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.

Transcription

1 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.

2 Will blockchains put the auditing profession out of business? David Yermack NYU Stern School of Business National Bureau of Economic Reseach

3 FinTech UBS s trading floor, Stamford, Ct., USA

4 Could this happen to auditors?

5 The blockchain

6 Message verification and transmission error detection by block chaining U.S. patent granted to IBM scientists in 1976

7 Distributed ledgers Authenticating digital documents Haber & Stornetta (1991)

8 Bitcoin s open network of 12,000 nodes November 6,

9 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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11 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.

12 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

13 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

14 Daimler Benz s blockchain bond issue June 2017

15 Maersk s blockchain marine insurance September 2017

16 AmEx s international remittances November 2017

17 Visa s blockchain B2B payments November 2017

18 Self-regulating consortiums are becoming very important in FinTech

19 Self-regulating consortiums are becoming very important in FinTech

20 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 14 th 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 Luca Pacioli is often credited as the father of accounting for his intervening 1494 book.

21 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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23 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?

24 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

25 Co-opting regulators

26 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