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Very interesting to see you use the Big 4 as an example for how blockchain (and AI) can impact established companies and industries.
I have been working at a Big 4 firm, in audit, for about 4 years now. I figured I’d give my two-cents on this topic as, although I believe the industry will be disrupted, it isn’t possible to completely remove it. I’m curious to hear whether you think there’s a way that blockchain could circumvent my points below:
Here’s why I think accounting cannot be completely replaced by blockchain:
- Although validating whether a transaction actually occurred may no longer be an issue, without an accountant it would not be possible to validate whether the transaction had business rational. Who’s to say the company didn’t pay for a new house for the CEO in bitcoin? Or that thousands of dollars were sent to the CFO’s son for not valid reason?
- Many accounting treatments require judgment. Not everything in accounting is black and white. As many accounting treatments require the interpretation of meeting a set number of criteria (example: capitalizing R&D, or determining whether improvements on a building are considered Capital expenditures vs Operating expenditures), I think any financial statement caption requiring interpretation cannot replace an accountant.
- Preparing financial statements and note disclosures require company-specific information, including information that is not necessarily related to quantitative figures (example: accounting policies chosen, whether the company has subsequent events, whether the company has any measurable and likely contingencies, etc.). An accountant is needed to prepare the financial statements for stakeholders
- Accounting firms also provide valuations of internal controls. For banks, governments and shareholders, it is crucial to determine whether there are adequate controls in place to mitigate the risk of fraud and financial manipulation. It would be up to the auditor to ensure that there is a policy in place and whether it is adhered to for controls such as, for example: Who has access to the private keys in a company? Where are the private keys stored and who can access them?
- Lastly, Big 4 firms have a TON of different services that they provide to clients. Examples include: cyber security, consulting, tax, due diligence, mergers and acquisitions, management consulting, etc. Although practically all of these services can be impacted by blockchain, I believe these firms have enough fall-back plans to be able to delay demise, even in the most reactive of strategies.
I won’t bore you with additional examples. But my point isn’t that accounting is “safe”, but rather that the Big 4 and other medium-sized firms have to adapt to the changing business landscapes in order to stay relevant. Blockchain is only a threat to this profession if the firms don’t come up with a strategy on how they can provide VALUE to new blockchain clients.
Regulators and stakeholders will always want a “stamp of approval”, in my opinion. Accounting firms have the opportunity to use their expertise to provide some comfort to these stakeholders. If anything, I think it’s really important to have these firms start accepting clients that are in the blockchain space and advising those who aren’t on how the technology can improve their businesses. This helps provide credibility over the blockchain ecosystem.
I think the most important factor that could lead to the destruction of the Big 4 is complacency and bureaucracy. Everything in these firms moves slowly because of the approval required between hundreds and hundreds of partners across a geography. I sincerely believe that the survival of these companies will be because of the evangelical few within the organizations that can prove that blockchain needs to be taken seriously NOW.
I’m extremely interested in chatting about this more if you, or anyone else is interested.
The Big 4 would be well placed to write & maintain the smart contracts in blockchain technology, this may very well be a more lucrative business opportunity for them.
Actually, because of “self-review” threat to independence, an accounting firm would not be able to do the programming of smart contracts AND provide audits for the same client.
This could work, in theory, but the firm would have to decide upfront that they will not audit the client going forward. Given that audit fees are recurring in nature (quarterly and/or annually), I don’t think this would be the likely decision they’d make. Audits would likely bring in more annual revenue.
And lastly, they’d have to hire an abundance of savvy coders who would know how to write smart contract code while working hand-in-hand with a new legal team.
If I were to re-guide your thought it would be that the Big 4 have an opportunity to provide assurance over smart contracts and blockchain technology. By providing an audit opinion over the controls surrounding the code, the firm is also able to audit the client’s financials as well.
So, in summary, I agree there is a big opportunity. I just don’t think it’s in actually writing and maintaining smart contracts
Whatever Firm you’re working at needs to give you a raise.
I was thinking of insurance companies and have my own in mind, need some more basic stuff though, even though a differentiated Smart Contract is applied to the individual, the company need an easy way to implement it into existing systems.
Just started the course, very interesting example of the Big 4. They are certainly preparing for a shift and incorporating blockchain Technology in their strategy (source : job interview plus LinkedIn articles). @FaierPlay’s points are on spot and I am curious to see how these mastodons will adapt in the coming years.
As an Economist in the US- BA only- work is hard to find. I have often been working as a temp in low-level accounting, essentially it is torture, it is archaic.
This video was like a breath of fresh air.
I think Accounting and Financial Advisory as a service has revolved over time. We no longer do Black-Box Audits.
There are specialised many CAATs and other accounting software tools that handles validation of massive accounting transactions and ICS to determine completeness, accuracy, validity of transactions and balances even before the advent of BlockChain Technology and AI.
However, I want to believe that BlockChain and AI Techie can/will improve on that, and even change the nature of accounting and other financial advisory services goals and objectives mostly on the aspect of reporting.
With BlockChain, Accounting Policies on treatment of accounting items will be completely immutable after its incorporation and implementation via either smart Contracts, which auditors won’t have to report on changes in accounting policies and its impact on the going concern because no one will be able to change.
And where there is need for such changes, extensive and intense consultation among the stakeholders (i.e shareholders., general public, government,business contacts etc) will be required to justify reason thereof.
This will improve trust, transparency, and other benefits of block chain
Smart Contracts can as well be implemented on Accounting policies like taxes, depreciation, annuity, deductibles etc to automate transactions which the Auditors will only need to review the Smart Contract implementation Codes.
I know Accountants will demand for tools that will enable them gain understanding of how the Masquerade behind the curtain operates i.e how blockchain works.
In this stance, report will need to be generated by these Programmming tools to aid their understanding and improve the accounting and audit works.
Finally, Perhaps in the end, Accountants/Auditors work may even change to either Block Chain Smart Contract Code Reviewer.
Or , there will be new job like Block Chain Accountants., Smart Contract Accountant.
As we have Stock Accoutant, Contruction Accountant etc
Hi its realy good but i think that insurance companies will be disrupted a lot in the future becuase with blockchain a lot of different mistakes that people make will be prevented in many industries such as driving if the car understands when to slowdown and when to stop many car accidents woulden’t happen so we don’t need insurance in the future as we do now
It is interesting to see the development that has already taken place (since the opening post by Ivan). Take EY for instance, who have mostly completed their work on “nightfall” for Ethereum.
I believe the big 4 will expand into the blockchain sector and provide additional services to other companies. But I can certainly see technology startups, as well as established corporations, disrupt finance and accounting. In my point of view, startups might have an edge here.
Big 4 will be changed or already changing business processes with help of blockchain, it also will create new jobs and professions for maintaining and analysing smart contracts and blockchain data.
As 1,5 years passed since this video and big4 worked on blockchain related development, it would be really interesting to get an update from your perspective about current trends, improvements and further predictions. Thanks!
About the accounting being revolutionized by the bc, I think that’s true but…
we have to write very good, long smartcontracts to follow all the burocracy rules of that sector!
I totally agree with you on this and this would largely cater for permitting the posting / actuallisation of some transactions at source
Very nice overview perspective.
Blockchains will rule the world
It is interesting to see how the perspective may change on this situation within the span of only 2 years (I am responding to you in August of 2020). I am responding and sharing my opinion on this subject as a follow up to your thoughtful and thorough and well-organized response.
However, you are confusing to a degree the accounting functions and the the accounting as a business the way Big4 have been running it for some time. What Ivan i saying that the business of Big4 is going to be obsolete with the advent of blockchain, smart contracts, and especially now, the DeFi approach towards several aspects of banking and organizing finances where the centrally/traditionally running banks are giving the reason for Big4 to exist in the first place. So, it is clear unless the Big4 is not going to adapt (as Ivan rightly pointing at in his video lesson) to the new rules of the game and start quickly using the blockchain one way or another, they will disappear very quickly. At the same time the majority of the functions that you enumerated above will continue to exist, and hopefully, due to the blockchain, smart contracts, and DeFi become less of a hassle for a small businesses, especially for startups. I am speaking now as a CEO of an innovative recycling startup that is being born as we speak…
It’s about time… disruptive innovations like blockchain will revolutionize the monetary system, and will hopefully lead to individual sovereignty!
Thank you for this prime insight. It is also the first time I take note from the forum.
Amazing elegance in your words.