This meeting was held on Monday 20 November at Chartered Accountants’ Hall, and was co-hosted by ICAEW’s IT Faculty and the FRC Financial Reporting Lab. The following persons and organisations were in attendance:
The meeting was held under the Chatham House rule. What follows is a summary of some key points from the discussion.
The nature of blockchain
The 3 “P”s identified in ICAEW’s paper (propagating, permanent, programmable) are not universally agreed as the key features of blockchain. But it can and will change things in the future – albeit perhaps not in the way that we expect.
Blockchain is an ecosystem solution, rather than an individual one – it will be adopted by multinationals, sectors, marketplaces, or other groups where the advantages outweigh the costs. A company adopting blockchain will not reduce the number of systems that they use, but those same systems will be shared across all participants such that the total number is reduced. As a result, the hardest part of applying blockchain will be governance and reaching agreement in the first place, rather than the technology itself.
Blockchain creates a multiplicity of records that are shared over many users – each company has a copy and legally owns it. New approvals processes will be needed for architects to approve such solutions.
For many end users, the presence of blockchain might be undetectable, appearing just like a present-day database-backed solution. Smaller organisations might feel that blockchain is something “done to them”, rather than done by them, but the APIs and so on that they use will not ultimately feel significantly different. But there will still be benefits – for example, a small supplier partaking in a supply blockchain could track the progress of their invoices through the approvals process directly, rather than having to contact their customer.
Where blockchain makes a difference
It is very clear that there is a lot of work to be done separating hype from real potential – with a reported 12,000 blockchain startups in existence and rumours of companies soaring in value simply from adding “blockchain” to their names. Separating fact from fancy is no simple task. But there do appear to be some clear cases where blockchain can improve upon current methods.
While many – perhaps most – blockchain projects are still “in the lab”, there are some real use cases happening today, for example in accounts payable, or in the authentication and provenance of high-value items. Blockchain is a complex technology solution with multiple competing strengths and weaknesses, which means that assessing it against existing options is not always straightforward (and indeed a standard relational database may be preferable in many cases). In the oft-cited example of land registry, for example, the immutability of transactions alone may be attractive enough to beat out existing solutions in regions where corruption is common.
Blockchains do ensure that all parties see the same information, but don’t automatically improve the quality of the information fed into them. For projects such as the European Financial Transparency Gateway, for example, distributing corporate reports via a blockchain will not solve the issues of reliability, accuracy, and cross-comparability. But a blockchain – or just part of the technology such as cryptographic hashing techniques – could for example be used to add certainty that the version of a report an analyst is reading is identical to the one that the company issued. Many finance departments have an “information problem” – dealing with poor quality and untrustworthy info – and blockchains could help mitigate that.
Actions for the future
In many respects, starting with the impact on accounting or corporate reporting is not the right way to see blockchain. The impacts on business in general come first, with finance departments and reporting ‘along for the ride’. But there are some specific impacts that should be considered.
Blockchain is just one example of how advances in technology are changing the professional landscape. Future accountants will need to be more versed in technological approaches in order to properly advise their clients and businesses. But we will also need IT experts with a grounding in business and finance, who understand how the solutions they create can be applied to real companies. The skillset of the future will include not only technical knowledge, but also need to cover creativity, innovation, collaboration, and lifelong learning skills.
Potential future activities proposed at the meeting included:
The meeting was co-hosted by the FRC's Financial Reporting Lab. Read more about blockchain at our Blockchain Hub.