Financial Reporting

Practical Questions Around Blockchain and Financial Reporting

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 practical application of blockchain within 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: What are the more significant road blocks to implementation?

Will Bible: Sure, so a couple things come up during blockchain implementations. The first, there is always concern about privacy, because you are propagating debt data across a large network. So you have to trust the encryption routines that are being used in the blockchain to protect your privacy. But even that can get a little bit scary for some companies.

At the same time, because you are propagating data across an entire network, there’s data volume and velocity concerns potentially. So taking an entire enterprises worth of information and then multiplying it five, six, seven, eight, nine times, it’s a lot of data costs. So you have to find a way to scale the data appropriately so you can manage that flow of information across the network.

Berkman: Any thoughts Jake?

Jake Benson : Integration’s going to be a big one. Blockchain is not your traditional relational database. So your traditional MetaWare isn’t just going to connect to blockchain to your ERP. So imagine a simple task of creating journal entries based on events that happen on a blockchain. You’re going to require new software to do that. So integration I think is probably the biggest hurdle to adoption.

Berkman: So Jake this question is more for you, cost is always obviously a big concern. So how would you describe the capital commitment needed by organizations to adopt blockchain?

Benson: So it’s difficult, obviously because it’s an emerging technology to say, “Alright, what’s the average cost of a blockchain implementation?” Well there really is no such thing right now. The way I would approach this question is to think about your organization, your risk culture and evaluating a potential blockchain implementation. How much could it potentially impact core business and if the potential is high, it might be time to start investing in the technology. You probably start the way everybody else does, and run a proof of concept.

Those can range from … you find a start-up that will be willing to offer its technology for free to prove itself out. Some companies are charging millions of dollars for proof of concept.

So there’s not a specific answer other than look at your business and figure out based on your risk culture when’s the time to start investing in this technology. It’s certainly really early in the adoption curve. So you’re not necessarily going to miss the boat, but if your company’s one that wants to be an early adopter in the first move or in the marketplace with a blockchain based product. Then now is probably the time to start thinking about a new investment.

Berkman: So Will what about the internal control aspect?

Bible: So if companies are going to bring in blockchain technology to the financial recording process either maybe it’s a proven concept, maybe it’s implementation of production. They need to have the internal controls over that information, just like they do every other system it uses for financial recording.

With blockchain that can take a lot of different forms. Maybe it’s general IT controls, maybe it’s information controls that are being managed by another organization. Maybe there are things that are inherent in the blockchain themselves that need to be evaluated. So it’s a little bit of a different skill set and a different approach towards internal controls. But still something that companies need to consider.