Blockchain technology has been around for a while now, and it has well maneuvered its way beyond the bitcoins. Since the technology is safe, transparent, and secured, it prevents the alteration of records. Thus, finding its way in many industry sectors, the prominent one being the internal audit sector. Because of the data’s sensitivity and the need to have safe and unaltered execution of the internal audit process of an organization, implementing blockchain technology holds tremendous potential.
It will bring about the ground-up changes in an organization’s auditing process, revolutionizing the way businesses operate. The secure, transparent, and irreversible process is mainly used to safeguard the data sensitive information is of utmost importance. Blockchain makes it seamless to streamline financial reporting in medium to enterprise-level businesses.
IT consulting firms help businesses identify the potential loopholes in their internal audit process and how they can be resolved in the best way possible with the disruptive blockchain technology. With the experience of implementing the technology and understanding the business process scenarios of an organization, IT consulting firms can help effectively bring about a digital transformation by suggesting ways to implement the blockchain technology and how it will bring about a radical change organization.
How Will The Internal Audit Processes Evolve With The Use Of Blockchain Technology?
IT consulting firms help identify many audit processes like account reconciliations, trial balances, journal entries, and ledger keeping in the electronic or manual format that auditors have to process the information, plan, schedule, and execute the tasks either manually or through simple electronic processes. It may involve a breach of data, or the entire tedious process may be prone to human errors. Now, more than ever, it is the right time for organizations to onboard the blockchain technology in their internal audit operations for reasons best-illustrated below.
- Blockchain technology adopts the decentralized network of users, and its data ledgers are secured by cryptography, where the current ledger is dependent on the adjacent ledger. This network allows the transactions to be recorded in a definite chronological order where a transaction once occurred cannot be altered.
- With blockchain technology implementation, the auditors will have real-time access to the data on a private distributed network of ledger records. With smart contracts, businesses can pre-set conditions according to their requirements, which facilitates any automatic transactions on the data-ledger only when the conditions are met, thus eliminating any possible human error in the transaction or data breach.
- The blockchain technology’s data structure is designed to be in append-only mode, which eliminates any degree of data alteration or deletion of data. It forms one of the many layers of security in the internal audit process.
- Any data that is to be added to the ledger block goes through the consensus of all the stakeholders. And only after which the data is added/recorded in the block. It imparts an added layer of security to the auditing process.
- Since the data resides on a decentralized network of computers, there is never a foreseeable possibility of losing data.
- Any data ledger’s origin can be tracked along the chain right up to the point of its origin, thus making the entire internal audit process transparent.
Speeding up the audit process minimizes the transaction turnaround time, one of the major criticisms the internal auditors face. Safeguarding sensitive information with a reduced turnaround time leads to an increase in the internal auditing process’s efficiency and effectiveness. It leaves management and internal auditors to focus on more critical, complex, and challenging transactions. With the digitization and automation of the internal audit process, auditors can leverage the tasks of alerting the concerned authorities in case of any unusual transaction on the automated system. Since all the blockchain activities are irrevocable, the documents, contracts, agreements, invoices could be safely encrypted and securely stored in the system linked to the blockchain. These can safely be accessed unaltered, thus improving the pace of the financial reporting process.
How To Ensure The Internal Auditors Are Well Prepared To Adopt Blockchain Technology?
From identifying the potential processes in an organization where blockchain technology can be implemented, to meticulously executing disruptive technology is a collective task. The task is effectively executed only when the system’s stakeholders are trained to use the system. Nothing misses the IT consulting firms’ eye, and they take it in their stride to make the onboarding process of the internal auditors easy. Internal auditors should consider and evaluate the following factors to ensure that the stakeholders are well adapted to the system:
- Internal auditors must possess the right knowledge and skillset required to effectively operate and oversee the automated transactions based on the blockchain technology. To operate the blockchain-based application, they should be well trained to use evolving technology.
- In addition to having the right knowledge and skill set, the internal auditors must be involved at the planning stages of the blockchain-based application to get the knack of the system inside-out from the very beginning. It enables the system to be developed in a user-friendly manner.
- The internal auditors must continuously evaluate their auditing process as blockchain-based applications give real-time access to the system. Continuously evaluating the audit will bring more value to the organization.
How Can The Risks Associated With Implementing Blockchain Technology Be Managed And Mitigated?
When it comes to implementing blockchain-based applications, IT consulting firms adopt a holistic approach and assesses every aspect of the technology before implementing it. It becomes imperative to evaluate the risks associated with the blockchain applications and identify ways to mitigate the risks for a comprehensive disruptive solution.
- Account security – Once of the challenges that organizations face is the account security of the credentials and private key management. Organizations must lay clear guidelines to emphasize on the secured use of the account credentials and private key.
- Governance and business processes – Organizations must lay guidelines to accommodate the blockchain application and ensure a smooth transition of the business process and switch from the legacy process to the automated one.
- Access and permissions – No matter how secured a blockchain application is, the organization must identify who to access the data and the private encryption keys.
- Smart contracts – Carefully coding the smart contracts and evaluating the intended outcome is crucial to bridge the gap between the legacy system and the blockchain-based application.
Accurately audited financial statements are the cornerstone of any organization to sustain and improve their business. And an error-free, accurate audit of the financial statement with numerous security layers is the need of the hour. There is a market for ever-increasing organizations that are willing to adopt blockchain-based applications to improve internal audit efficiency. To keep up with the rapidly evolving internal audit processes, leaning towards the blockchain technology to assess the financial performance of an organization is indispensable. Many enterprise-level businesses are on their way to adopting the technology to capitalize on the technology’s benefits. Transparency, accuracy, data security, data protection from breach and theft, and a well-recorded chronology of the unaltered transactions are reasons enough to make a steady transition to the disruptive technology.