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Blockchain. Ami Beers Director Assurance and Advisory Innovation Association of International Certified Professional Accountants.

Blockchain Ami Beers Director Assurance and Advisory Innovation Association of International Certified Professional Accountants July 11, 2017 We always overestimate the change that will occur in the next
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Blockchain Ami Beers Director Assurance and Advisory Innovation Association of International Certified Professional Accountants July 11, 2017 We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Bill Gates Blockchain s Position on the Gartner Hype Cycle Peak of Inflated Expectations: Early publicity produces a number of success stories often accompanied by scores of failures. Some companies take action; many do not. Expected Adoption Theories Over the next 12 to 24 months, I expect we will see significant, if still limited, moves to blockchain-based platforms in areas like cross-border payments or trade finance. But financial services as a whole is much broader than just these isolated use cases. I therefore expect widespread blockchain implementation in other industries first for example supply chain management, healthcare, real estate, or e-governance. Oliver Bussman (Former CIO of UBS) October 2016 A 2016 IBM survey found that 15% of banks and 14% of financial market institutions interviewed by IBM intend to implement full-scale, commercial blockchain solutions in Mass adoption isn t that far behind with roughly 65% of banks expecting to have blockchain solutions in production in the next three years. - IBM Accenture s adoption timeline Exploration and Investment Early Adoption Growth Maturity AICPA Survey What are you/your organization doing about blockchain? 0% 14% 14% 72% Never heard of the term Talking about it, no action Exploration and training in progress Actively using or providing blockchain solutions to clients December 2016 What is blockchain? What is Blockchain? Blockchain is a shared distributed ledger system on which information about all virtual currency transactions, contracts or assets are recorded and made publicly available. How Does the Blockchain Work? A transaction between nodes (participants) in the network is made Miners in the network work to solve algorithms in order to verify the transaction Miners reach consensus on the validity of the transaction and it is added to the blockchain Each node in the network has access to the verified, immutable distributed ledger that is the blockchain Note: Mining is the process by which transactions are verified and added to a blockchain. This process of solving cryptographic problems using computing hardware triggers the release of transactions which are added to the blockchain. Miners are the computers who do this task. Blockchain = Blocks on the Chain Benefits Disintermediation & trustless exchange Exchanges can be made without the oversight or intermediation of a third party, strongly reducing or even eliminating counterparty risk. Empowered users Users (network participants) are in control of all their information and transactions. Transparency and immutability Changes to public blockchains are publicly viewable by all parties creating transparency, and all transactions are immutable, meaning they cannot be altered or deleted. Ecosystem simplification With all transactions being added to a single public ledger, it reduces the clutter and complications of multiple ledgers. Source: Deloitte High quality data Blockchain data is complete, consistent, timely, accurate, and widely available. Durability, reliability, and longevity Due to the decentralized networks, blockchain does not have a central point of failure and is better able to withstand malicious attacks. Process integrity Users can trust that transactions will be executed exactly as the protocol commands removing the need for a trusted third party. Faster transactions Interbank transactions can potentially take days for clearing and final settlement, especially outside of working hours. Blockchain transactions can reduce transaction times to minutes and are processed 24/7. Lower transaction costs By eliminating third party intermediaries and overhead costs for exchanging assets, blockchains have the potential to greatly reduce transaction fees. It is estimated that blockchain based applications could bring the cost of a cross-border transaction from $25 to $1-2. Public or Private Public Private Users Access Anonymous Vetted Know as Permissionless Permissioned Administrator Not Required Required Private Blockchain Restricted to few users Access permissions are controlled Maintains partial guarantees of authenticity and decentralization Crypto-currency Yes No Transaction Speed Slow Fast Challenges Nascent technology Resolving challenges such as transaction speed, the verification process, and data limits will be crucial in making blockchain widely applicable. Uncertain regulatory status Because modern currencies have always been created and regulated by national governments, blockchain and Bitcoin face a hurdle in widespread adoption by pre-existing financial institutions if its government regulation status remains unsettled. Large energy consumption The Bitcoin blockchain network s miners are attempting 450 thousand trillion solutions per second in efforts to validate transactions, using substantial amounts of computer power. Control, security, and privacy While solutions exist, including private or permissioned blockchains and strong encryption, there are still cyber security concerns that need to be addressed before the general public will entrust their personal data to a blockchain solution. Integration concerns Blockchain applications offer solutions that require significant changes to, or complete replacement of, existing systems. In order to make the switch, companies must strategize the transition. Cultural adoption Blockchain represents a complete shift to a decentralized network which requires the buy-in of its users and operators. Cost Blockchain offers tremendous savings in transaction costs and time but the high initial capital costs could be a deterrent. Source: Deloitte How is the technology used? Smart Contract Leverages Blockchain technology Why Smart Contracts? Defining the Contract Components Future of Smart Contracting Digital Assets Digital Currencies Internet of Things Blockchain technology is being experimented with in many industries. Healthcare Real Estate Art and Antiques Retail Government Financial Services Key facts Most blockchain investments and advances to date have been made in financial services. $1B in investments in 2016 Other industries see promise in blockchain s ability to create cost savings, data security and reduce fraud through uses like payment processing, information management, document verification and tracking and supply chain tracking A majority of the technologies are still in the testing and experimental phases. What are the implications for the profession? Implications for the Profession As the technology evolves, more and more businesses may prefer to transact via the blockchain to transfer assets. This data would then be contained in the blockchain s ledger. This raises obvious implications for accounting, the financial statement audit, and tax Audit/Accounting Implications of Blockchain Opportunities: Enhanced trust/confidence Enhanced efficiency Improved access to transactional data Challenges: Need for new accounting and auditing standards for digital currencies and assets Need for new regulations Need to evolve professional services and related value proposition Need additional knowledge and new skills Automatic validations Real time verification No middle man Future role of accountant Current Tasks/Expectations Impact of blockchain technology Future Tasks/Expectations Examines statements to ensure accuracy Documents financial transactions by entering account information Oversees budget and financial management Summarizes current financial status by collecting information; preparing balance sheet, profit and loss statement, and other reports Maintains accounting controls by preparing and recommending policies and procedures Maintains professional and technical knowledge by attending educational workshops; reviewing professional publications; establishing personal networks; participating in professional societies. The blockchain inherently ensures accuracy of the ledger through the validation process by miners Blockchain captures transactions on the distributed ledger Blockchain tracks transactions which can be easily viewed for analysis Organizations can set rules in blockchain smart contracts to ensure money is spent on what it has been allocated for Blockchain holds financial information in one location so it is easily collected and prepared into reports Blockchains can help enforce controls through network rules and required validation The new technologies will create a need for professionals to be trained in understanding the platforms and how to use the outputs Examine accuracy of blockchain inputs to ensure blockchain data is being based on accurate information Review blockchain outputs for accuracy to ensure data has not been tampered with Focus on analyzing transactions rather than entering them Monitor and provide real time financial recommendations based on the blockchain data Recommend rules to govern the blockchain in order to keep the organization on budget Partner with business units to provide insights and data interpretation Use data from blockchain to generate reports and financial statements Focus on analysis of reports as the blockchain creates efficiencies in report generation Increased emphasis on providing recommendations and policies over monitoring Attend educational workshops, webinars, conferences etc. related to blockchain technology and its uses in the accounting profession in addition to other CPE topics Use training to help organizations transition to blockchain technology Questions? Thank you 2017 Association of International Certified Professional Accountants. All rights reserved.
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