Blockchain – The Big 4 Accounting Firms

How blockchain will transform the tax and accounting industry

big4accountingfirms — Fri, 18 Aug 2017 04:18:51 +0000

There is a new technology that is changing the landscape of fintech and also privacy and data security. That technology is blockchain. Nasdaq.com recently came out with an article about the big 4 and blockchain. I think they just copied our article about the big 4 and blockchain but whatever. Copycatting is a form of flattery.

This is especially relevant now with the price of bitcoin exceeding $4,000.

I want to talk about the applications of blockchain to accounting. I don’t think everyone understands how it can be utilized in accounting. I don’t even think the big 4 fully understands right now because it is so complicated.

Ok what is blockchain?

Blockchain is a distributed database and a group of controls that store and share that information. It is decentralized information. That is why it is going to transform the world. By being decentralized, it creates an extra layer of security for everyone’s data.

Blockchain is Bitcoin, Right?

When many people think of blockchains they think of bitcoin. Bitcoin is not a blockchain. It is a cryptocurrency that supports a blockchain.

What’s an example of a blockchain?

To help conceptualize blockchain I’ll give a quick example of a blockchain application. One of the applications of blockchain that everyone talks about is a smart contract.

For example people talk about the titles of property when they talk about smart contract on the blockchain. More specifically they think of titles of a house. Wouldn’t it be nice to have the total ownership history of a house maintained on a ledger versus having to rely on title lawyers?

So that’s how you have to think of it. It has the capabilities of maintaining the history of important transactions with the added feature of privacy and security because it is decentralized and secured with cryptography.

If everything is decentralized, it makes it harder for hackers to take down a company’s information all at once.

Why do accountants care about blockchain?

Now why do accountants care about blockchains. Accountants care about blockchains because clients would value having their data decentralized, so that no one event could compromise their system. Additionally, blockchains could wipe out auditing completely. If everyone is constantly verifying the data, then why do you even need an accountant?

For example, most people need financial statements for regulatory approval or to satisfy shareholders. What if those regulators or shareholders were on your blockchain, they could see all the transactions and verify that they are ok.

As far as financial statements go, I still think people will still need summary financial statements that will be supported by a ledger that is on the blockchain. And then that will have to be audited. Deloitte has already conducted an audit of a blockchain, but who knows what that really means since there are no standards on how to audit a blockchain. I do think auditors will still be auditing even after the implication of blockchain.

Ok so what are some ways that blockchain can be used in the accounting and tax industry.

Ways blockchain will be implemented in the accounting industry

Tax Compliance

I think that taxing agencies will move to the blockchain one day. I think state taxing agencies in the united states will be some of the the first to adopt because they are greedy. States will likely mandate that taxpayers join their blockchain in order to transact business in their state. Why do I believe this?

I believe this because states will be able to assess whether taxes have been paid properly instantaneously if they can see all the transactions on the blockchain. They wouldn’t have to wait for companies to fill out tax returns or forms. The blockchain would essentially be one giant tax form.

I believe this is especially true when it comes to simple taxes like sales tax, vat, premium tax and excise tax. I do think the IRS and other global taxing agencies will also adopt the blockchain because it reduces the amount of compliance. The big 4 should be thinking about this and taking the idea to government agencies today as a consulting idea. They could help implement blockchains for taxing authorities. Those projects would be huge revenue wins in the 10’s of millions of dollars.

2. Accounting transactions

Ok so how would blockchain actually work in accounting transactions. It is kind of weird and a logistical nightmare for accounting because the notion of a blockchain means it’s a decentralized network. This means that a company would have to allow other agents onto their network to see and verify all of their financial transactions.

Well what company would allow that? Many people think this can be accomplished through a consortium or private network. People still would not want their competitors and other companies to see their information. For example, who would Facebook have on their network, GE, IBM, Snapchat? Who would they trust to see their information.

3. Accounting Consortiums

In order to form a consortium you’d have to know who you are forming it with unless the big 4 formed blind consortiums for these companies. Which is another huge service offering that the big 4 could provide.

4. Blockchain Node

Another way for accountants and the big 4 could get involved in blockchain is to volunteer to become a node on a network. The companies that are adopting or will adopt blockcahin don’t trust the networks and nodes attached to large scale solutions like ethereum, so they set up private blockchains. The problem is you need a number of nodes to keep the network safe, but who can large companies trust? That is where CPAs and the big 4 firms come in and offer to be a node for companies in any of their blockchain networks. Whether they be related to smart contracts or accounting blockchains. CPA’s have brands of protecting client information and access to important data. This gives them the edge against other competitors in the marketplace. This can be a recurring services as well. This is where accountants and the big 4 can really make a killing. They can offer their trustworthiness and their ability to audit to be members of blockchain networks and blockchain consortiums.

Conclusion

If you are in the accounting industry, you need to start thinking of ways that blockchain will change the industry. The ideas above are just a few ideas. Blockchain will be implemented very quickly and will change the whole landscape of tax accounting so try to learn as much as possible.

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EY Opens FinTech Innovation Lab in NYC

big4accountingfirms — Mon, 26 Jun 2017 00:41:47 +0000

Ernst & Young has announced the opening of an innovation lab in New York. The location is in Union Square in Manhattan. It is located on the 8^th floor of 841 broadway which is on 13^th st. Don’t think you can just drop in though. You will probably need to be a priority client of EY to get access.

EY made this announcement on June 21, 2017. The purpose of the center is to focus on financial services. The reason for the focused on financial services is likely because it is an innovation center in New York.

This center will highlight EY’s investment in Wavespace.

What is Wavespace?

Wavespace is a branding term that highlights Ernst & Yong’s growth and innovation network. You can see EY’s press release around wavespace from March 2017 on their website. Wavespace is a global network of growth and innovation centers. It’s not restricted to improving only accounting functions. It can help clients invest in a number of items including blockchain. Ernst & Young has invested in strategic alliances to help clients collaborate with other service providers in the space. This will probably with your typical providers like oracle, SAP, Microsoft in addition to some startups.

Some of the items that will be shown in these innovation centers are artificial intelligence, robotics process automation, blockchain, data and analytics, digital, customer experience and cyber security.

The wavespace centers are a multimillion dollar investment from Ernst & Young. They are seeking to building 15 locations around the world in Americas, Europe, the Middle East and the Asia Pacific regions. Each center will be tailored to its specific region. These centers have floor to ceiling screens, vr headsets, fancy tables all the things you need to sell clients on the future right.

Some solutions that are shown in the wavespace centers are as follows

50 blockchain business solutions including and identity management platform.
An innovation pop up lab for a financial services client that EY built

Suit + Jeans

EY has also established another branding term called suits and jeans. They are saying that suits and jeans industries can collaborate to come up with better solutions. I guess they consider silicon valley type jobs as the jeans component and the financial services industry as the suits.

Big 4 Innovation Centers

You are beginning to see the adoption of innovation initiatives across all the accounting firms and more specifically innovation around financial services. This is because there are in the business of financial services and more pointedly in accounting and tax. A lot of this is also highlighting what is called fin-tech. Fin-tech is short for financial technology or any technology used in the finance world.

The reason the accounting firms are primarily focused on these initiatives is because it can be used to make accounting and tax jobs easier. The technology can also be used for other purposes including process improvement and automation.

The big 4 have likely ramped up initiatives in this area because financial institutions like banks and hedge funds are really blazing the trail in this area and the big four accounting firms know they can’t get left in the dust. Otherwise they might be missing out on huge engagements and might face significant layoffs. The big 4 are built around clients needing a lot of bodies to complete a project. Those bodies typically aren’t highly skilled either. Those are jobs primed to be replaced by innovative technology.

More specifically you see a large investment in automation which is been taking over the past few years. Accountants have seen automation come in and being able to make journal entries and also consolidate a ledger among many other accounting functions that no one ever thought could be automated. But technology is even moving past that. People are beginning to invest in robotics and machine learning. Robotics takes processes that aren’t common processes and automates them. These aren’t physical robots; they are software that is programmed to be like a robot. For example, it can download all the instances of accounting reports that used to take hours but can now take minutes or be left over night to be done in the morning.

You see KPMG and EY now have physical locations where they will show their clients all the possibility that innovation brings, but as far as I can tell PwC and Deloitte do not have comparative centers. Since the big 4 accounting firms are typically copycat businesses, I imagine that you will see these pop up for them too. New York has a significant amount of financial institutions, so I believe that all big 4 will need these labs.

Ernst and Young has there’s in Union Square. EY has a sexy new website to highlight there center where you can see a bunch of business professionals playing with VR headsets. There are also walls of screens which is very similar to the KPMG ignition center.

KPMG has ignition centers in downtown NYC in SOHO and they have another location midtown NYC. You can see in the KPMG youtube video that they also have the whole jeans thing going on. PwC was on the whole jeans program long before any of these places started highlighting these fancy ignition centers.

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What Is Blockchain? (And Why Does It Matter for the Big 4)

big4accountingfirms — Sun, 19 Feb 2017 20:50:26 +0000

Before we get started, I want to make a disclosure that I am by no means a blockchain expert. With that being said, I want to provide a summary of blockchain and why it matters to the four big accounting firms because it is constantly in the big 4 headlines.

Blockchain is a digital form of a ledger where transactions are made. The transactions can be made in bitcoin or other cryptocurrency.

It doesn’t even nescessarilly have to be a specific currency. It can be just economic transactions.

The difference between a blockchain and other transactional ledgers is that it is not recorded in one single place. It is maintained by a network of people. The people on this peer-to-peer networks are known as nodes.

After someone requests a transaction, the nodes on the network validate the transaction using algorithms. A transaction can include cryptocurrency, records, contracts, etc.

After a transaction is verified it is added to a block of data. That block of data is then added to the blockchain. After it is added to the blockchain, the transaction is complete.

The benefits of blockchain are the it cannot be controlled by a single entity, it is transparent, and it reduces the transactions cost of each transaction.

PwC put together the lovely infographic below to help explain blockchain.

Why do the Big 4 care about Blockchain?

The 4 largest public accounting firms care about blockchain for many reasons. Blockchain offers many opportunities for the big four. First of all it offers consulting opportunities. All of the uses of the blockchain are not yet known, so of course the big 4 would love to step in and help you think of many reasons where it can be used.

This is especially true in the financial services industry. It appears that blockchain has the potential to undermine some needs of using banks, so the big 4 will first pitch this hard to the banks. They will tell the banks that they need to invest in this and embrace it to avoid being obsolete.

Another area where blockchain seems to be valuable is in the transfer of securities. Maintaining records of security ownership is annoying and often painful. Blockchain would be extremely valuable in this area of financial services.

Make no mistake that the big 4 will be pushing most of their initial solutions to the financial services industry. This will happen for multiple reasons. One because the financial services industry faces the most disruption from blockchain and two, because the big 4 make the most fees from financial services.

There are also other industries that could be impacted by blockchain and the most common examples you see around the internet are vehicles, ownership, and health.

You see examples around the internet being used for vehicles. For example vehicle ownership. A blockchain could be set up to record all the changes in ownership for a vehicle.

A blockchain could also be utilized by a car rental company to make renting a car easier.

There has also been a lot written about blockchain being used in the health care industry. Data privacy in the healthcare industry makes it difficult to implement blockchain, but the healthcare industry is ripe for change. There are many transactions and many administrative costs with the healthcare. The efficiency of a central ledger that could reduce transaction costs has the potential to disrupt and improve the healthcare industry.

Additionally, all the tax implications of blockchain are not known yet. They will not be known for some time as all the applications of blockchain have not been determined. This means that big four will have ample opportunity in their tax services offerings. They will have opportunities in federal, state and international tax since this is a global currency/technology.

What are the Big 4 doing with Blockchain?

Now that we know a little more about the blockchain and what it means to the big 4 let’s go over what the big 4 are currently doing around block chain. We’ve provide a brief overview for each accounting firm below.

Deloitte Blockchain

Blockchain lab

Deloitte is launching a blockchain lab in Dublin, Ireland. The lab will staff 25 people and eventually grow to 50 people. The blockchain lab will come up with capabilities and proofs of concept for blockchain that Deloitte will eventually offer to clients.

Blockchain team

Deloitte’s global blockchain team consists of more than 500 people and 9 development teams in their global network.

They have developed more than 30 blockchain related prototypes. Some prototypes include

Trade finance
Digital identity
Digital banking
Insurance claims handling
Digital music ownership

Blockchain Partnerships

Most of the big4 are partnering with other companies are their blockchain ventures. Deloitte’s partnerships include.

ConsenSys Enterprise – their mission is to create blockchain apps.
BlockCypher
Bloq – builds enterprise grade blockchain. They have five key offerings to help users create, test, update and analyze their public and private blockchains.
Loyyal – Loyalty and rewards platform built with blockchain. They have partnered with IBM and PwC as well.
Stellar

PwC Blockchain

As of the writing of this article PwC does not have a blockchain lab. It’s not clear whether every big 4 firm will create a blockchain lab or not. We will first have to see about the success of Deloitte’s blockchain lab. Then the other big 4 will follow suit if it is successful.

Blockchain services

PwC does not have much information about their blockchain team around the globe, but they do have information about their blockchain offerings.

Their main offering is the Denovo platform. If you gain access to this platform, you can see PwC’s current blockchain service offerings. The Denovo platform is meant to help clients with potential disruption in the marketplace. Blockchain is seen as a major disruptor and that is why it is a primary offering on the Denovo platform.

You can also take part in PwC’s Blockchain workshops. The blockchain workshops will allow you to network with executives and product owners to come up with blockchain solutions.

In addition to those two offerings, PwC offers the typical consulting offerings where they will come out and perform an assessment and orchestrate a potential solution for your business.

Blockchain partnerships

Pricewaterhousecoopers has formed partnerships with

Blockstream – they focus on implementing sidechains and accelerating innovation in digital currencies.
Eris
Digital asset holdings
BitSE – Shanghai based startup meant to help improve PwC’s capabilities in China and Hong Kong.

EY Blockchain

Ey will have multiple service offerings through their techonology and financial services blockhain leaders.

Channing Flynn is their techonology sector leader for tax and Angus Champion de Crespigy is their blockchain leader.

Bitcoin ATM

Ernst & Young opened a bitcoin ATM in its Switzerland office. EY is also accepting bitcoin payment for all of their consulting services.

Startup Challenge

In 2016, EY hosted a bitcoin start up challenge among 6 blockchain startups. 3 of the blockchain companies ended up getting honors.

BitFury received an award for best pitch. BitFury is a bitcoin mining company
Adjoint won the Most Investable Pilot award for creating smart contracts
JAAK won an award for Most Innovative pilot for developing an operating system.

Blockchain partnerships

EY has partnered with two of its winners from the startup challenge.

They have partnered with JAAK to come up with solutions in the media industry and they have partnered with Bitfury group to provide blockchain software services.

Paxos – EY has also partnered with Paxos to help gold market participants implement blockchain solutions.

KPMG Blockchain

KPMG’s key service offering is their digital ledger services. The service is meant to be a full life cycle offering for blockchain service offerings.

This means they will help come up with a business case and take it all the way to implementation.

KPMG has about 160 people working on blockchain full time around the globe. They have somewhat of a blockchain lab in New York with about 80 people working on blockchain exclusively.

KPMG partnerships

KPMG has one of the largest partnerships in the blockchain with Microsoft. KPMG and Microsoft have historically partnered to offer clients digital services. Part of those offerings are blockchain services.

KPMG will also be partnering with Microsoft to create blockchain Nodes. We defined a blockchain node in the summary above. The priority of this service offering is in the financial services space.

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