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Blockchain technology is the second generation of the internet and, every single company is going to need a blockchain strategy. Many firms in the finance and audit sectors have already invested money, time and energy in assessing how it will disrupt their established business models. Blockchain has the potential to transform industries of different sector i.e. from the financial sector to public to health care.
A blockchain is created to capture transactions which are conducted among various parties in a network. Being a near real-time a blockchain is the Internet-based distributed ledger which includes all transactions since its creation. All participants using the shared database are connected to the blockchain. In a blockchain, every entry is a transaction that represents an exchange of value between participants. Different types of blockchains are being developed and tested. However, most blockchains follow the general framework and approach. A blockchain being of irreversible nature contains a verifiable record of every single transaction ever made on that blockchain. This prevents double spending of the item tracked by the blockchain.
The introduction of smart contracts was the key development in blockchain technology. On a blockchain, the Smart contracts are computer code stored that executes actions under specified circumstances. Smart contracts enable counterparties to automate tasks that are usually performed manually through a third-party intermediary. It also results in speeding up the business processes, less operational error and improves the cost-efficiency. It enables monitoring and enforcement of contractual promises and also reduces settlement timing. Further, it also improves contractual compliances by reducing fraudulent practices and ambiguity in the transactions.
A blockchain is a process that allows parties to transact directly with each other through a single distributed ledger by eliminating the needs for centralized transaction processors.
Following are the benefits availed by the consumer and company in the finance and auditing sector:
Using blockchain technology Transactions can be settled in less than a few seconds as compared to the current financial systems which take up to a week to settle payments. Through blockchain, the settlements can be increasingly optimized reducing the amount of time and money needed.
Further, at banks, the need for a lot of middle offices and back-office staff will be removed as transactions settle almost instantly in the blockchain process.
Blockchain helps in reducing counterparty risk as the transactions are settled instantly which results in removing the substantial part of risk the party involves cannot meet its obligation.
Blockchain improves the contractual performance by using the smart contracts which shorten the time needed to finish the process or transaction related to finance. A complex financial asset transaction due to automatic settlement using smart contracts can get benefit from the blockchain.
Using blockchain and smart contracts gently increase the transparency in the financial sector, the user wants several privacy-minded solutions which are being disclosed on the blockchain.
Banks are using blockchain for remittance because sending money to another country is an area ready for change. As banks and other industries are innovating with the relatively new blockchain technology.
Blockchain resists less fraud and improves business operations and decreases costs.
Anyone who has a smartphone can receive or send money almost instantly through blockchain smart contracts combine messaging with the settlement process. As a result, the benefits are substantial, and the speed of transactions is improving inventory management.
The blockchain technology is a new form of database and the implementation of each blockchain may have different characteristics that make it different and unique from another blockchain. With the frequent change in technology every passing day, there is a risk that a specific blockchain implementation does not live up to the promise of the technology. In the present scenario there are two major classifications of blockchain networks:
The difference between these two is the determination that which parties are allowed access to the network. In permissionless a blockchain may be shared publicly with anyone who has access to the Internet also termed as a public blockchain.
When it is shared with only certain participants termed as permission or Private blockchain.
The building block in a financial statement is the occurrence of transactions. With the introduction of blockchain, the need for financial statements audit by an auditor was eliminated as the statements are free of misstatement and material errors.
Auditors could deploy more automation with the help of blockchain-enabled digitization, analytics, and machine-learning capabilities. All the documents could be encrypted and securely stored as well as linked to a blockchain. For example, Supporting documentation, such as contracts, agreements, purchase orders, and invoices. Auditors can access to unalterable audit evidence which results in upgraded financial reporting and auditing.
In blockchain technology auditors are encouraged to monitor developments as they have an opportunity to evolve, learn, and capitalize their own proven ability to adapt to the needs of a rapidly changing business world. This also helps in contemplating the skills that will be required for auditors in the future to meet the demands of the market in the business world. This technology is already impacting the auditing in a good way to record the transactions and playing a significant role in equity financing, capital markets, mergers and acquisitions, regulatory compliance and also in the efficient functioning of capital markets.
Also, Read: What is Blockchain Technology