Record-keeping and the exchange of accurate information underpin the financial industry. However, the majority of current record-keeping and reporting use legacy systems, often built internally and in isolation, preventing the seamless exchange of information externally. This creates several issues for regulators who are tasked with monitoring business activity for compliance purposes, as well as for investors and other commercial stakeholders when accurate information is needed for trade, investment and analysis purposes.
This is particularly the case when it comes to auditing businesses that own or trade in large quantities of digital assets. Digital assets, like cryptocurrencies, can be considered securities in some legal environments, attracting the provisions and terms of securities law – the breach of which can result in significant fines for offending businesses. Moreover, the problem is compounded by an often aggressive approach regulators and enforcement agencies take towards digital assets. The problem becomes worse across jurisdictions where accounting standards conflict.
Auditchain has created the first NFT-based accounting, reporting and audit control suite for automating accounting, reporting and audit processes. The Auditchain Virtual Machine automates and provides “proof of assurance” on controls over financial data and logic for accounting, financial reporting and audit processes. Its vision is to bridge the gap between legacy accounting systems and decentralized technologies, leading the future of financial auditing. The suite of NFT services is dubbed “computational professional services”.
What is AuditChain?
Auditchain is a decentralized Ethereum-based platform, developed specifically for continuous auditing and real-time financial reporting. Its ecosystem leverages a network of Certified Public Accountants (CPAs) and Chartered Accountants to enable the continuous validation of enterprise systems and controls that affect financial reporting, as well as their financial disclosure and reporting requirements.
Auditchain’s platform hosts an ERC-20 token called “AUDT” which drives the platform’s ecosystem, as well as an ERC-20 contract created specifically for digital audit engagement between the developer of controls and/or reporting entity and its “cohort” of auditors. The project whitepaper refers to this as an external validation contract or (“EVC”). Also featured is an ERC-721 non-fungible token (NFT) contract to provide for ownership of and “proof of assurance” for bespoke accounting, financial reporting and audit controls that are audited “blockchain style” under the ISAE 3402 international engagement standard by the cohort of auditors.
The Auditchain team has also developed a staking schedule to encourage AUDT adoption which, in turn, will increase the long-term sustainability of the platform’s ecosystem. Early adopters who commit to the platform between its V1 and public launch will receive rewards in AUDT according to the schedule.
Finally, the ecosystem contains a governance layer designed to allow standards to be set and technical changes to be proposed and voted upon by the community of actors on the protocol who hold AUDT. Based on the project whitepaper, the integrity of the controls and the data matches the standard with which transactions are validated on any public blockchain like the underlying Ethereum network. Combined, this core infrastructure incentivizes trustless settlement in a decentralized protocol for accounting, auditing, financial reporting, and analysis.
Computational Professional Services
Auditchain is unique in using NFTs in financial accounting and reporting. Leveraging their indivisible and immutable nature, Auditchain’s ecosystem allows developers to produce NFTs that represent ownership of and proof of assurance on the financial controls as soon as the control is validated.
When the control is used in the course of accounting or reporting, the user pays in the ecosystem’s native token, AUDT. Subsequently, a portion of the AUDT paid is allocated between the NFT’s curator and validator(s) as a reward, thus incentivizing the developers to create more controls and the auditors who audit the controls to provide the assurance that the controls work correctly.
Each NFT also has several sets of metadata which include the name and wallet address of its developer, the name and wallet address of each validator, and the cohort address of the group of validators who validated the control.
As a result, external parties, including auditors, regulators, or even other interested parties such as investors, can rely on the controls and the data in order to take appropriate actions.
Professional services in accounting, financial reporting and audit is a large subset of the $550 Billion global accounting services market. Equipping a large global enterprise with sufficient controls can cost shareholders a large sum every year. Financializing and owning these controls provides income and potential liquidity for what is otherwise a loss amortization. From this perspective, Auditchain’s model marks the dawn of the “Computational Professional Services” era enabled by NFTs.
Speaking about his involvement in Auditchain, Charles Hoffman, CPA, Auditchain’s Product Manager, Lead Architect, and Reporting and Assurance expert said:
“NFTs represent a tremendous opportunity for professional accountants to monetize their accounting knowledge. The combined capabilities of NFTs and the capacity XBRL offers in terms of expressing machine-readable rules is very innovative. I am excited to be a part of this project.”
Uniting a $550 Billion Industry Through Collaboration
Auditchain goes further with regards to bridging the gap between legacy accounting systems and decentralized technologies such as NFTs. Auditchain is a founding member of the DCARPE Alliance Association, a Swiss-based blockchain accounting, auditing and financial reporting consortium.
The DCARPE Alliance Association contains an international group of forward-thinking CPAs and other Chartered Accountants, each operating specialized nodes that continuously conduct financial audits and process financial data. Accordingly, this adds yet another layer to the confidence in the financial controls and processes developed within theAuditchain Protocol.
Moreover, Auditchain is leveraging a wealth of knowledge and expertise, both in the accounting and reporting industry, as well as software and blockchain development. The core team has decades of experience in law and finance, with board President, Guido Schmitz-Krummacher, who held board positions at Tezos, Cardano and currently Lisk. Also on its board is Urs Bigger who is Vice Chairman at Bitcoin Suisse. Additionally, Auditchain’s board boasts experts in DeFi, Solidity, and full-stack blockchain development which lead the project’s technical development.
With that in mind, Auditchain is not only pioneering a new future for accounting and reporting, but is literally moving the institution of accountancy toward real transformation and also contributing to the development of the wider cryptocurrency and blockchain industry who is experiencing gaps in accounting standards and processes.
To learn more about how Auditchain is using NFTs to revolutionize the accounting and disclosure industry, visit here.