Blockchain Tech: Disruptor or Enhancer of the Accounting & Auditing Professions

Transcript

hello and welcome everyone my name is Peter Robinson and today I have muscle badine who is going to tell us about his PhD research and yeah do you want to introduce yourself as a starting point thank you my name is I'm from Nigeria I just completed my PhD at the University of waikato New Zealand I'm privilege to have study in four continents Africa Eastern Europe and now Pacific um thank you for inviting me to share part of my research work

with this uh erudite group and I'm open to your comments feedback and contributions thank you and glad to have you on glad to have you here today so look um please share your slide actually before you share your slides are you happy for people to ask questions when they like or should people wait to the end how do you want to do questions maybe it was the words to the end yeah yeah that's okay that's that's good all right so please share your slides and um so people if you're worried about remembering your question for the end maybe put it in the chat and that way we'll be able to go through the

questions at the end if you've um forget them um yeah so please over to you thank you foreign yes yes we can okay good afternoon from uh NZ as I said earlier my name is I will just take through part of my research which investigator blockchain technology whether it's going to be a disruptor or an answer to the accounting and auditing profession

and this work is a carry out under these provisions of associate professor of Mary Lou doctor of vidabotis and Professor Steve Reeves all are from University of waikato my talk this afternoon the outlines covers a brief introductions of what the blockchain is like the background of the research the research objective and the approach that we adopted some of the findings the challenges that we Face undertaking

This research and a little contribution we have made then I will handle by also so the future talks that we are expecting on this uh platform let me start with the introduction there are a lot of a general statements about what the blockchain is going to do to a lot of profession generally a lot of people believe that with the Advent of blockchain there are not going to be mid domain any longer because the technology is capable of doing factually everything some writers believe that

blockchain auditing it will enable us to have automated audits therefore we are unlikely going to have the role of auditor is going to be Hotel scores and tasks believe that some management function will go away if blockchain is actually adopted and some of these functions include banking lawyer accountants Rose and what have you Professor yema strongly believed that if blockchain is adopted stakeholders can prepare financial statements independently without request

to accountants because each person will have a copy of the ledgers and The Institute of Charter accountants in England and Wales believe that blockchain will automate accounts and ledgers CPS Canada also share the same view they believe that the total record keeping will be automated starting from the initiation of the transactions to the payment ends looking at some of these statements and general assassins about what the blockchain will do inform our decision to actually look at whether blockchain

we enhance or disrupt the accounting and auditing profession going to the researcher background as we speak there is no universally accepted definition of what the blockchain technology is all about however International standard of organization is working on accepted definitions many writers have coined the definition of blockchain around its unique features which is they've described it as a share distributed Ledger which is

decentralized and the communication Zone blockchain network is on peer-to-peer basis and whatever decision taking on blockchain is carrying out by majority of the users and the records on blockchain are immutable they are transparent they are irreversible and it can be easily audited and once the transaction is timestamp it cannot be reversed and the main things behind the blockchain itself is the cryptographic security that makes this ledgers or transactional need to be

irreversible because of some of these unique features a lot of writers believe that the technology will impact accounting and auditing profession and then which aspects of this accounting and auditing profession that the technology will impact some people believe that the technology will revolutionalize their entire accounting profession and it will list a reduction in the cost of preparing reconciling and provision of assurance work by some of the auditing firms

some believe because of the same unique features it's going to enable us to have equal access to the financial leaders because based on the unique features of the technology each participant supposed to have a copy of the ledgers and because the decision that will be taking on the blockchain will be based on consensus it will be difficult for anybody to actually duplicate or carry out any fraudulent transactions some believe that with a blockchain then the financial statement will be more reliable and the technology is capable of

facilitating triple entry accounting system it is also believed that the technology will guarantee tax payments and eliminate tax frauds these are some of the key accounting rules and with the technology the audit to be automated and we may not likely require the services of Auditors again when he said it will reduce the role of auditing firms or eliminates the rules of a accountant then what are the existing research Gap

that we found from the literature that we refuse so far some Scholars develop some blockchain accounting models which they believe that if put into use it will reduce the role of accountants and auditor but some of these models they require empirical validations because they are still what I can refer to as lab based model in 2021 lombardier believed that one of the gaps that we face in researching into the implications of

blockchain technology assist will affect accountants that there are no engagements with the practitioners of the accounting profession or outside the accounting profession itself and also there is a positive of knowledge about the Practical implications of what obesity or the blockchain technology can do itself so our study is qualitative study and we engage practitioners beyond the accounting firms we ensure that blockchain startups and I.T experts were among the people that we engage so as to

feel the identified research gap which is the lack of Engagement with the so this leads me to the main objective of my study which was to critically examine whether blockchain technology will enhance or disrupt the accounting and auditing out of this Central objective these are some of some objectives that We examined we look at it at what actually will be the accounting practices that we change in the blockchain based environment

what areas with the technology actually enhance or disrupts if the unique features of the blockchain comes into play are audit was still going to be relevant or not in the financial system and we also try to find out from the participants are they aware of any organization that are currently using blockchain for financial accounting and Reporting purposes having briefly talked about some of the objectives and what we actually look at let me take a quick look at the research

methodology and method the methodology we adopted research is qualitative exploratory research and we rely on constructivities and interprepsis approach this approach enables us to co-construct the multiple meanings and interpretations by different participants in the latest slide I will share more information about the participant themselves so why choosing qualitative study the research is qualitative

because it enables us to interact with the practicing us who have hands-on experience on the usage of a blockchain itself so going to the method and the design access to data initially it is difficult to access data because of the commercial sensitivity of blockchain Technology itself but we were able to conduct 198 participants and out of this 198 we secure 44 participants who eventually participated

and the sampling method we adopted has to be purposeful sampling why purposeful sampling because we need to pre-qualify the participants it's not just anyhow person who we want to participate in this research did the criteria are you must have basic understanding of how blockchain works or your organization is having one or two experiments about what the blockchain is all about and from the engagement with some of these participants which leads to snowballing techniques some of them subsequently revise to their contacts oh who have the knowledge of blockchain

technology or not the data collections we use semi-structure interview why semi-structural interview because it enables people to speak freely to express their ideas what they know about the phenomena that we are researching into which is the blockchain technology the data were analyzed with the aid of and Vivo qualitative software because the data is really following us talking to 44 participants across the globe and the findings thematic data analysis were used for the finding

let me give us a brief background about the profiles of the participants excuse me as I said earlier we contacted 198 participants across the globe out of this 198 participants were only able to secure the consent of 44 who met the criteria set out and are willing to participate in the research out of these 44 participants we got 44 people Direct and

using this snowballing technique were able to get 27 people 30 27 referral so these 44 participant cut across 13 countries and five continents top on the list is the United States of America we have 14 participants from there followed by Altera New Zealand with 12 United Kingdom Australia and the rest of the Country Canada Island India Germany Italy South Africa Hong Kong and United Arab Emirates we have one participant each then these 44 participants were further

group into six categories so as to be able to situate their thoughts so the first category are participants from blockchain startup and I.T experts these are the people that actually have hands-on experience on how blockchain technology itself works then the second categories are professional accounting bodies here we have Australia and New Zealand CPA Australia Institute of Charter accountant in England and Wales

South Africa Institute of Chartered Accountants ACC a global American Institute of statified public accountants these are the professional accounting bodies that we talked to then the participants Will Group under audit and Assurance firms these are the people that work in the Big Four because they are the ones that are experimenting a lot with the blockchain technology itself some of them are audit partners some of them are directors some of them are Associates and some of them are in charge of the its in audit and Assurance

firms people with place under accountants and Auditors group some of them have previously worked with the big four but some of them are currently ahead of Finance directors working in banks for their accountants a financial analyst and other experts we have senior editors from Jonas we have expert from Supply Chain management and last but not the least are the academics we have professors there associate professors and senior lecturers so having taken us through the research methodology and Method and the profile

of participants I will now dovetail into some of the research findings starting from a the most highlighted areas that participants believe that the blockchain will have effects on the accounting practices using the and Vivo we have a word cloud majority of the areas that come up using the Vivo states that it will be a Reconciliation of the accounts the normal bookkeeping maybe checking and infantry these are some of the areas

that the participant believe that the technology we have impact on the current accounting practices much detailed talks goes into the roots of the accounting system itself which is the double entry accounting system we're all aware that this is the foundation of accounting it's either you debit it or you credit it so from the participant point of view there are diverse opinion as to whether the blockchain technology we disrupt Double Entry accounting

system or not there are three emerging teams among the the first group believe that the technology will disrupt the double entry accounting system the second group believed that it will only enhance the double entry accounting system and the third group believe that no the technology we had no value to the existing Double Entry accounting system I will go through each of them one by one and see their supporting view too starting from the group that believe that the technology

will disrupt they strongly believe that because of the unique features of the blockchain it will enable one Ledger and one account and if we have one Ledger and one what is the essence of having a double entry system that with the blockchain technology the double entry system will be eliminated they also strongly believe that the we bring in we facilitate accurate accounting Ledger

and it will bring about trust among the stakeholders and the reason is simple if all of us have a copy of Ledger why am I going to be worried why do I need to rely on the job of accountants if I actually have a copy of The Ledger so taking a sample of taking one of them one of this statement as representative some sample they believe that the technology we bring will be it will it will be more accurate and better we don't need that having a credit and debit entry does not say the double entry system is correct but if anything

is actually in a blockchain system it will be correct and accurate that is the group that believe that the technology will disrupt the double going to the second group that I've just simply believed that no the technology will only enhance the double entry system or at best just evolve the triple entry accounting and the triple entry accounting system there have been a lot of write-up on it but what is common among the writer is that the existing double entry system will still be there www credits and there'll be that third

leg that would be in the blockchain itself which will be permanent and immutable the representative sample believe that there has to be a distribution when there is an entry there will definitely be two legs that means we still have debit and credits and then the blockchain we hold the third entry so that is the only aspect that the blockchain will bring on board to the existing double entry system it's not going to disrupt it the last team is about the naysayers they believe that the blockchain technology

will add no value to the existing double entry system or change the existing configurations and this group believe that one historically blockchain the double entry system has been there for more than a thousand years and what is new that they blockchain technology is going to bring the technology itself does not really fit into the accounting transaction system taking two example the last one said I

don't know the blockchain has a much to answer the double entry bookkeeping I think it has a possibility for helping to verify and to work on some of the aspects of record keeping but I don't think it changes the fundamental nature of how we mess up business which is fire this very well evolved system and the system they are referring to is the double entry system itself this is our finding as regards to whether the area that the double entry whether the blockchain technology we disrupt or enhance the double entry so this leads me to the second finding

which is about whether auditors are still relevant in the blockchain environment the majority of the participants believe with or without blockchain the role of Auditors cannot be that the auditor will still be relevant however we have some dissenting voice that believe that no with blockchain the role of auditor is no longer going to be there but let me first of all take a look at the majority who believe that the role of auditor

will still be there irrespective of whether we adopt technology or not so the majority believe that what they believe that the technology will help us to do is to reduce cost or address some of the major challenges we are facing in accounting when we still require auditor to check whether the blockchain is actually turning out what is expected to do or not for instance the one of the academies believe that I don't think there's a technology that ever exists that will replace the human 100 percent

probably is going to eliminate certain activities but it is all going to is also going to create different activities so some of these activities that some of them believe that is going to create is that if you are using blockchain now the government want to know the investor want to know is this blockchain actually doing what is expected to do is two plus two in blockchain is four or it's going to be 5 at the end of the day and in the Accounting Group they believe that there are a lot of area where the blockchain is not going to make a big difference auditing is one of them so these are some of the views of the

that the blockchain technology will not eliminate the roles of Auditor in the financial however there are dissenting Force there are minority who believe that no look we are holding a contrary View this technology is capable of eliminating auditors of auditor become less relevant if we actually adopt blockchain technology for reporting purposes because if blockchain is being implemented from the first place in the business organization then automatically all transactions that

as I said earlier we all have a copy of these transactions so what will now be the role of Auditors do we still need them to perform any transactions hello hello yeah we can see that was a mistake all right all right thank you so these are the contrary views they believe that the rose of auditor will go away whether we like it or not but the majority believe that the role

of auditor will still remain there so at the end of the day we now want that to know are there organizations that are actually using the blockchain of financial reporting and accounting transactions or not so my surprise majority of the participants believe that outside the cryptocurrencies there are no organizations that have adopted blockchain technology for full financial reporting and though in New Zealand I know fontera is using blockchain technology to undo

their shipping documentations and when I program further that do you interlinks this segment of your documentation with your Oracle Financial system they say no it is a standalone system blockchain we are currently using just to undo the documentation for the shipping so the 44 participants we talk or we chat with over 44 country none of them have seen any organization that have adopted blocked him for financial reporting and accounting system before and they're taking a sample of one of the participants from the

accounting regulatory body so we have heard from many of the CPA members that have started to adopt the Ai and machine learning tool as well as data analytics data visualization tools and robotic process automation cloud computing and so on but none of them has referred to blockchain technology so in our world none of them has adopted blockchain technology has come across the client that uses blockchain technology for food accounting and auditing this leads me to the challenges we

encounter when we are carrying out this first limited empirical studies with regards to the Practical implication of blockchain technology on the accounting and auditing practices secondly access to data is restricted the blockchain some of the participants are not ready to diverge the detail or for their clients are actually doing with the blockchain so another thing that came to fall is what we refer to the journey Cruiser effects where people exaggerate their knowledge

or underrate their knowledge and I put two examples up here a professor said this professor has written an article before that said the laws of Auditors are not going to be useful it's not going to be relevant so when we are talking he told me he said look I do exaggerate a little bit for effects but I do think that the blockchain is going to affect the accounting profession but not as I projected it earlier also one of the partners from the big four auditing this person is from Australia

said the hypothesis that I have is that blockchain is a fantastic and really interesting technology that has proven itself to have no real world application of value and I'm deliberately being controversial direct I'm waiting to be proven wrong on this it was said to me probably five years ago actually I made that comment on TV but I'm not quite as blatant as I just did then these are some of the challenges we face because qualitative research has its own limitation too it is possible that some people want to project the technology

and it is also possible that some people want to rubbish the technology so with the guidance of the supervisors who are able to moderate some of this because we cross fertilize some of the ideas to debunk some of these claims and to come up with our findings so I haven't talked briefly about the challenges I will briefly mention the little contributions we have made to the body of knowledge and practice we are able to feed the research gaps by engaging with practitioners from different fits outside the accounting professions

and from different geographical areas and this has enhanced two major areas of literature which is blockchain itself and the accounting we've also been able to highlight the deviations between the initial expectations that's blockchain is going to eliminate the rules of accountants or eliminate the role of the auditor and by looking at the Practical implication of what the technology can actually do our finding contest the claim by lombardier that blockchain is already disrupting

our finding contest that blockchain is not disrupting or dating professions we've been also been able to provide insights for accountants Auditors stakeholders who want to know what is the extent of adoption of blockchain Technology for financial accounting and reporting so these are some of the modest contributions we have made with this at this point in time I would like to thank you all first for giving me the opportunity to chat with you this afternoon

I will wait for your feedbacks your questions and comments thank you but before we progress to the questions and comments these are some of the further readings the feature talks now in first of March we're going to be expecting formal verification of this retail validator the March 8th another one comes up March 22. another talk will come up April 5th and finally May touch for this year so thank you I will wait for your comments questions and contributions thank you

yeah well thank you for your um great talk and I'm talking about your um your I don't know are there any questions that anyone else has I know I've got some a question or two but I have a few but if I could just say that's one quick one for sure go away go for it uh so would you say if you included this I apologize I might have missed this particular detail but uh it disrupting obviously how you guys assess the disruption of the role of the auditor as we understand it currently the auditor who would go in and manually check these Double Entry accounting entries and make sure everything adds up and balances

with the auditor not just uh transition to somebody who would audit the actual code of the blockchain like I assume that before coinbase and bitstamp and Kraken and these big exchanges actually brought on some of these lesser-known chains uh like I guess or not lesser known but you know less established it chains like polygon and uh Tron and stuff like that they must have had somebody actually audit the chain to make sure that nothing malicious was in it so with the auditor not it basically your trust is in the actual code of the chain at this point not a central Financial entity did that question come up at all in your research it does we actually specifically asked the

participants what actually will the audit or what actually will auditor audit is it a chain or the transaction itself and the participant believe that the auditor are expected to audible the change and the transaction itself you just don't need to look at the codes is the code properly written is it doing what is expected to do so it's not only just the code including the transactions because the code may be doing something else and if the auditor does not have the knowledge to order the code they believe that another team there are system Auditors there there are I.T experts all with carry out some of those activities for them

yeah um yeah Frank I think you had your hand up as the next one so do you want to ask your question next thank you Peter thank you for the talk um so yes I have a question related to how you measure whether there's a disruption or not so in simple terms what I would like to know it is what are the main sources of errors or inaccuracy or tampering in this right Financial system and can a Technology based on blockchain help to uh to mitigate them so what are the yeah the main sources of errors in accuracies and possibility of tampering with the data

in the system we also asked this question to the because the research also covered the fraud prevention and detection mechanism of the blockchain technology itself what we realize is that they're finding such that the technology can help in detecting errors it cannot prevent for land transactions and I'll give you example financial transaction is beyond going through the codes the costs can be fine it can work perfectly but what of you

and I that are behind the codes the human elements it is possible for us I'm here in New Zealand you are there maybe in Australia and I want to write a receipts and we collude okay write this receipt to be 500. instead of 400. the technology will not detect that there could also be what they call Top party transaction we are by no related party transaction forgive me related party transaction if let's say you want to buy a property from me and you can pay and you don't have access to the property we just share the money the

technology is not going to be able to authenticate that whether the business actually collects the property or not so the inaccuracy the technology as it stands does not have anything inaccuracy in it it is the human element that I want to feed it feed inaccuracy into it and we further go ahead to test can the technology solve the problem of garbage and garbage out conundrum and majority of the participants believe that no whatever you feed into the system is what is going to come out so doing my own self-reflection I think including myself I may be wrong

we are looking at the technology from the point of view of what's the setup of the Bitcoin blocked in and other cryptocurrencies but in the finance world everybody knows that if you are running a blockchain Bitcoin or any cryptocurrencies we all know what you have is it I have 100 Bitcoins you have 1000 Bitcoins you can't spend more than that when you finance watch or in a transaction watch it's a real time people enter transactions the technology will not be able to come up with Excuse me who comes up with a wrong debit or wrong credits so if I must answer your question correctly I don't think

anything is wrong with the blockchain assistant and the configurations and it could be wrong with it from technical point of view but the major challenge would be the human that I want to use this technology Ron why don't you ask your question next yeah I've got a couple of questions so let me sort of start with um one that relates specifically to uh organizations like cryptocurrency exchanges um and uh I'm a sort of FTX for example there's been a lot of discussion uh placed the FTX collapse uh about uh proof of Reserve techniques now there's

actually some some cryptographic techniques where if the um the assets that you're dealing with are just cryptocurrency uh then uh the the blockchain itself can be used in order to provide evidence that an organization like an exchange is actually holding reserves corresponding to to customer accounts uh so did that sort of issued sort of come up in your discussions either from you sort of giving that as an example to the participants to say what do you think of this particular idea or was it something that any of the participants volunteered as an example where blockchain could

could have a benefit I think uh if I can remember vividly somebody May some of that in the passing as I said excuse me as I said earlier Beyond the usage for the cryptocurrency there is no full financial reporting and accounting purposes whereby we can use blockchain technology and a lot of participants especially people from the financial analyst and uh expat group they made mention of whereby

if you use code you can scan the code as I said earlier if everything is on a blockchain system itself it is easier for the technology to trace that because it's a code as you said if the house is registered and it has his own coach it is easier to confirm whether this property are actually transferred to the business or not and if that has not happened it will still be difficult for us to claim that blockchain will be used for full accounting purposes mm-hmm and then my second question is sort of in relation to uh that's that's more

sort of in relation to sort of accruals and sort of contracts that an organization may have signed I I I'm not myself familiar enough with exactly the the attitude that Auditors take to to those um but a a sort of natural language contract which would typically be signed by an organization will then sort of place a lot of obligations on the organization and to what extent are those reflected in the books and there's an inherent issue there with respect to representation of those contracts in a blockchain setting because the contracts are written in natural language rather than in code and there's there's difficulties in in sort of Translating that natural language into code and inherent problems there based on the

vagueness of natural language so is that sort of an issue that you thought about or an issue that came up in your discussion yes it's Kim I remember because one of the academies is also a lawyer it says spoke extensively about that but what's my what I learned also from there is that it is still evolving as you said contracts are written in natural language blocked in is going to be talking about the codes the software and what have you that with time when the technology evolves we will be able to shift the ground to

accommodate these countries will be able to pass law that will enable us that whatever codes written maybe using AI or what have you will be accepted but as it stands now it is difficult in the law setting to interpret such contracts or enforce such contracts and I saw somebody in the chat say code is love that is what the pro blocked in Technologies believe that code is law yeah okay just to make sure there's a question mark right yeah but why don't we let David ask his um

question and I I don't know if this is going to be related to the one that he put in the chat but anyway David go ahead hi it's it's more of a comment I'm an accountant and an audit act so um and I've been I've been following this topic for you know four or five years so four or five years ago I thought there'd be more disruption than what we've had um but certainly in the back of my mind so it's my son's bird um you know I I hear comments about other people saying no need for Auditors and you know it's hard enough to get accountants and Auditors at the moment let alone them being told they they won't have a job in a few years but I think that they will so one of the um things about understanding and accounting and most people are used to

trial balances and general ledgers and things and financial statements like profit and loss and balance sheet but but apart from a very small organization that uses sort of cash um you know with large businesses it's not just taking that general ledger and translating it into financial statements because you've got a lot of estimates so there was mention of accrual but there's estimates about you know how much revenue you recognize on on a contract if it's based on um performance bonuses and the like then there's something we call impairment to make sure the assets aren't overvalued like the banks you know will they get all their loans back well you know

there's an estimation processing there and they've got very sophisticated internal systems that do that but essentially you can't replicate that outside and unless you've got the internal systems and then there's you know garbage in garbage out so um yeah I think it's disruptive I um I also have on a technical basis the the blockchains aren't all equal they've all got different consensus mechanisms so if you hear about blockchains and sort of immediately put Bitcoin and proof of work in your head well basically you know you can't hack you know Bitcoin without massive massive computers um but others have um they've got like they can have a central point of

authority proof of authority and variations of that so to use an example the ISX system that's now no longer going ahead but if it had there was one body that essentially was going to be determining which was the the the true transactions and that was the ASX um so there's some issues with that um and yeah lots of estimates interoperability so the shipping one I thought would go further um that is it musk is that how you pronounce it without a mask that that's no longer progressing um but very similar I sort of didn't really see anything coming from it other than it was like a electronic data

interchange Advanced version of that now with transactions and people were as I not too sure the company you mentioned actually used the most one but let's say who was that or something similar and they just use it as an input into their own system so and then interoperability and all the different blockchains out there and you know how we're going to deal with that but yeah certainly it'll be a source of transactions toward it but I don't think they'll take over the auditor and as we move from financial information to non-financial information like sustainability reporting and climate reporting and all the green washing and um you know the um um the the different

um levels of um reporting what I've it's just gone blank on me but you've got sort of like T1 tier 2 tier three and it's like you know once you start getting into the the tier three and you start having to include supply chain uh emissions it's yeah a whole different ball game um yeah and yeah and then proof of reserves was something else but that's another sort of hobby horse I had to go at but yeah that didn't work hasn't really worked either because you can share your private Keys um so you know so I I if you get the fraud involved you can share the private keys and I can say I've got access to those keys and then if I give you my

private Keys you can go to the bank and say I've got access to this cryptocurrency and then go and get a loan as well um yeah but I I think yeah surely though uh systems the way you start sharing private Keys like they did at FDX or where they are reported to have shared private keys at FTX amongst many individuals uh surely there are so many things wrong by that point that yeah I mean there's more than just a few dollars going astray that was a great talk and the fact that you've got lots of questions shows that you've really hit a chord with the audience which is great so thank you

very much um yeah yeah and so um if I guess I don't know are there any final questions before we sign off no but there's lots of e-clapping so electronic clapping is pretty good all right look thank you very much again for your talk um have a great day and um enjoy the next few weeks of traveling around um that you talked about earlier and um see everyone um next week bye-bye bye thank you so much thank you very much bye guys thank you