The impact of Blockchain technology to Financial Audit

Evolution of Audit

Audit has evolved through the years from ancient checking of activities in the ancient civilizations of China, Egypt and Greece to the advent of the Industrial revolution in the mid-nineteenth century in the UK.The traditional conformance role of auditing shifted from ensuring the credibility and integrity of financial information to not only enhancing the credibility of the financial statement but also provide value-added services such as reporting on irregularities, identifying business risks and advising management on the internal control environment. We are now in the middle of a technological revolution and blockchain will create a huge disruption in the audit field, auditors will be required to embrace change in order to meet the needs of the business environment. For instance, auditors will be required to audit crypto assets and other emerging digital finance assets, which were nonexistent at some point in time.

What is Blockchain Technology

Blockchain is a technology that allows users in a transaction to access the same data instantaneously. It is a peer-peer, internet-based ledger which includes all transactions since its creation. All users maintain an identical copy of the ledger of every transaction.

Many have argued that blockchain would displace the auditor’s role since all transactions are captured in an immutable blockchain. The principal objective of an audit is to provide reasonable assurance that all transactions are supported by evidence that is reliable, relevant, objective, verifiable, and accurate. Even though the transactions are captured in a fixed blockchain, the transactions may still be fraudulent, unauthorized, or incorrectly classified in the financial statements.

Blockchain Solutions in Audit

The technological revolution is seeing more industries migrating into blockchain solutions. This is a welcome development for auditors, as it will ease their work by eliminating manual data extraction and tedious audit planning procedures. The audit process will be hastened as supporting documents could be encrypted and linked to a blockchain. Human error may also be reduced as access to information will be consistent and readily available. The auditor’s skill will be spent better at considering high-level questions, technology, advisory, and giving transformative solutions to clients.

 An auditor will have to add a new skill set such as an understanding of contemporary programming languages such as Java or Python as it will help them in the deep analysis of high-volume data that technology has made available. Auditors will need to evaluate blockchains because they may have to provide assurance to the stability of an existing blockchain.

There also will be a transition of the audit process from a once mundane retrospective/forensic point-in-time to an ongoing real-time monitoring effort. This would mean that there will be a potential transition of the audit process from a periodical exercise to a continuous exercise. Auditors will now be focused on the efficiency of the internal processes and this will allow timely flagging of unusual transactions.

Change is constant; the only certainties in life are death and taxes. We should be ready to embrace change in the audit field.

Related: Internal Audit and Corporate Governance

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