Financial Reporting

Financial Reporting’s Logical Next Step: Blockchain

The Financial Executives Research Foundation (FERF) is collaborating with Deloitte to explore how blockchain is currently being adopted in the financial reporting community, the potential for industry disruption and the realistic next steps for the technology to be embraced.

In this video discussion, FEI Managing Editor Olivia Berkman discusses the evolution of blockchain on financial reporting with Will Bible, Audit & Assurance Partner, Deloitte & Touche LLP and Jake Benson, CEO, of Libra, a New York-based blockchain financial reporting start-up.

A transcript of the discussion is below the video.

Oliva Berkman: Will, maybe we’ll start with you. If you would just describe blockchain technology and then maybe how it compares to other technology that’s being used by financial statement preparers.

Will Bible: At its fundamental core blockchain is really a database or a ledger. It’s very similar to what financial preparers use today to capture transactions, that are the major difference is that the data base is maintained by a peer to peer network. So there’s redundant copies of the information being stored across that network. Because of the way the consensus protocols work within the network, it’s tamper proof. So a lot of the reconciliation you have to do with traditional databases goes away once you have blockchain.

Berkman: Right. Jake any thoughts on that? Similarities or differences to what people are using today?

Jake Benson: I would compare it as kind of a new data base technology as well. Blockchain is not an application, it’s not an end to end solution in and of itself. But it’s a new type of database technology. Whereas previous databases, technology has focused on scalability, how much data can you store, how much data can you move and transfer.

What’s new and unique about blockchain is specifically focuses on two new aspects, which is trustworthiness and the governess of data, which happens on a network. Don’t think of blockchain technology as a new application that you’re going to install in your enterprise and it’s going to give you new reporting capabilities. But it’s a new foundational technology that will end of effecting financial reporting in very big ways.

Berkman: Okay interesting. So Jake do you see blockchain implemented incrementally in financial reporting or does it really require a complete commitment in the industry?

Benson: Absolutely incrementally. You’re not going to see a tsunami wave where everybody is all of a sudden on the blockchain. Not by any means. I think what you’ll see is either individual business units starting to adopt it or individual business processes start to utilize the technology. Those use cases have to prove themselves out first and their own miniature ecosystems before you see proliferation of technology to multi-network banking infrastructure. So it will start small, prove itself and work itself to very large networks.  That’s what I see.

Berkman: Okay. Wil, do you agree?

Bible: Yeah I absolutely agree. So mostly use cases we see right now are specific applications for business processes. Things like trading, consortiam, or supply chain management. Very detailed processes, not ERP replacements. So it’s very, very focused specific.

Berkman : What are some specific examples on the balance sheet or income statement where blockchain could really make a difference?

Benson: What I would say is don’t focus on a specific line items per se, but every single line item. I think will ultimately be realized is that the accuracy and the validity of what is represented on those statements. Is going to be more inherently trustworthy, it’s going to be more accurate. Maybe you’ll get those at a more frequent pace. So I think across financial reporting, nothing specifically in terms of line items. But you’ll just have increased transparency, increased frequency of date of delivery. I think they’ll just generally be more real time. Not specific line items per se.

Berkman: Will?

Bible: I completely agree that it can have an impact on every single line item, because it is a recordkeeping technology. It seems thought I think that it’s probably going to start with places where there’s transactions being captured, so product sales, cost of goods sold, etc. Unless where there’s estimates, so places where there’s really complex estimates like pension liabilities, worker’s comp liabilities those kinds of things haven’t really seen a lot of blockchain solutions there. Because those require estimate processes and financial recording cycle.