Blockchain Can Transform Financial Reporting and Auditing, Improve Integrity, Boost Efficiency, and Cut Costs

A study by the University of Maryland (UMD) shows that blockchain can disrupt traditional auditing methods, making them more transparent and efficient.

Blockchain technology has the potential to revolutionize financial reporting and auditing, according to a study conducted by the University of Maryland (UMD). The research, which was published in Management Science, examined how blockchain can be used to improve the efficiency, integrity, and cost-effectiveness of the auditing process.

The study, titled “Distributed Ledgers and Secure Multiparty Computation for Financial Reporting and Auditing,” was led by Sean Cao, an associate professor at the Smith School of Business at UMD. Cao and his team spent six years investigating how blockchain can be used to enhance traditional auditing methods and make them more transparent and efficient.

“A lot of auditing firms want to use blockchain and they want to apply technology. I wanted to build a use case for blockchain that works for auditing firms,” Cao said in a statement.

Auditing relies on “unbiased financial report,” and the report notes that auditors and regulators have been seeking new ways to improve reporting integrity for decades. Despite the digitalization of the industry, it still takes massive amounts of time to verify transactions, especially where transaction partners are hesitant to share data due to privacy concerns.

“It is labor intensive and you cannot verify all the receipts. You’d have to do a random sample. But there would be errors because it is really random,” Cao noted.

According to the report, blockchain can transform this process by efficiently and cost-effectively verifying transactions. Unlike other centralized solutions, blockchain's efficiency does not come at the expense of data security and privacy, which are critical in the financial world. According to Cao, integrating blockchain could result in cost savings of up to 70%.

“The only thing it cannot replace is when a transaction requires discretion,” the report states regarding the limitations of integrating blockchain.

However, through its overlay networks, which run on the BSV Node Network, BSV provides improved privacy. Private overlays built on the BSV blockchain can offer limited and/or permissioned access for specific individuals or entities while utilizing the decentralized network for impenetrable security.

In a previous report, auditing giant Deloitte stated that continuous online audits are on the horizon with the integration of blockchain in the auditing process.

“Deloitte envisages that, at the end of the blockchain road, fully automated audits may be a reality,” it stated.