies? Deloitte and the Financial Executives Research Foundation explore the technology’s potential to shape the future of audit.

Blockchain: Audit's new standard?

Blockchain technology has become the latest disruptive force that senior-level financial executives need to consider when creating long-term plans. As of today, a majority of a CFO's engagement with the technology comes in the payments and banking sector as blockchain-based cryptocurrencies—such as Bitcoin—gain traction. At the same time, blockchain is moving beyond speculative traders and technology enthusiasts into cross-border payments and capital market structures.

But an increasing number of industry watchers and professionals say it won't be long before blockchain becomes the industry standard for accounting and reporting, upending decades of backend systems and reporting practices.

This disruption would be a logical next step given blockchain's underlying format of an open, trusted, and easily accessible ledger system that speaks directly to the financial reporting community.

To explore how blockchain is currently being adopted in the financial reporting community, we are working with the Financial Executives Research Foundation (FERF) to better understand its potential for industry disruption and the realistic next steps for the technology to be embraced.

Practical questions around blockchain and financial reporting

Will Bible, Audit Innovation leader, Deloitte & Touche LLP, sits down with Financial Executives Research Foundation (FERF) to discuss blockchain.

Watch the video

The pathway to disruption

Jon Raphael, chief audit innovation officer at Deloitte & Touche LLP, spoke with FERF about blockchain, the future of financial reporting, and a realistic pathway to disruption.

Read an excerpt from the interview below:

Q: Jon, how would you rank blockchain and distributed ledger technology in terms of possible influence on accounting and financial reporting, especially when compared to other issues like artificial intelligence and regulation?

A: "Blockchain has the potential to be very transformative. By itself, blockchain will likely change how records are maintained and how value is transferred between counterparties. Blockchain’s impact is often compared to the impact the internet has had on information. Today, the internet is an integral part of the fabric of our lives – for example, most research is conducted online. Blockchain, when it reaches scale, could produce the same type of impact in terms of how transactions are recorded, and on the transfer and evidence of value. I’m confident we will witness this as we start to see scaling of blockchain applications over the next couple of years.

Most compelling, however, is blockchain’s potential for transformative analytic capabilities. One of the beneficial outcomes of blockchain is easy access to structured data which can then be used to generate advanced analytics and accelerate machine learning. This will enable tools to get smarter and drive us further and faster toward more continuous auditing and assurance."

Q: Realistically, where do you see blockchain adoption within financial reporting in the next 10 years, rather than just theoretically?

A: "Ten years is a really long time to project what will happen. Many of the use cases over the next few years will be transaction-oriented or will digitize and record ownership, such as a blockchain derivative transaction that references an interest rate going up or down. The ability for the blockchain to leverage smart contracts to be able to reference a data source to see whether interest rates moved up or down, and then automatically facilitate the settlement and recording of transactions is one use case. Also, things like deeds, titles, even ownership of music or other digital assets, having them exchanged via blockchain, thereby also facilitating the appropriate collection of royalties also has great potential.

Again, think back to how the internet evolved. It existed for a very long time before it was adopted by the masses. Initial use cases were generally intra-entity or within a closed loop of entities, which is very similar to what’s happening with blockchain today. Over time, it achieved more scale, became more pervasive, and then simply integrated into the fabric of how we function.

One of the strengths of blockchain, of course, is that participants can see the information. How much information everybody is comfortable sharing—and that information could provide a strategic advantage—still needs to be resolved. The desire to make that information available for other parties to see is something companies will need to think through for each use case. This is one of the challenges that lie ahead for massive scaling of blockchain."

To read more of Jon's interview and to get perspectives from other subject-matter specialists on the future of blockchain and financial reporting, download the full article.

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In the winter of 2018, the Financial Executives Research Foundation surveyed nearly 200 senior-level financial executives regarding their use of cryptocurrencies and their plans around blockchain.

View the survey results.

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