How Blockchain Is Reshaping External Audit: Crypto Developments by PwC, KPMG, EY and Deloitte

The recent initiative of the world's four largest auditing - Deloitte, Ernst & Young, KPMG and PwC - to join a pilot of 20 Taiwanese banks to test blockchain technology for fiscal audits, confirms how developments are expected in the work of external audit.

As blockchain has its foundation in the distributed ledger concept and cryptology - which promises transparency, immutability, security, auditability, high cost-efficiency and is 'ever available' - an immediate application of blockchain technology in the audit verifications is connected to external confirmation procedures.

External confirmations are a critical part of all the audit processes, as they give the audit team the ability to to check external sources of the information that are provided internally by the company.

As the scope of blockchain is wide and requires dedicated focus and time to research how best it can be used to build practical applications, the field of business estimation, and related audit activities may require more time to change and to be affected by blockchains.

In a scenario where blockchain would be widely adopted, and where the transactions are accessible and transparent, the necessity of producing accounting estimate - and the related guesswork from the management of the company and external auditor - will likely decrease.

How the big players are reacting to blockchain innovations.

In September 2016, KPMG launched its Digital Ledger Services - a suite of services designed to help financial services companies realize the potential of blockchain.

In November 2017, KPMG signed on as a corporate member of the Wall Street Blockchain Alliance.

While blockchains could foster the efficacy of the audit activities in certain key areas and reduce the need of performing existing audit procedures, there is still the need for the external auditors to use their professional judgement in many areas of the financial statement, especially when determining accounting estimates.

As a result, further developments are expected, with new procedures to address the risks associated to the blockchain environment.