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All 'Big Four' Auditors to Trial Blockchain Platform for Financial Reporting

The world’s four biggest auditing firms – Deloitte, EY, KPMG and PwC – are joining a group of 20 banks in Taiwan to trial a blockchain service for auditing public companies’ interim financial reports.

According to a local news report on Thursday, the blockchain trial will initially allow the auditing firms to conduct so-called external confirmation – the process of obtaining and evaluating audit evidence – for a group of selected companies that are publicly traded on the island.

Traditionally, external confirmation is conducted manually by auditing firms to verify the authenticity of public companies’ financial transactions with third parties.

Developed by Taiwan’s Financial Information Service Co. (FISC) together with the 20 banks, the new platform moves the public firms’ transaction data onto a blockchain, where the banks participate as validators.

The goal is to allow auditing firms to view the transactions through a traceable and tamper-proof chain of data in distributed manner, streamlining and automating the confirmation process. FISC expects the new technology to reduce the confirmation time from typically “half a month” to “within a day.”

Initially founded by the island’s Ministry of Finance as its information technology arm, FISC was later incorporated as a company with both private and public capital.

The firm announced its move into blockchain in January 2017, together with the 20 major banks, as part of a wider effort to revamp financial technologies in Taiwan. The firm said in the report that, following the trial, it expects to roll out the auditing service to the 1,400 public companies listed on the island next year.

Receipts image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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CFO Boost? EY Predicts Blockchain Could Change C-Suite Role

“Big four” professional services firm Ernst & Young (EY) suggests that blockchain technology could transform the firm’s finance operations and redefine the role of chief financial officer (CFO) in a report published last week.

“Blockchain could revolutionize the way finance function operates,” the report reads. “It will arm the CFO with tools and capabilities to allow him or her to become a key business partner in the strategic planning process while running a very efficient and trustworthy operation.”

The report identifies CFO-related blockchain uses cases, noting that the technology can help executives meet objectives such as “getting your house in order,” business development and communication with the external marketplace.

More specifically, the report suggests the implementation of a blockchain-based auditing system could fundamentally alter the “scope and approach of an audit opinion” from its existing focus on evaluating transactions to “confirming the validity of digital representation of physical assets and codification of contracts.”

Likewise, EY claims the technology could decentralize organization structures, creating network systems which would provide better visibility and integration across an organization.

The report also argues that the transparency provided by blockchain technology could have an impact outside the organization too, allowing competing firms to have access to each other’s information, facilitating a more “collaborative and multi-enterprise environment.”

However, the authors caution that blockchain is still a nascent technology and, as such, its potential is not fully understood. Similarly, the report reads, “organizations should make sure they are not comparing the theory of blockchain with the practical nature of technology implementations.”

There are also obstacles to adopting blockchain-based systems, the authors say, explaining:

“That is, rolling out a blockchain across all functions with seamless integration would certainly solve a lot of problems, but many of our clients struggle to implement enterprise-wide data warehouses (which would do much of what we say blockchain technology can do), let alone a distributed database or network with all the associated maintenance difficulties.”

A paucity of knowledge about blockchain tech is also likely to encumber its adoption, EY said.

EY image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Northern Trust and PwC Move to Accelerate Audits with Blockchain

Northern Trust, a major U.S. custody bank, is laying the foundations for large-scale adoption of its blockchain-based platform for private equity funds.

In partnership with “Big Four” accounting firm PwC, the bank introduced new tools Monday to give private equity fund auditors fast access to data stored on its private blockchain. Rather than waiting for periodic reports about actions taken by a fund manager, auditors will get the information almost immediately.

“We’ve taken and updated a process that was manual and happens periodically, and we’ve enabled that to be done on a daily basis in an automated manner,” said Northern Trust president of corporate and institutional services, Pete Cherecwich, in an interview with CoinDesk.

While only one Northern Trust client, the Swiss investment manager Unigestion, is currently using the blockchain platform that went live last year, Cherecwich positioned the new capabilities as a way to attract more users.

“Our strategy was to continue with the one customer and to continue to build out from a minimum viable product to a more robust application,” Cherecwich said, adding:

“What we’re doing now is finishing off the complete application, then we’ll start rolling out to our existing clients and new clients to the start of next year, or middle of this year.”

The potential user base for the blockchain platform is formidable, as Northern Trust administers $78 billion in private equity assets. Its clients in this line of business have included major players such as Blackstone and the Carlyle Group.

The private equities blockchain platform is now running the first enterprise-grade version of Hyperledger Fabric, and protected using hardware security modules enabled by the IBM Blockchain Platform.

Blockchain auditor

The Northern Trust blockchain audit tools start off by giving auditors access to a specially designed node on the bank’s permissioned blockchain.

By using the software, auditors of a private equity fund will be able to see read-only files in near real-time when shares are bought and sold between general partners and limited partners, when investment firms call for capital promised by investors, and when capital gains are distributed.

The auditors can either transfer the required data into their own applications to complete the audit process or develop their own tools to audit directly from the blockchain. Permission to audit the various funds will be controlled by smart contract technology for which Northern Trust says it has a patent pending.

In addition to the work with PwC, Northern Trust says another audit firm based in the British Crown dependency of Guernsey, where 20 percent of the bank’s private equity assets are domiciled, helped ensure that all the data an auditor would require from such transactions was adequately captured.

Currently, that data is only disclosed periodically throughout the year to auditors, who then have to go through the manual process of auditing the various events. Going forward, Cherecwich says the cost for these services can be trimmed, as the role human auditors play is reduced.

“We as an industry need to keep our margins and keep going forward,” said Cherecwich, continuing:

“While this may look scary because it makes an audit go forward more efficiently, I think that audit firms should embrace this because it lets them do their jobs cheaper.”

The future of audits?

The immutability and transparency of blockchain have long proven tempting attributes to innovation-minded accountants.

Each of the Big Four accounting firms, Deloitte, EY, KPMG , and PwC has released a report on the role blockchain will play in the future of auditing.

An early mover to actually adopting blockchain in accounting is New York-based Libra, which partnered with PwC to launch its own enterprise blockchain auditing software in 2016. Most recently, PwC itself has announced a new auditing tool reportedly being used by an unnamed stock exchange and a digital wallet provider.

A representative of PwC told CoinDesk the auditing tool created with Northern Trust was custom-built with the bank and is separate from the technology revealed last week, with potential opportunities for them to “interface” in the future.

Further explaining how the Northern Trust platform fits into PwC’s larger plans, a partner at the firm, based in Guernsey, Nick Vermeulen, said in a statement:

“Our ability to directly access distributed ledgers such as the one within the Northern Trust system will allow us to build upon our own blockchain investments.”

Northern Trust building image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Northern Trust, PwC Launch 'Instant' Blockchain Audits

Northern Trust, a major U.S. custody bank, is laying the foundations for large-scale adoption of its blockchain-based platform for private equity funds.

In partnership with “Big Four” accounting firm PwC, the bank introduced new tools Monday to give private equity fund auditors fast access to data stored on its private blockchain. Rather than waiting for periodic reports about actions taken by a fund manager, auditors will get the information almost immediately.

“We’ve taken and updated a process that was manual and happens periodically, and we’ve enabled that to be done on a daily basis in an automated manner,” said Northern Trust president of corporate and institutional services, Pete Cherecwich, in an interview with CoinDesk.

While only one Northern Trust client, the Swiss investment manager Unigestion, is currently using the blockchain platform that went live last year, Cherecwich positioned the new capabilities as a way to attract more users.

“Our strategy was to continue with the one customer and to continue to build out from a minimum viable product to a more robust application,” Cherecwich said, adding:

“What we’re doing now is finishing off the complete application, then we’ll start rolling out to our existing clients and new clients to the start of next year, or middle of this year.”

The potential user base for the blockchain platform is formidable, as Northern Trust administers $78 billion in private equity assets. Its clients in this line of business have included major players such as Blackstone and the Carlyle Group.

The private equities blockchain platform is now running the first enterprise-grade version of Hyperledger Fabric, and protected using hardware security modules enabled by the IBM Blockchain Platform.

Blockchain auditor

The Northern Trust blockchain audit tools start off by giving auditors access to a specially designed node on the bank’s permissioned blockchain.

By using the software, auditors of a private equity fund will be able to see read-only files in near real-time when shares are bought and sold between general partners and limited partners, when investment firms call for capital promised by investors, and when capital gains are distributed.

The auditors can either transfer the required data into their own applications to complete the audit process or develop their own tools to audit directly from the blockchain. Permission to audit the various funds will be controlled by smart contract technology for which Northern Trust says it has a patent pending.

In addition to the work with PwC, Northern Trust says another audit firm based in the British Crown dependency of Guernsey, where 20 percent of the bank’s private equity assets are domiciled, helped ensure that all the data an auditor would require from such transactions was adequately captured.

Currently, that data is only disclosed periodically throughout the year to auditors, who then have to go through the manual process of auditing the various events. Going forward, Cherecwich says the cost for these services can be trimmed, as the role human auditors play is reduced.

“We as an industry need to keep our margins and keep going forward,” said Cherecwich, continuing:

“While this may look scary because it makes an audit go forward more efficiently, I think that audit firms should embrace this because it lets them do their jobs cheaper.”

The future of audits?

The immutability and transparency of blockchain have long proven tempting attributes to innovation-minded accountants.

Each of the Big Four accounting firms, Deloitte, EY, KPMG , and PwC has released a report on the role blockchain will play in the future of auditing.

An early mover to actually adopting blockchain in accounting is New York-based Libra, which partnered with PwC to launch its own enterprise blockchain auditing software in 2016. Most recently, PwC itself has announced a new auditing tool reportedly being used by an unnamed stock exchange and a digital wallet provider.

A representative of PwC told CoinDesk the auditing tool created with Northern Trust was custom-built with the bank and is separate from the technology revealed last week, with potential opportunities for them to “interface” in the future.

Further explaining how the Northern Trust platform fits into PwC’s larger plans, a partner at the firm, based in Guernsey, Nick Vermeulen, said in a statement:

“Our ability to directly access distributed ledgers such as the one within the Northern Trust system will allow us to build upon our own blockchain investments.”

Northern Trust building image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Tether Confirms Its Relationship With Auditor Has 'Dissolved'

Tether, the issuer of the dollar-pegged cryptocurrency USDT, said its relationship with audit firm Friedman LLP has ended.

The statement, provided Saturday evening by a company spokesperson to CoinDesk, confirms the suspicions of online sleuths and is likely to raise new questions about the company’s finances.

Friedman had been working on an audit of Tether, which has close ties to the cryptocurrency exchange Bitfinex. Critics of the two companies, most prominently the blogger who goes by the handle Bitfinex’d, have claimed that Tether had been printing tokens out of thin air to drive up the price of bitcoin on the exchange.

It is not clear from the spokesperson’s emailed statement who broke up with whom. The statement reads:

“We confirm that the relationship with Friedman is dissolved.  Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.”

The company remains “committed to the process,” the spokesperson added.

Eagle-eyed cryptocurrency enthusiasts on Twitter had raised doubts about the status of the relationship last week, noting that Friedman had dropped Bitfinex’s name from the list of clients on the audit firm’s website. Friedman did not return calls and emails from CoinDesk over the course of the week.

In a preliminary report released in September, Friedman said Tether had $442.9 million of cash on reserve, matching the outstanding issuance of USDT – but that assessment was not a full audit and contained numerous caveats.

Image via Shutterstock.

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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XBRL Reporting Standard Co-Founder Joins Blockchain Startup

Blockchain startup Auditchain has added the co-founder of a widely used business reporting standard to its leadership team.

The new hire, Eric Cohen, will serve as head of XBRL architecture for the New York-based firm, as announced today at CoinDesk’s Consensus: Invest event.

Auditchain is developing an accounting ecosystem centered around blockchain-based tokens, and utilizing one of its own (called AUDT) that will serve as a means to access and pay for services.

Cohen is perhaps best known as the co-founder of XBRL, a reporting standard required by business regulators like the U.S. Securities and Exchange Commission and similar agencies in Europe and abroad. He also spent more than 17 years working for professional services firm PwC.

Auditchain co-founder Jason Meyers told CoinDesk that Cohen’s involvement traces back to an event at Rutgers University that focused on continuous auditing.

“I was ecstatic when I met him, and for him to join us totally vindicates what we’re doing,” he said.

In an email to CoinDesk, Cohen framed his work with blockchain as part of a broader, decades-long focus on auditing technology.

“Leveraging [blockchain]/DLT technologies to provide a fantastic new foundation, enabled by layers of abstraction, can enable new payment channels, and securely hook in resources of all sorts,” he wrote, adding:

“It’s really not new theory; it goes back to the 60s, just fleshing out the tools that makes it practical. “

That Cohen would link up with Auditchain is perhaps unsurprising, given his stated interest in blockchain technology and related commentary on platforms like Twitter.

According to his personal website, Cohen has also played a role in the development of standards around blockchain, including an ongoing effort spearheaded by the International Organization for Standardization (ISO).

Accountant miniature image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.