Blockchain can launch practical, continuous auditing of financial statements, but governments will supervise its use closely to ensure it doesn’t impinge on their ability to collect taxes, according to accounting professors.
The increasing use of shared data and blockchain makes continuous auditing more feasible because the technology can more rapidly spot differences in transactions, Miklos Vasarhelyi, director of accounting at Reuters University, told the American Accounting Association Aug. 6.
“Blockchain is perfect for continuous auditing because every moment that you close a block is a moment that you can pick up data,” Vasarhelyi said. Blockchain is becoming “very relevant” to accounting and auditing, he said.
However, “governments need taxes,” Vasarhelyi said. “If they cannot observe transactions, they cannot collect taxes, so you have to expect that most digital currencies are going to suffer some form of government regulation.”
Blockchain is a transaction-recording mechanism in which transactions, especially in cryptocurrencies, are stored securely and verifiably in data blocks of computer networks.
Blockchain “is just another one of those technologies that is going to disrupt how we audit, why we audit,” and the profession must become more familiar with how it works and its potential, Shaun Budnik, audit partner at KPMG LLP, told the AAA.
Distributed Ledger Technology
The first thing Jay Thibodeau, director of the accounting and auditing curriculum at Bentley University in Waltham, Mass., emphasizes for his students about blockchain’s potential impact on auditing is “the more general term, ‘distributed ledger technology,’” he said. “The reason I do that is to notice the term ‘ledger.’ So if you’re an accounting professional and aren’t worried about distributed ledger technology, I think you ought to be.”
A distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites. It has no central administrator or centralized data storage.
Vasarhelyi said that all of the European Union auditing oversight authorities have launched “a big initiative in blockchain” to understand its use and implications for auditing. All of the European big and mid-sized audit firms also have “started something in blockchain.”
European authorities and firms are examining “all the angles,” including blockchain’s potential for tracking “public records of real estate transactions in underdeveloped countries” and using it to run stock exchanges, Vasarhelyi said.