{"id":26930,"date":"2017-11-15T23:04:13","date_gmt":"2017-11-16T04:04:13","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/deloittes-blockchain-blues-will-bitcoin-render-financial-auditing-obsolete\/"},"modified":"2017-11-16T01:25:28","modified_gmt":"2017-11-16T06:25:28","slug":"deloittes-blockchain-blues-will-new-technology-render-financial-auditing-obsolete","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/deloittes-blockchain-blues-will-new-technology-render-financial-auditing-obsolete\/","title":{"rendered":"Deloitte\u2019s Blockchain Blues: Will New Technology Render Financial Auditing Obsolete?"},"content":{"rendered":"

Just Trust Us<\/strong><\/p>\n

For the casual stock picker, it\u2019s easy to take for granted the availability and reliability of data available for assessing a company\u2019s financial health. Arriving at the clean-looking financial statements companies provide seems straightforward; in reality, it is an exhausting exercise. Internal accounting teams must use the tedious double entry accounting method to know whether they can trust their own books. To assure the public of the veracity of these statements, independent auditors are employed to verify that the internal accounting stays true to a complex set of regulatory control mechanisms, checks, and balances [1]. The whole process is both time intensive and costly, but ensuring that financial information about a firm\u2019s performance can be trusted is the bedrock of making sure financial markets operate efficiently. Thought of from this perspective, auditing firms like Deloitte are less an auditor of financial statements than a creator of trust.<\/p>\n

Enter blockchain, a decentralized, digital ledger where transactions are recorded instantaneously and publicly. By having thousands of computers on a network independently encrypt, verify, and record transaction on a public ledger, forgery or data alteration becomes a practical impossibility [2]. With blockchain technology, a consumer of financial information no longer has to rely on taking a company\u2019s word that financial data is accurate or Deloitte\u2019s word that it\u2019s truthful; the data can be found quickly, accurately, and publicly, without the need of intermediary bookkeepers, auditors or other third parties.<\/p>\n

Keeping this in mind, blockchain technology poses a serious risk to Deloitte\u2019s auditing business. If blockchain can cut through a sea of regulatory code and efficiently record and verify the accuracy of a company\u2019s internal transactions (Deloitte\u2019s main value proposition to the company) and it can be trusted to verify the truthfulness of the company\u2019s financial statements to the public (Deloitte\u2019s main value proposition to the public), the value Deloitte has to offer as an independent auditor will be called into question as blockchain technology proliferates.<\/p>\n

Ready, Aim, ?<\/strong><\/p>\n

Seeing the potential disruption the still-young blockchain technology could have on its core business, Deloitte has started investing heavily in both learning about and shaping what the future of the blockchain technology could look like.<\/p>\n

In the near term, Deloitte has opened three blockchain labs in Dublin, New York, and Hong Kong, where Deloitte is building up a staff of blockchain developers and designers. These labs are focused on clients in financial services and their purpose is twofold: 1) develop a platform for the creation of blockchain technology, and 2) start creating prototypes of blockchain solutions [3]. According to Deloitte, current blockchain prototypes being worked on include \u201cdigital identity, digital banking, cross-border payments, trade finance and loyalty and rewards solutions, as well as distinct efforts for the investment management and insurance sectors\u201d [4]. While a robust list, conspicuously absent from it is any mention of tools for traditional auditing, currently its largest business segment by revenue [5].<\/p>\n

Longer-term, blockchain technology is expected by some to start replacing legacy accounting systems as early as 2023 and be widely accepted by 2025 [6]. However, predicting the advances and adoption of a technology still in relative infancy is incredibly difficult. As such, Deloitte has made it clear that the current work being done in the blockchain labs is a starting point. Deloitte can\u2019t predict exactly how blockchain will be used in the future, but the labs should enable Deloitte\u2019s blockchain capabilities as fast as the technology itself grows.<\/p>\n

Pivoting the Profit Pool<\/strong><\/p>\n

Deloitte\u2019s investments in the blockchain labs may prove to be quite prescient, but a further investment in products outside of financial services and in their classic auditing business will be critical to protect a core part of their business. In the near-term, Deloitte should be developing blockchain products that streamline a company\u2019s internal record-keeping. As an auditor, Deloitte is uniquely positioned to understand the needs companies have for internal audit and controls. As Deloitte learns more about developing blockchain technology in the long-term, they can combine both of these knowledge sets to be a provider of blockchain auditing services. Pivoting from manpower-driven auditing to technology-driven auditing will no doubt be a difficult move for Deloitte to make, but will be an imperative one for Deloitte to stay ahead of its current, known competitors and its future, yet to formed ones.<\/p>\n

Questions Remain<\/strong><\/p>\n

Given the absence of auditing prototypes begs the question: is Deloitte ceding that their auditing business is ripe for disruption, or is it too early to tell? Does blockchain technology truly pose a disruptive threat to auditors, or will there be a similar need for human oversight as blockchain technology progresses?<\/p>\n

Word Count: 770<\/p>\n

[1] Blockchain Technology: A Game Changer In Accounting?<\/em>. 2016. Ebook. Deloitte. https:\/\/www2.deloitte.com\/content\/dam\/Deloitte\/de\/Documents\/Innovation\/Blockchain_A%20game-changer%20in%20accounting.pdf<\/a>.<\/p>\n

[2] “Blockchain Promises Accountants, Auditors And Their Clients Better Data Sooner And Cheaper”. 2017. NASDAQ.Com<\/em>. http:\/\/www.nasdaq.com\/article\/blockchain-promises-accountants-auditors-and-their-clients-better-data-sooner-and-cheaper-cm726746<\/a>.<\/p>\n

[3] “EMEA Blockchain Lab | Deloitte Ireland | Press Release”. 2017. Deloitte Ireland<\/em>. https:\/\/www2.deloitte.com\/ie\/en\/pages\/about-deloitte\/articles\/emea-blockchain-lab.html<\/a>.<\/p>\n

[4] “Deloitte Launches Blockchain Lab In New York, Increasing Focus On Key Technology In \u2018Make-Or-Break\u2019 Year \u2013 Press Release | Deloitte US”. 2017. Deloitte United States<\/em>. https:\/\/www2.deloitte.com\/us\/en\/pages\/about-deloitte\/articles\/press-releases\/deloitte-launches-blockchain-lab-in-new-york.html<\/a>.<\/p>\n

[5] “Accounting Services In The U.S. | Statista”. 2017. Statista<\/em>. https:\/\/www.statista.com\/study\/23427\/accounting-services-in-the-us-statista-dossier\/<\/a>.<\/p>\n

[6] “Why Cpas Need To Get A Grip On Blockchain”. 2017. Journal Of Accountancy<\/em>. https:\/\/www.journalofaccountancy.com\/news\/2017\/jun\/blockchain-decentralized-ledger-system-201716738.html<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

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