Deloitte dives into blockchain
Deloitte is helping more of its clients leverage blockchain technology as it sees the distributed ledger technology gain increasing usage after years of experimentation with the technology.
“We were in an ideation phase with blockchain, which was a really long phase,” said Amy Steele, a partner at Deloitte who leads audit initiatives for Deloitte’s digital assets and blockchain emerging sectors and also chairs the American Institute of CPAs’ Digital Assets Working Group. “Now we’re seeing a pivot, with more companies moving to the implementation phase, which is also going to be a lengthy phase. But as companies start to implement this more, we’re seeing a pivot from companies that are more emerging disruptor companies to larger enterprises that are using blockchain for business purposes. We are definitely seeing that shift.”
Deloitte released a report last month based on a survey of 1,488 senior executives and practitioners in 14 countries and territories, indicating that 88 percent of them believe blockchain will eventually achieve mainstream adoption, up from 86 percent last year and 84 percent in 2018. Thirty-nine percent of the respondents said they have already incorporated blockchain into production, up from 23 percent last year. Fifty-five percent of the respondents see blockchain as a top strategic priority, up from 53 percent in 2019 and 43 percent in 2018.
Nearly 89 percent of respondents believe digital assets will be “very” or “somewhat” important to their industries in the next three years. Eighty-two percent of the respondents said they are hiring staff with blockchain expertise or plan to do so within the next 12 months, compared to 73 percent last year. Eighty-three percent of respondents indicated in this year’s survey their companies will lose competitive advantage if they don’t adopt blockchain (compared to 77 percent last year). In addition, 70 percent of the respondents see the pace of regulatory change for blockchain and digital asset solutions as “very” or “somewhat” fast.
“We see this as almost an inflection point,” said Brian Hansen, the U.S. audit and assurance blockchain and digital assets leader at Deloitte. “We’ve seen a big movement within the whole ecosystem. It’s going to have significant impacts for auditors and accountants. They need to understand how they’re going to handle all the unique risks and auditability issues that come along with blockchain.”
Deloitte conducted the survey before the novel coronavirus pandemic hit. “Since then, we have seen what’s happened with COVID is that things continue to support the survey results,” said Hansen. “When you think about what organizations are focused on in this environment now with COVID, it really puts importance on information innovation. Blockchain is one of those really important things that we’ve seen organizations accelerating as they think about digital transformation to move forward and implement this.”
Blockchain may help biotech and healthcare supply companies, for example, keep better track of their supply chains and provide much-needed medications and personal protective equipment, which are running dangerously low at hospitals around the country or turn out to be defective or of dubious provenance.
“With blockchain, one of the big selling points is that it can increase efficiency and reduce the costs of doing business,” said Steele. “I think that has been an area of focus in this COVID world: how do we do things better. Blockchain is potentially a solution in a number of areas.to do that. We’ve seen a heightened focus on how blockchain can solve the business challenges. I think that will continue in the post-COVID world, where we’re trying to innovate and do things smarter, better, faster.”
Steele has been working with the AICPA and the Center for Audit Quality on ways for accountants and auditors to assist their clients with blockchain technology. Last week, the AICPA updated its accounting and auditing guidance for digital assets to provide more information about how blockchain can be used (see story).
The CAQ has also been working on helping auditors understand the technology. “From a Center for Audit Quality perspective, we have the Emerging Technologies Task Force, which is really looking profession-wide at how emerging technology is impacting professionals, in the tools that we use as an auditor to perform audits. They’re thinking through AI, robotics and machine learning. What are some tools that we can use to take big data, synthesize that data and perform higher-quality audits? And from a client perspective, it’s thinking through the different technologies that our clients are using, and how that impacts audit. It dovetails quite well with the AICPA. The CAQ is not creating guidance, per se. It’s more about helping the profession think through it. The AICPA is really tasked with, ‘We know these challenges related to blockchain and digital assets. We know it’s an incredibly hard area to audit and account for. How do we inform professionals and management to operate appropriately in this area?’”
Some initial guidance last December from the AICPA dealt with the classification and measurement of digital assets. Last week’s guidance added audit content focusing on client acceptance and continuance at firms like Deloitte.
“It’s really thinking through the unique risks and skills that you need in this space before you take on a client,” said Steele. “We do very robust client acceptance and continuance work to understand the companies that we may potentially engage with. What is their business purpose? What are management’s skill sets? What are our skill sets? We marry that up, so when we do take on these audits, we can execute appropriately and address all the extremely hard topics in a thoughtful manner.”
Auditors at Deloitte and other firms need to take many different factors into consideration when working with blockchain. “It’s so important to surround yourself with the right people involved in the process and surround yourself with the right considerations around who the stakeholders are and the key considerations around adoption because all of those things are important at the outset,” said Hansen. “For auditors, you need to think about auditability and what the control environment looks like because at the end of the day, controls are so important to the work that an auditor does. You need to think about all the IT controls, cybersecurity, legal compliance and all the KYC [know your customer] requirements related to regulatory, and then tax is also an important question. All those things are really important to think about when you’re working with clients.”