Improving Your Financial Auditing Skills Using Blockchain - ToOLOwl
Friday , May 24 2024

Struggling to make a Technology Choice for your Small/Mid-Size Business?
ToOLOwl is here to help!

Home / Accounting / Improving Your Financial Auditing Skills Using Blockchain

Improving Your Financial Auditing Skills Using Blockchain

Blockchain as a technology has a number of well-known characteristics, including the fact that tools based on it are impossible to hack, that they preserve transactions and other records in real-time, that data saved in blockchains cannot be modified without consent, and so on. Trust is a common thread that runs through all of these attributes. Without a doubt, blockchain is safe to use in a variety of industries. That’s why the technology, also known as a distributed ledger, has so many uses in domains, including public welfare, supply chain management, and, of course, NFT transactions. Aside from these, blockchain has a number of applications in financial services. Financial auditing using blockchain is one of the most well-known of these. In general, major firms may have difficulty validating transaction integrity, including all transactions of mega-corporations in audit tests and comparable situations. Using blockchain in financial services and operations like auditing solves these issues for auditors and organisations all around the world.

Real-Time Auditing and Automated Financial Operations

Audits are often performed at the end of a fiscal year. During this phase, trained auditors and chartered accountants go over thousands of transactions recorded throughout the year on balance sheets, cash flow statements, and other financial documents, either partially or completely, to verify each entry for authenticity. They then understand which financial areas within the organisation are problematic and need to be corrected and find instances of error and fraud, among other things. Organisations could have their transactions confirmed and greenlit in real-time, thanks to the growing use of blockchain in financial services like auditing. Financial transactions are scanned for audits as they occur in this automated auditing process. If there is a case of fraud or an error, the financial directors and technical operators will be notified. Then, to get to the bottom of a problem, such parties can conduct detailed financial investigations. In such circumstances, computerised algorithms might automatically settle blockchain-based smart contracts on behalf of the relevant board of directors.

The emergence of “virtual organisations” can be aided by blockchain technology. Decentralised Autonomous Organisations (DAOs) of this type can be totally run using digital smart contracts. Smart contracts are blockchain apps that are only performed when particular conditions are met in them. For example, a smart contract for export may stipulate that the seller of the goods in question will not be paid unless the buyer receives their package within the agreed-upon ETA. Furthermore, the seller of the products in question will be paid only if the delivery is made before the agreed-upon date. Smart contracts can also be used to govern other contractual circumstances involving the transfer of funds or assets.

Combining blockchain and machine learning in financial services is especially effective for automating and monitoring finance-related procedures. For example, machine learning and blockchain can be used together to help auditors with real-time financial monitoring. AI and machine learning have a variety of financial uses, and employing them to conduct micro-level financial monitoring allows auditors to detect irregularities in large amounts of financial data. When it comes to utilising machine learning and blockchain to automate finance-related tasks, such systems can be useful for processing trade-related payments and filing tax reports for firms, especially for DAOs. So, the presence of blockchain in the process greatly improves the security profile of the data stored and any transfers that take place within the organisation.

Moreover, blockchain technology can be used for accounting as well as there are subtle but definite similarities between blockchain and accounting technology. The principles for both systems are quite similar. So, blockchain can be referred to as the double-entry accounting tool for businesses. The key contributor to this function is blockchain’s incredibly dynamic auditing systems that are similar to the plug-in applications that run continuously after they are linked to the web browser or host.

There are numerous advantages to auditing transactions in real-time. To begin with, it makes dealing with cases of fraud considerably faster and more precise. Businesses can avoid, or at the least, lessen the repercussions of fraud if it is recognised and investigated as soon as it is discovered, and thus keep business losses to a minimum at all times. Payments are processed, and contracts are set up and honoured on schedule, thanks to the automation of financial business procedures. As you can see, incorporating blockchain technology into financial services lowers human error and streamlines the process. It’s safe to argue that the technology is best suited to huge businesses with thousands of transactions every year.

Ensuring Testing the Audits for Every Transaction

One of the most common and often missed flaws in today’s conventional auditing is that auditors do not test all transactions. Typically, auditors utilise a sample of data from financial documents during the audit period to test. The sample selection process is what it’s called. After then, the auditors make assumptions about the sample, such as reviewing it and presuming that any financial concerns with an organisation’s financial operations will be reflected in the sample. As a result, normal auditing is regarded as a “less than 100 per cent” assurance procedure.

On the other hand, Blockchain can allow auditors to cover all transactions for audit tests. As previously stated, blockchain allows for real-time transactional monitoring. Therefore, transactions will be labelled as they occur. For example, if an organisation’s accounting department clears a check to pay specific suppliers or transporters, the transaction is marked and tagged. As you may be aware, blockchain tools use code signatures to distinguish between various data blocks. Similarly, an organisation’s transactions will be documented in both the payer’s and receiver’s ledgers and audited at the same time. As a result, higher levels of accuracy can be achieved in testing, and potential auditors can conduct audits more deeply without the chance of any deviation occurring.

Improving the Job of the Auditor

The effects of the adoption of blockchain will affect the auditors as well. If the auditing process is automated, then standard tasks such as validating transactions at the end of the year will become redundant and will be omitted. Similar trends can be observed by checking for inaccuracies, errors, or fraud. As a result, the role of the auditor will become more complex. The newer job responsibilities will require greater oversight, data fluency, and judgement.

In other words, the auditor will transition from someone who tracks records and financial transactions to an official who will perform more complex tasks requiring human traits like logical reasoning and critical evaluation. These tasks would involve long-term risk assessments related to specific financial decisions made, predictive audits for the future, and operational and financial framework loopholes. These could help prevent exposing an organisation to fraud in the future.

Human auditors will also play a larger part in financial strategic planning and long-term expenditure planning in order to proactively manage the company’s financial health in the near future. In addition, auditors’ extensive financial knowledge will enable them to forecast “black swan events” like as pandemics and recessions, allowing businesses to be financially and operationally prepared in the event of such occurrences.

Final Word

When blockchain is implemented generally by firms in all sectors in the future, it promises to be a genuinely disruptive, revolutionary presence in modern auditing. The traditional characteristics of blockchain—decentralisation, security, transparency, non-manipulation, and data provenance quality—improve the process of dynamically scanning business transactions. Using blockchain in financial services, as well as other technologies like machine learning and computer vision, adds various new dimensions to financial management for all types of businesses.

About ToOLOwl

I am ToOLOwl. I have few friends in my nest; whenever someone requests a tool’s review or I pick a one out of my interest, someone in the nest does research on the tool, someone takes a tool’s walkthrough and some of them share their experiences and expert advice. Based on all; I give it a  stereoscopic vision and present important insights for you to go through and ease your selection process for tools. Wish you Happy reading, Easy choosing.

Owl Suggests

Top 3 Accounting Tools 2022

Small business owners have suffered badly in the past year. A lot of dependencies was …