No More Cooked Blocks - Mainstream Auditors Enter the Fray
Auditing firms have long kept businesses and financial institutions in check with thorough investigations of company accounts. The process ensures that everyone plays by the rules which protects both employees, investors and customers from being burned by dodgy accounting practices. In what is a big move for cryptocurrency and Blockchain technology, accounting giants PricewaterhouseCoopers will offer Blockchain auditing services to monitor and review the implementation of the technology by various clients.
What do we know so far
According to the Wall Street Journal, the firm will start auditing various companies’ Blockchain systems. The accounting giants will be able to facilitate the launch of Blockchain services and then monitor transactions validated by distributed ledger technology (DLT). The mechanics is pretty simple. As a company’s Blockchain processes and stores transactions, PwC will also record each transaction allowing its clients to view and test transactions.
This is not only targeted at companies considering launching their own inhouse decentralized ledgers, as PwC indicated that a digital-wallet service is among the list of clients using the firms new offering. The auditors are keeping their cards close to their chest in regards to the amount of companies that have signed up for the new service. But among that list is said to be a major stock exchange that wants to make sure its blockchain-powered payment system is working correctly.
Auditing a Blockchain is not that simple
As PwC internal technology audit solutions head A.Michael Smith told WSJ, the fact that DLT is in its infancy means there is still a lot of apprehension towards adoption: “There’s a natural predilection for people with new technology to be distrustful of it. There’s going to have to be some kind of independent validation that the technology is functioning as intended.”
However, there is a distinct difference between blockchain and an accounting ledger, according to Cointelegraph contributor and International tax attorney Selva Ozelli: “Blockchain is a ledger system that keeps track of cryptocurrency or other digitally transferred information. But Blockchain technology is not an accounting system and there is a distinction between the two.” What this means is that conventional accountants in-depth knowledge in their field is not necessarily transferable to DLT applications:
“Auditors have the knowledge to verify financial information prepared by a computer system, and Blockchain is a ledger system. However, auditors will need to come up to speed on the nuances of each Blockchain design, to be able to properly audit and verify the information it produces.
In the future, as Blockchain is widely adopted and laws regarding auditing financial statements prepared using information produced by Blockchain systems are amended, the function of auditors vis-a-vis verifying financial information prepared by Blockchains may change.”
As Ozelli sums up, Blockchain technology is essentially designed to eliminate fraud as well as the need for 3rd party auditing.
What it means for Crypto
PwC global innovation leader Vicki Huff told the World Street Journal that its “compliance teams don’t know what to do with it (Blockchain)”, which has led to the development of its newest offering.
While Ozelli believes Blockchain technology is a different beast altogether, that does not mean that the auditing firm is out of its depth. Blockchain technology is a decentralized ledger, a network of computers that verifies and records transactions without a central authority. The data is encrypted, and cannot be altered retroactively. But as history has shown, system faults and unidentified bugs can end badly.
PwC’s product could potentially add value to both companies and their consumers. By having a third party evaluate its system, a company is double-checking that its blockchain works as intended. That in turn could provide peace of mind for consumers using that specific system and knowing they are using a service that is reliable. But, most important, PwC could also end up weeding out ICOs or companies whose blockchain services are buggy or faulty by giving them loads grade.
What this promises to do is bring the world of cryptocurrencies and accounting together. Those with a wealth of knowledge in cryptography will be needed to help accountants delve into the blockchains they are auditing. As Ozelli suggests, this type of collaboration is pertinent for auditing firms to help companies monitor and develop their blockchain services: “To be able to provide insights to the further development to Blockchain systems into accounting systems, an auditor would need to have some knowledge of cryptography.”
The general feeling
On the one hand, PwC’s Blockchain auditing service will add another dimension of accountability and credibility to ICOs and companies that are implementing Blockchain systems to improve their businesses.
Then there’s the simple fact that Blockchain technology was created to remove the need for a central authority processing transactions as well as auditing of those transactions. So it’s almost an insult to Blockchain that it needs to be audited. Nevertheless, a glaring positive is that businesses will have a reputable auditing company that will help setup and monitor respective blockchain implementation. This can only lead to further adoption in the business world.
Financial service giants NTRS using PwC offering
Asset management firm Northern Trust (NTRS) claims to be one of the first financial service corporations to implement the PwC auditing system for its private equity Blockchain. On February 21, NTRS launched its inhouse Blockchain that enables certain customers to manage shares on what it describes as a ‘transparent DLT platform’. That Blockchain is now being audited by the PwC product. It allows auditing firms to store their own node of the NTRS Blockchain allowing real time auditing of transactions of shares remotely.
Cointelegraph is still awaiting a reply for official comments from PwC. This article will be updated as soon as we receive them.