the views expressed are the personal views of the ... pcaob - yerm… · benedetto cotrugli’s...
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The views expressed are the
personal views of the
presenter and do not reflect
those of the PCAOB,
members of the Board, or the
PCAOB staff.
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Will blockchains
put the auditing profession
out of business?
David Yermack
NYU Stern School of Business
National Bureau of Economic Reseach
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FinTech UBS’s trading floor, Stamford, Ct., USA
2005 2016
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Could this happen to auditors?
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The blockchain
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“Message verification and transmission
error detection by block chaining” U.S. patent granted to IBM scientists in 1976
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Distributed ledgers Authenticating digital documents – Haber & Stornetta (1991)
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Bitcoin’s open network of 12,000 nodes November 6, 2017
https://bitinfocharts.com/bitcoin/nodes-active/
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Three major innovations that
Satoshi Nakamoto designed into Bitcoin
• Recording of new data sequentially in a write-only, indelible
ledger, the “blockchain” (IBM, 1976)
• Decentralization of the ledger to provide transparency of data
to all users and interested third parties (Haber & Stornetta,
1991)
• Validation of new data by cryptographic “consensus” proof, in
recurring 10-minute open competitions, instead of reliance
upon a trusted third party (Nakamoto, 2008)
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A disruptive technology
“. . . The blockchain has been
increasingly eyed by mainstream
financial institutions as a breakthrough.
. . . it could enable financial institutions
to settle trades in seconds rather than
two or three days
. . . blockchain technology could reduce
the bank’s infrastructure costs . . . by as
much as $20 billion a year by 2022.”
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What could disappear because of
blockchains?
• No more banks
• No more stock exchanges
• Far less litigation
• Decentralized government property registers
• No more accountants and auditors
• Etc…
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Two kinds of blockchains
Open
• Anyone can opt in
• Decentralized governance
• Size is endogenous
• Blocks updated via
competition
– Organic rewards to miners
– Bidding by users to advance
in queue
Permissioned
• Participation restricted
• Powerful gatekeeper
• Size is limited
• Blocks updated by central
authority
– User fees charged
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Daimler Benz’s blockchain bond issue June 2017
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Maersk’s blockchain marine insurance September 2017
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AmEx’s international remittances November 2017
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Visa’s blockchain B2B payments November 2017
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Self-regulating consortiums are
becoming very important in FinTech
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Self-regulating consortiums are
becoming very important in FinTech
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Origins of double entry bookkeeping
• Accounting systems developed organically in Europe, the Middle East, and East Asia in the middle ages.
• Double entry bookkeeping emerged by the end of the 14th century and was widely used by the time of the Renaissance, especially by Venetian merchants.
• Earliest known description appears in Benedetto Cotrugli’s Della mercatura e del mercante perfetto (1458), though it was not published until 1573. Luca Pacioli is often credited as the “father of accounting” for his intervening 1494 book.
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The first public company auditor
• William Welch Deloitte in 1845
was the first independent auditor of
a public company, the Great
Western Railway
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Using the blockchain for
“real-time accounting”
• “A possible future: all firms record their
external obligations and claims on a single
shared, massively replicated ledger.” – Richard Gendal Brown, IBM UK
• Is this a better way to keep financial records?
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Why would this be a good idea? The obvious benefits
• Fraud would become much more difficult
– Could not create fictitious assets
– Could not backdate transactions
– Could not capitalize operating expenses
– Etc.
• Auditing could become unnecessary due to the blockchain’s
data integrity
• Accounting regulations could become unnecessary
– Anyone could make DIY financial statements from the raw data
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Co-opting regulators
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Owning the technology
“Accountants work frequently in the
‘verification’ business – audit and attest
and so on -- and blockchain is all about
verification...Clearly audit is going to
change dramatically -- it already is
changing… Ultimately, CPAs will be
attesting to companies’ compliance with
cyber-security standards”