Crypto Taxes Make Headlines, But Blockchain Might Be The Key To Real Time Reporting
Cryptocurrency tax issues may make the headlines, but an additional impact of blockchain may be revolutionizing the audit and reporting space.
The American Institute of CPAs (AICPA), the largest member association representing the accounting profession in the world, has published numerous whitepapers on the idea of a continuous auditing and reporting process. Blockchain might just be the missing piece of the technology puzzle that can make this desire a reality.
Accounting and auditing might not always make the same kind of headlines that cryptocurrency price swings do, nor capture the attention of market participants, but they play an important role in a well-functioning marketplace. Especially during this time of the year, tax season, cryptocurrency price volatility and associated tax liabilities can overshadow virtually every other blockchain and crypto headline. That said, looking a bit closer at the underlying issues reveals just how important a blockchain based audit will be, even for those individuals and institutions not directly involved in the audit or accounting space.
First things first, however, it is important to recognize and acknowledge the information asymmetry that exists with regards to what an audit means. Individuals and otherwise well- informed individuals and firms can have a misunderstanding as to what exactly an audit represents. Put simply, this incorrect perception can be that an audit involves a 100% review of transactions and other associated information; the reality is dramatically different. Obviously, the specifics will differ from engagement to engagement, but the audit itself usually only consists of a relatively small sample of entries and other data.
Once again, the market provides evidence that the global leaders - the Big 4 accounting firms - in the audit space understand the need for an improved audit process. All of these global multinational leaders in the accounting space have published multiple whitepapers on the subject. Audit effectiveness and efficiency are both at the center of this increased push toward addressing and resolving audit issues.
Even with this increased interest, however, making continuous auditing a reality has not yet occurred.
Compounding these issues is the time delay that is inherent with an audit, no matter how comprehensive the engagement is. Most publicly traded organizations in the United States have a fiscal year end of December 31st, but audited financial statements may not be finalized and issued until March and April. In a business landscape where headlines and trends can change in a moment, this delay of several months is unacceptable moving forward.
So, where does blockchain fit into this conversation? A blockchain augmented or blockchain connected audit tool and system can deliver several quantitative benefits for all parties involved. Let’s take a look at several of these benefits.
More comprehensive audits. This is perhaps the most obvious benefit and upside related to blockchain-based or blockchain augmented audit tools. If an audit firm is a member of a private or permissioned blockchain, this firm and the employees of the firm can access transactional data as it is entered, as opposed to only performing tasks at certain predefined times. This deeper level of access and transparency will allow a larger percentage of transactions and information to be examined, tested, or otherwise factored into the audit itself.
Faster reporting. Financial markets, crypto affiliated or not, rely on a consistent and transparent flow of information to assist market participants with the decision-making process. The price volatility that has been underway in both the cryptocurrency sector as well as a certain few equity securities is, of course, a facet of the market itself, but are also potentially connected to the flow of information not being as accessible for all participants. In other words, getting higher quality data to all market participants on a more continuous basis is a universally good thing.
Improved reporting quality. Restatements are a part of the reporting process, but they do not have to occur nearly as often if the original reporting and disclosures are correct in the first place. Building on the previous point, combining the potential for faster and higher quality reporting will benefit every market participant. This includes regulators, investors, and the very organizations themselves; data is the lifeblood of business decision making and improving the quality of that data will only deliver benefits.
Blockchain has a wide range of applications and potential use cases, but one that can be overshadowed by price volatility and headlines is the more mundane task of auditing and reporting data correctly. Audits, for all of the issues that exist with this process, play an integral role in any well functioning marketplace. Blockchain technology can, and already is, improve the quality of the output of audits, help ensure participants have the high quality data required to make effective decisions, and potentially reduce the need of audit errors, restatements.
Cryptocurrency, and cryptocurrency tax issues might make the headlines and generate the conversation, but blockchain for audits might actually be the more impactful store in the long term.Source