Position Paper September 2020
Blockchain Technology for Corporate Reporting: An Investor Perspective
This paper discusses what a blockchain is and how it could be used in financial reporting, in the production, audit, distribution, and consumption of data to be more efficiently and effectively consumed by analysts and investors.
Blockchain Technology for Corporate Reporting: An Investor PerspectiveView the full article (PDF)
A blockchain is distributed across a number of participants in a network and not under the control of a single participant. Any changes made to the data are clear to all participants.
This particular financial technology is different from a traditional database because of the way it creates trust among the parties. Provided it has been designed and implemented correctly, the blockchain ensures that both the data and the network are resilient because it cannot be tampered with.
When used as an accounting ledger, every transaction in a company’s ledger is instantaneously available to all participants in the network. A change made by a participant in this network would be validated and reflected in everyone’s view of the ledger in one shared record. As a result, information does not have to be entered into and reconciled in multiple databases. This not only increases the speed of transactions but also reduces human error and fraud. Such a trustworthy network ensures data security, thus improving the quality of information. Information is more timely, transparent, and accurate.
This process may result in real-time updates of accounting information. Blockchain not only could be used to record and process transactions but also could increase the speed of consolidation within groups.
For privacy reasons, companies may find private blockchains more desirable as accounting ledgers. As private blockchains are not distributed, companies don’t have to publicize their transaction ledgers. The problem with this is that it affords privacy, but it also makes private blockchains more of a sophisticated transactional database rather than the blockchains used for cryptocurrencies.
A blockchain achieves maximum benefit when it is widely adopted because sufficient participants are required to ensure the security of the ledger, provide reliable verification of transactions, and prevent illicit collusions.
- What Is a Blockchain?
- Can Blockchain Make Financial Reporting More Efficient?
- Other Limitations
We need to monitor the progress of the groups that have been formed to increase collaboration and encourage standardization, which could help with the lack of interoperability between networks. We need to monitor where blockchain creates the most efficiencies, such as preventing fraud.
For the moment, blockchain is well suited for tracking diamonds and other goods for which the buyers want to know the provenance — that is, the origins and previous owners— but it is not best suited for financial reporting.
About the Author(s)
Mohini Singh is director, financial reporting policy at CFA Institute. She represents membership interests regarding financial reporting and disclosure proposals issued by the FASB, the IASB, and others. Singh holds the Associate Chartered Accountant (ACA) designation.