New blockchain technology from Sweetbridge will transform the audit process and accounting generally beyond recognition, says their CEO in the first of our new weekly technology CEO Q&A
Sweetbridge is an open source, second layer, blockchain-based financial system. CEO Scott Nelson believes its ability to provide continuous assurance could help prevent fraud and misstatement in the future, putting an end to financial scandals such as last year’s involving Patisserie Valerie. The firm has already worked with Big Four companies looking at how the technology could transform the audit process. He spoke to Accountancy Age for the first in our new series of tech CEO interviews, introducing you to the technology that is changing the landscape of accountancy.
At its core it is a triple entry accounting protocol that provides continuous assurance with integrated identity, smart legal contracts, smart accounting treatment and payment rails all integrated into a single atomic transaction that can never be out of sync between counter parties. It is going to be majorly transformative to audit in threatening and positive ways. It will enable lots of things we can’t even imagine.
It is common for a company to keep different sets of books in different locations as a way to show they have assets they don’t really have. Another example is when there are disputed bills, and it can look as if the customer is paying but actually they are not going to pay. You can perpetuate this for a very long time and not get found out, either with good intentions or because you are trying to create false transactions to make yourselves look better than you are. Sometimes, things go wrong because of system errors. Something as simple as a change of address can’t be entered on the system because that person doesn’t have permission.
We realised that new tech like blockchain could solve some of these problems at the core. You can have shared information between companies, and if someone proposes corrections to that information, everybody can see that. Most accounting transactions occur within agreements or contracts. With smart contracts, we can encode the accounting treatment at the same time as we write the contract.
It will ultimately help when the cost of creating the fraud is more than the cost of not committing it in the first place. You can change the incentive. People like to steal because they have an incentive to do it, but if it’s not profitable they won’t do it. You will start getting a level of transparency you don’t see today.
Much of what we depend on auditors to do can be done by automation, which reports problems in real time. Those firms who really grab the technology will deliver a better product. Audit firms are largely human body shops which sell time. But they will become tech service organisations now, providing information. It’s technology which is going to get them out of reputational problems. What is being presented is a strategic opportunity. Think about the Big Four firms, doing thousands of audits all over the world, and they don’t know where the bombs are. There is a big cost involved in trying to prevent these things.
You get people who will come up with all the cases it won’t work for, and people who are stuck in their old ways. People say, “this is a business which depends on personal relationships.” I hear that a lot! I thought there would be a lot more resistance than there has been however. Particularly at senior levels, people are desperately trying to figure out how to solve this problem – they want to do a good job.
I am bound by NDAs so we can’t reveal what we are doing yet, plus some of those firms don’t want their competitors to know what they are researching. What I can share is we won an award from SAP for the design of our system and the things you can do with it.
We are in the process of rolling out our system with some very big companies. We have been working on our technology for two and a half years, but only started revealing our synchronised accounting in the fall, but it already has had massive traction. Now we want to go through pilot programmes with major banks and potentially the Big Four, or with all of them.