Blockchain and the digital currencies that are powered by it have been headline news for quite some time now, but one thing that has not yet been widely considered is the potential use of blockchain within corporate reporting. Our recent attendance of the FRC’s Financial Reporting Lab Conference “Reporting Now!”, and the publication of its new report, “Blockchain and the Future of Corporate Reporting: How does it measure up?”, opened our eyes to the possibilities.
What is blockchain?
The FRC report describes blockchain as a type of shared database which creates a permanent record of transactions. It is distributed across a number of participants in a network and is therefore not under the control of a single participant. This, combined with the fact that any changes made to the data are clear for all to see, ensures both the data and network are resilient.
The technology was initially developed as a response to the increasing number of digital transactions taking place around the world. When transacting online, it is important that there is some level of trust in both parties. A common method of ensuring this trust is by using a third party (for example, eBay). The problem with these third parties is that they can often generate a fee, change or amend the transaction, or even change the rules of interaction. Blockchain solves this issue by replacing the third party and using its network and mathematical proof to ensure trust, reduce costs and enhance resilience.
Corporate reporting challenges
While corporate reporting generally works well and can create trust in a company’s financial position and performance, challenges still remain. The Financial Reporting Lab believes that, although at the early stages of development, blockchain has the potential to reduce some of the challenges associated with corporate reporting and could change the way in which records are maintained and value is transferred between parties.
The Lab has identified three specific challenges with the current reporting system that blockchain could support:
Creating a set of financial statements can be a time-consuming and costly process and often comes with the risk of error and manipulation. The report considers whether transactions processed on a blockchain could help to improve the efficiency and timeliness of error-free records and increase the speed of consolidation within groups. However, this would depend on whether issues around cost and interoperability can be solved.
Companies must meet specific regulatory filing requirements to make their corporate reports accessible to the public. There are a number of differing requirements across Europe and, often, users will have to go to a third-party source to find an up-to-date version. A blockchain-based European corporate reporting platform may help to open up access to corporate reporting, but success would be dependent upon any solution being easy to use.
With so much data around, it is important that companies make their reports stand out from the crowd. To do this, they need to make their communications increasingly engaging and provide context about the position, performance and character of the organisation. As the demand for more information grows, companies can become limited in their ability to use different media and different communications to meet regulatory requirements. Blockchain may help to rethink the way that reporting content is defined. However, the need for wider adoption may reduce the likelihood of its use.
- Blockchain and reporting production
Creating a set of financial statements can be a time-consuming and costly process and often comes with the risk of error and manipulation. The report considers whether transactions processed on a blockchain could help to improve the efficiency and timeliness of error-free records and increase the speed of consolidation within groups. However, this would depend on whether issues around cost and interoperability can be solved.
- Blockchain and distribution
Companies must meet specific regulatory filing requirements to make their corporate reports accessible to the public. There are a number of differing requirements across Europe and, often, users will have to go to a third-party source to find an up-to-date version. A blockchain-based European corporate reporting platform may help to open up access to corporate reporting, but success would be dependent upon any solution being easy to use.
- Blockchain and consumption of reporting
With so much data around, it is important that companies make their reports stand out from the crowd. To do this, they need to make their communications increasingly engaging and provide context about the position, performance and character of the organisation. As the demand for more information grows, companies can become limited in their ability to use different media and different communications to meet regulatory requirements. Blockchain may help to rethink the way that reporting content
Conclusions on blockchain
The Financial Reporting Lab concluded its report by stating that, although costly and complex, the use of blockchain is growing fast and corporate reporters must begin to consider the potential disruptive impact of the technology. More specifically, regulators, standard setters and professional bodies are encouraged to monitor blockchain developments by creating a forum where all those involved in reporting can share and learn. Preparers and users of corporate reports should focus on their understanding of the technology and consider experimenting when costs and benefits are balanced.
At Design Portfolio we focus on staying ahead of the curve with reporting developments. If you would like to know how to better prepare your reporting both online and offline, please contact daniel.redman@design-portfolio.co.