Are the Big Four auditors going to lose market share?

How can an industry full of conflict and scandal be seen as a beacon of trust? Has trust in the assurance industry become like butterfly wings; once touched, never being able to fly again? Can the assurance industry regain the public trust?

Scientifically, it has been proven that the same mindset that creates a problem can never solve that problem. This is what is being contemplated in the United Kingdom by assurance and FCA regulators in its dealing with the Big Four accounting firms in the wake of the collapse of Carillion.

The witch burning effort is sparked by large investors in the wake of the collapse of Carillion who believe that the Big Four cartel needs to be broken up and regulatory reform needs to be implemented. Regulators claim to protect investors but at the same time it may seem that they forget whose money is at stake. Enterprise managers seem to also forget.

A new assurance methodology is now being developed by a team of accountants, auditors, blockchain experts and former Big Four assurance technology experts. It proposes an audit methodology that is similar to how a cryptocurrency transaction is externally validated by an army of nodes and miners.

As illustrated by countless instances of fraud, regulators show up after the fact and investigate. Sometimes they hold actors accountable. Are they really protecting investors?

More regulation is not the answer. The assurance industry isn’t helping either. Kevin Ellis, PwC UK Chairman admits that the Big Four are an oligopoly yet is asserting that a breakup is not the answer.

In Richard Brooks’ indictment of the Big Four; “Bean Counters – Atlantic Books, Jun 7, 2018”, he gives a detailed account of their profit motive while the world ricochets from crisis to crisis and suffers from fraud to fraud. They are supposed to be the gatekeepers of our economic system.

On January 3, 2009, a group of cypherpunks launched Bitcoin. The coinbase of the genesis block contains an ominous inscription; 04ffff001d0104455468652054696d65732030332f4a616e2f32303039204368616e63656c6c6f72206f6e206272696e6b206f66207365636f6e64206261696c6f757420666f722062616e6b73 (decoded)

??EThe Times 03/Jan/2009 Chancellor on brink of second bailout for banks

The group referred to the January 3, 2009 UK Times’ account of Alistair Darling’s contemplation of pumping more money into the UK financial system in the wake of the financial crisis. Was Bitcoin the group’s answer to the devastated financial system?

In the paper published by Satoshi Nakamoto, “Bitcoin; A Peer to Peer Electronic Cash System”it is proposed that a number of computers, not in cooperation, validate and agree on a single history of all transactions on the longest chain of blocks. There are approximately 10,000 nodes on the Bitcoin network at most times.

In its paper titled “Auditchain; Decentralized Continuous Audit & Reporting Protocol Ecosystem”, they propose a substantially similar process. Instead of engaging a single intermediary to “attest and opine” on the financial condition of an enterprise for the purposes of providing assurance to stakeholders, Auditchain proposes that a cohort of CPAs and Chartered Accountants, operating specialized audit nodes be granted authority to achieve the same level of assurance as a validated Bitcoin transaction.

Does this mean that the Big Four will be the cohort they propose? The paper describes a network of “Federated Nodes” as performing the audit work in what seems to be required by a much larger group of members of the cohort.

Auditchain is proposing that token issuers “plug in” to its Decentralized Continuous Audit & Reporting Protocol Ecosystem^TM, an alternative financial statement reporting, assurance and disclosure methodology for security and utility token issuers and their stakeholders. Most regulatory jurisdictions require issuers to provide current information in order for resales of the tokens to take place. Auditchain’s paper elaborates on assurance for traditional enterprises as well.

Auditchain proposes to solve major problems of regulatory conflict relating to disclosure, laborious manual audit and reporting methodology, the reduction of the time lag of financial statement information and the reduction of fraud.

What Auditchain is actually developing is a new disclosure framework safeguarded by an army of CPAs and CAs providing real-time consensus-based assurance and validation of financial statements on a continuous basis. Can Auditchain be proposing the world’s first autonomous self-regulatory organization?

New standards of transparency, data standardization and accountability for financial reporting as well as improved security, substantially increased risk controls and greater assurance for stakeholders is proposed in its whitepaper.

Could this be the answer to the UK Regulator’s concerns? The answer to this question may be found in the number of fraudulent validations on the Bitcoin network, the number of Bitcoins that have been counterfeited, double spent or the number of times that the Bitcoin network itself has been hacked in the last 9 plus years.

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