Blockchain technology: An effective measure to carry out carbon information auditing
Introduction of blockchain technology in carbon information auditing: One of the evolving technologies across the world, Blockchain has been transforming financial transactions, as well as the world of corporate reporting. Earlier, people used to just imagine if they could process and execute transactions automatically and wanted them to be verified in real-time. People also wanted a computer to settle derivative contracts on their behalf. Well, it all sounds fascinating and imaginary but the Blockchain technology has changed it all and turned out to be the biggest aspect of the future.
Blockchain technology is known as the distributed ledger that supports the digital currency Bitcoin. However, it can also be used to host other purposes that include transmitting data in a secure manner. These purposes also include processing payment, online voting, executing contracts, vis-à-vis signing documents digitally, creating verifiable audits, and the registration of digital assets like stocks, bonds, land titles, etc.
The potential of blockchain technology within the industry of transaction-based financial services is vast and relevant to the organizations in each sector.
Besides, blockchain technology has the potential to overturn entire business models in certain sectors. For this, it can empower the growth of “virtual organizations,” often referred to as decentralized autonomous organizations (DAOs).
The DAOs are operated with the help of computer programs. These are known as “smart contracts” that automatically executes the terms of a contract – for instance, transferring money or assets.
The Q1 2016 State of Blockchain report by CoinDesk, a news website that is specialized in digital currencies, stated that US$1.1b of venture capital was invested in Bitcoin and blockchain-based start-ups by the first quarter of 2016.
Alex Tapscott, the CEO of Northwest Passage Ventures and the co-author of the prominent book Blockchain Revolution, once, said that Blockchain technology is nothing less than the second generation of the internet. He said that it will have deep impact not just on financial services, but also on the world of business and society. It was for the first time in history that two or more parties were required to know or trust each other in an order to transact or do business online, he said, adding that each and every company would need a blockchain strategy in the future.
Automated processes
As times are changing and the world is witnessing the digital revolution, finance companies can make good use of the distributed ledger, along with artificial intelligence, in the future to automate several processes, including payments, foreign exchange trades, and the filing of tax returns. Besides, financial services can outsource some parts of their routine work to DAOs in an order to enhance efficiency.
While the data stored in the blockchain technology is said to be authenticated by several parties and is updated, it proposes finance teams with the possibility of both real-time reporting to the management and external auditors besides being able to work more effectively with the external audit and tax providers.
Audit Implications
Blockchain technology can have some considerable implications for auditing. Alex Tapscott stated that whenever a company processes a transaction, an unaltered record would be automatically reported to a distributed ledger. With this, an individual participant would be able to have a real-time audit as all the transaction data was being recorded to the distributed ledger.
Undoubtedly, the world is moving to real-time auditing. In the meanwhile, Blockchain technology can also charm the end of random sampling by external auditors as a code has the potential to perform a check on every single transaction in the future.
Likewise, several experts believe that blockchain technology, along with artificial intelligence, may bring revolution where fraud investigations and forensic accounting would be undertaken. The real-time systems would be able to highlight and probe the unusual transaction patterns as and when they emerge.
However, several people suggest that auditors would always be required in an order to create appropriate audit strategies in complex systems because you would need to make decisions about what level of audit is required, and how data must be captured besides figuring out the type of audit analytics that must be brought in use. Similarly, it will be necessary to provide assurance in a highly complex control environment. For example, it is important to ensure the party or entity that the records on the distributed ledger do exist and that the transaction has an economic substance.
Professor Nigel Smart from the University of Bristol believes that the auditors not only add up the numbers but also make sure they come to the right value. He also said that they also audit control the mechanisms, disaster recovery, processes, resilience, and systems. Therefore, he believes, the auditors need to audit if the distributed ledger systems are working properly.
Blockchain technology is an effective measure to carry out carbon information auditing
Blockchain is an extremely secure platform where each and every transaction is digitally signed. An individual is given assurance that only a certain party would be having the said record. Additionally, the data is validated by a majority of other participants on the network. In case, the majority of the participants on the distributed ledger become corrupt or try to alter the data, it might break the chain.
Blockchain may be vulnerable to several programming mistakes. For instance, a Swiss-based DAO, known as The DAO, found that it lost US$50m in virtual currency, back in June 2016, after an unidentified person exploited a programming mistake. Notably, there are no such systems that are flawless, not even blockchain technology.
Blockchain has several issues that need to be addressed and these include its slowness, heavy consumption of power that which makes it expensive to run, and issues related to privacy as other participants on the ledger should be allowed to see data if they have to validate it, lack of standards governing and its limited scalability.
Owing to the opportunities and risks related to blockchain technology, the technology has unsurprisingly grabbed the attention of governments, central banks, and regulators. Back in June 2016, the European Securities and Markets Authority made an announcement that they were consulting on whether distributed ledger technologies should be used in the markets.
In the meanwhile, Paul Brody, Global Innovation – Blockchain Leader at EY, said that regulatory approval was needed for any major implementation of the blockchain in the company’s assets and reporting.
He added that Blockchain technology has been spreading in non-regulated areas, both as a general-purpose information technology and a tool for integrating financial services. The companies will utilize these unregulated use cases to generate confidence as they implement blockchain in their key financial operations, gradually.
Conclusion
The introduction of blockchain technology has been an effective measure to carry out carbon information auditing. It has revolutionized the process of financial transactions and changed the world of corporate reporting. Blockchain is considered the future and it is being considered for all good reasons.
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