September 23, 2019
5 min read
This article sheds light on how Blockchain technology can and has been changing the financial and auditing sector.
The digital transformation has disrupted the way transactions are done and data is stored, and the finance sector has been impacted equally. With people becoming more aware of the Blockchain technology, an increasing number of businesses are developing their strategies to incorporate Blockchain in their businesses. Many financial and audit firms are saving on a huge chunk of the time, money and resources spent on assessments; the healthcare industry is saving efforts and resources in saving sensitive patient data; the education sector is able to maintain strong cybersecurity- all because of Blockchain Technology. This article sheds light on how Blockchain can and has been changing the financial and auditing sector.
A blockchain is a time-stamped series of an immutable record of data that is managed by a cluster of computers which are owned by any single entity. Each of these blocks of data is secured and bound to each other using cryptographic principles i.e. chain.
The Blockchain network is a shared and immutable ledger and the data it contains is open for anyone to access. Hence, anything that is built on the blockchain is transparent and everyone involved is accountable for their actions.
A blockchain is irreversible and contains a verifiable record of each transaction made on a particular blockchain. This prevents double spending of the item tracked by the blockchain. All participants using the shared database are connected to the blockchain. In a blockchain, every entry is a transaction that represents an exchange of value between participants.
To achieve its daily target the finance, auditing and accounting sector still relies upon checks and balances and manual performance of tasks such as bookkeeping, preparing the financial statements, balancing the profits and losses, etc. Businesses rely on outside auditors for these tasks and this often results in duplication of efforts, extensive documentation and overspending on resources.
Blockchain technology introduces the concept of Smart Contract to the world, making cross-border agreements more secure. Smart Contracts are encrypted programmes that allow the transfer of digital assets between the parties under certain conditions. In simple terms, just like a traditional legal contract is enforceable by law, smart contracts are enforceable by code.
A smart contract is a digital or crypto contract with the security coding of a blockchain. A smart contract has details and permissions written in code that require an exact sequence of events to take place to trigger the agreement of the terms and conditions laid down in the smart contract.
Blockchain consultants state that the technology behind smart contracts makes them secure, transparent, inexpensive and decentralized. It also decreases the time taken in completion of the business processes, reduces the chances of errors and makes the entire process cost-efficient.
Blockchain technology reduces the time taken in completion of transactions to merely seconds. When compared with the current financial system, Blockchain also takes equal to no time or resources for completing redundant tasks such as processing the data of multiple transactions.
Blockchain technology can impact all recordkeeping processes, including the way financial transactions are initiated, processed, authorised, recorded, and reported.
All the transactions done over a shared database are open to everyone and time-stamped. This increases the transparency of financial transactions and accountability of each person transacting.
The building block in the financial statements is the happening of multiple transactions in the business. With blockchain, the need for financial statements audit by an auditor can be eliminated in the near future as the statements can become free of material errors or omissions. The acceptance of a transaction into a reliable blockchain will become the audit evidence for whether a transaction has occurred or not.
The blockchain technology can allow for an automated third-party verification by a distributed network to ensure that transactions are complete and accurate and unalterable. Additionally, since everyone involved in the blockchain is accountable for their entries, fraud and erroneous transactions can be completely eliminated.
However, there are many questions that still remain unanswered -what blockchain is best suited for finance and auditing functions? Who secures this blockchain? How can you ensure data privacy relating to companies’ financial information? Can Blockchain replace Auditors?
To know the answers to questions about Blockchain technology in finance and auditing sector, connect with the best Blockchain consultants in India through SeekWiser. Know more about Blockchain technology and its implementation by giving us a call at +91-8010880066 or sending us an email at [email protected].
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