the views expressed are the personal views of the ... pcaob - yerm… · benedetto cotrugli’s...
TRANSCRIPT
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.
Will blockchains
put the auditing profession
out of business?
David Yermack
NYU Stern School of Business
National Bureau of Economic Reseach
FinTech UBS’s trading floor, Stamford, Ct., USA
2005 2016
Could this happen to auditors?
The blockchain
“Message verification and transmission
error detection by block chaining” U.S. patent granted to IBM scientists in 1976
Distributed ledgers Authenticating digital documents – Haber & Stornetta (1991)
Bitcoin’s open network of 12,000 nodes November 6, 2017
https://bitinfocharts.com/bitcoin/nodes-active/
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)
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.”
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…
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
Daimler Benz’s blockchain bond issue June 2017
Maersk’s blockchain marine insurance September 2017
AmEx’s international remittances November 2017
Visa’s blockchain B2B payments November 2017
Self-regulating consortiums are
becoming very important in FinTech
Self-regulating consortiums are
becoming very important in FinTech
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.
The first public company auditor
• William Welch Deloitte in 1845
was the first independent auditor of
a public company, the Great
Western Railway
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?
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
Co-opting regulators
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”