Blockchain can transform financial reporting and auditing, improve integrity, boost efficiency, and cut costs, according to a study by the University of Maryland (UMD).
“A lot of auditing firms want to use blockchain and they want to apply technology. I wanted to build a use case for blockchain that works for auditing firms,” stated Sean Cao, an associate professor at the Smith School of Business at UMD, who led the research.
Titled “Distributed Ledgers and Secure Multiparty Computation for Financial Reporting and Auditing,” the research was published in Management Science. It took Cao and his team six years to delve into how blockchain can disrupt traditional auditing methods, making them more transparent and efficient.
Auditing relies on “unbiased financial report,” and the report notes that auditors and regulators have been seeking new ways to improve reporting integrity for decades. Despite the digitalization of the industry, it still takes massive amounts of time to verify transactions, especially where transaction partners are hesitant to share data due to privacy concerns.
“It is labor intensive and you cannot verify all the receipts. You’d have to do a random sample. But there would be errors because it is really random,” Cao noted.
Blockchain can transform this process, verifying the transactions efficiently and cost-effectively, the report states. Unlike other centralized solutions, blockchain’s efficiency doesn’t sacrifice data security and privacy, which is critical in the financial world. Cao believes that integrating blockchain could lead to cost cuts of up to 70%.
The report acknowledged that integrating blockchain has shortcomings, noting, “The only thing it cannot replace is when a transaction requires discretion.”
However, BSV offers enhanced privacy through its overlay networks, which operate on the BSV Node Network. Private overlays built atop the BSV blockchain can offer limited and/or permissioned access for specific individuals or entities while leveraging the decentralized network for impenetrable security.
In a previous report, auditing giant Deloitte noted that continuous online audits are on the horizon with the integration of blockchain in the auditing process.
“Deloitte envisages that, at the end of the blockchain road, fully automated audits may be a reality,” it stated.
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