Is Financial Disclosure an Information Embargo?

Digital assets like Bitcoin and Ethereum do not provide periodic disclosure like issuers of traditional financial instruments. They are open ledger based which means by default, financial disclosure is in real time. A block explorer discloses activity in real time.     

Issuers of digital assets expose operational information that would otherwise be concealed behind the firewalls of bank custody environments and accounting information systems. Microstrategy is a perfect example. 80% of its assets are in Bitcoin which is open ledger based. 

Current global disclosure frameworks are periodic. There are strict rules that govern material non-public information. The exposure of open ledger based information conflicts with the rules governing periodic disclosure frameworks. 

In simple terms, the financial activity of a reporting entity is exposed when open ledger based assets are owned and used. Periodic disclosure frameworks become an information embargo that becomes misleading and causes confusion. 

The People’s Money – The People’s Framework

What if the People who rely on financial disclosure, the ones who invest and manage money and the People who pay taxes become the ones who operate and govern disclosure infrastructure? What if disclosure frameworks became decentralized? What if the world’s accountants, taxpayers, CFOs, CFA’s and other professionals became the disclosure infrastructure the same way that the People became the Bitcoin or Ethereum infrastructure?    

Auditchain Labs AG, based in Crypto Valley is planning the launch of exactly this type of infrastructure. Auditchain is an Ethereum based decentralized financial disclosure infrastructure that incentivises and enables accountants, CFOs, CFAs and other professionals to create, validate and own Process Control NFTs that make up the building blocks of accounting, financial reporting, audit and analysis processes using smart contracts and a machine-readable global standard syntax on the Auditchain Protocol. 

Auditchain was designed to modernize assurance and financial state disclosure and incentivize the world’s professionals to create tamper proof precision and granularity of accounting, disclosure, audit and analysis controls for society’s open ledger based investor.

Bureaucracy Stifles Innovation

In order for digital assets to become mainstream, more frequent and granular disclosure is critical. Traditional disclosure control systems and periodic disclosure frameworks allow a reporting entity to hide behind and arbitrage the flow of information that can prohibit an investor from seeing oncoming risk. This is what led to the 2008 financial crisis.  

In the UK, the Financial Reporting Council (FRC) has placed Blockchain technology as a pillar for future corporate reporting and is leading efforts to achieve common standards. The FRC previously stated that

“We should care about blockchain because the removal of a central authority and use of smart contracts (i.e codable contracts) empowers different types of business models, processes and industries by potentially removing a whole layer of administration from the system”

Potential Benefits

Members of the blockchain community have demonstrated measurable, substantial and rapid innovation. As of 5 February 2022, the total value locked in decentralized financial services contracts was $84.7 billion. The total value of all crypto assets was $1.9 trillion. 

If regulators are more open to innovation, the benefits to society of a decentralized financial disclosure framework can be substantial. Here are just a few:

• Earlier detection of regulatory anomalies.
• Real time remediation.
• Substantially higher issuer and market compliance.
• Automation of disclosure frameworks.
• Reduction in taxpayer funded operating and administration budgets.
• Reduction in regulatory budget appropriation requests.
• Substantially higher regulatory agency performance.
• Substantially higher levels of regulatory agency productivity.
• Substantial reduction in regulatory conflict.
• Substantially lower instances of accounting and financial statement fraud.
• Substantially lower taxpayer funded enforcement costs.

AUDT, the native ERC20 staking, settlement, and governance token, will enable anyone registered as a data subscriber to analyze financial reports filed with regulators and get a detailed analysis of the inconsistencies in compliance with accounting rules and calculations in real time. The results are stored on IPFS and populate a quantitative and qualitative view of the integrity and reliability of the world’s business and financial information by jurisdiction, industry, index and on an individual basis. 

Exchange support for the AUDT Token is widely anticipated and is expected to occur imminently.