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Divided we fall,

we stand
The professional accountant’s
guide to distributed ledgers
and blockchain
About ACCA This report examines
ACCA (the Association of Chartered Certified Accountants)
distributed ledgers and
is the global body for professional accountants. It offers blockchain. It introduces
business relevant, first-choice qualifications to people of
application, ability and ambition around the world who seek the concept and relates
a rewarding career in accountancy, finance and management.
it to the needs of
ACCA supports its 188,000 members and 480,000 students professional accountants.
in 178 countries, helping them to develop successful careers
in accounting and business, with the skills required by
employers. ACCA works through a network of 100 offices
and centres and more than 7,110 Approved Employers
worldwide, who provide high standards of employee learning
and development. Through its public interest remit, ACCA
promotes appropriate regulation of accounting and conducts
relevant research to ensure accountancy continues to grow in
reputation and influence.

Founded in 1904, ACCA has consistently held unique core

values: opportunity, diversity, innovation, integrity and
accountability. It believes that accountants bring value to
economies in all stages of development and seek to develop
capacity in the profession and encourage the adoption of
global standards. ACCA’s core values are aligned to the
needs of employers in all sectors and it ensures that, through
its range of qualifications, it prepares accountants for
business. ACCA seeks to open up the profession to people
of all backgrounds and remove artificial barriers, innovating
its qualifications and delivery to meet the diverse needs of
trainee professionals and their employers.

In June 2016 ACCA formed a strategic alliance with

Chartered Accountants Australia and New Zealand (CA ANZ).
The alliance represents the voice of 788,000 members and
future professional accountants around the world, who share
the commitment to uphold the highest ethical, professional
and technical standards.

More information is available at:


Narayanan Vaidyanathan is head of
technology insight. He has a global remit
and leads research initiatives across a range
of areas. He represents ACCA on various
government, industry and academic forums.

© The Association of Chartered Certified Accountants

April 2017

Foreword...................................................................................................... 4

Executive summary....................................................................................... 5

Report structure........................................................................................... 7

1. Introduction to concept........................................................................... 8
1.1 The basics – the clue is in the name...............................................................8
1.2 The network effect.........................................................................................11
1.3 Quick reality check.........................................................................................11
1.4 Things we want to know but don’t ask.........................................................12
1.5 Cooperating to drive win-win outcomes......................................................17

2. Commercial applications for distributed ledgers................................... 19

2.1 Solving the right problem.............................................................................19
2.2 Distributed ledgers in action.........................................................................19

3. Distributed ledgers and professional accountants.................................. 23

3.1 Starting with the present...............................................................................23
3.2 Looking ahead................................................................................................25
3.3 So where does all this leave the accountant?..............................................31

Conclusion.................................................................................................. 33

Appendices................................................................................................. 34

Glossary...................................................................................................... 36

Acknowledgments...................................................................................... 37
Foreword 4

Technology has a profound impact on doing so, it offers the potential to transform
how we live, and a key aspect of this existing business models and the skills
impact has been an increase in the level relevant to delivering them. It is therefore
of connectedness within society. This important that professional accountants
connectedness stems from being able to understand these developments and the
share information in real-time, an ability nature of the impact on their roles.
created by the internet.
ACCA is committed to developing
There now appears to be the possibility professional accountants the world needs.
for another step-change in the impact of This refers not just to the needs of today,
technology as a result of what has been but also to anticipating and planning for
called the ‘internet of value’. The ability the profession of the future. Accordingly,
to track and transfer value (such as money our approach is to look ahead and engage
or assets) in a secure real-time way, similar pro-actively with key trends that could shape
to information transfer today, could tomorrow’s world. This report on distributed
fundamentally alter the way we live and ledgers has been produced in this spirit.
transact with one another.
We are delighted to add to the
The underlying technology to enable this understanding in this area, and to
– referred to as distributed ledgers or complement the work of others like our
blockchain – is at the heart of these strategic alliance partner, Chartered
developments. It could change not just Accountants Australia and New Zealand,
individual organisations, but entire who are also striving to improve awareness
industries and their supply chains. And in of this important topic across our profession.

Helen Brand OBE

Chief executive
Executive summary 5

This report explores the concept of When a change or update to any

This report explores the concept distributed ledgers, also often referred to as participant’s record is confirmed, the
of distributed ledgers, also blockchain. The primary target audience for technology ensures that the view seen by
often referred to as blockchain. this report is the community of professional each participant in the network
accountants, but anyone seeking an synchronises to reflect the latest update.
introduction to this topic (particularly if This is a peer-to-peer network where the
they are not a technology professional) participants are themselves responsible for
may find it relevant to their needs. the validation of records – without the use
of a central authority for this purpose. So if
A distributed or shared ledger is a digital the majority of participants agree that an
database of records. These records contain update has been correctly validated, that
information relevant to a group of becomes the basis for the updated entry
participants within a network. For example, to be added to the ledger.
the value of assets they hold, details of
ownership, information about transactions The network itself may be public or
between participants or anything else that private. A public network offers an open
can be represented within a digital register. permissionless invitation for anyone to
join. This provides a mechanism by which
In a distributed ledger all participants are complete strangers can trust the shared
looking at a common view of the records. information they see in the ledger.
This is in contrast to a typical situation On the other hand, a private or closed
currently where participants (for example, permissioned network enforces a
in different organisations) are looking at membership process for participants.
different databases that are independently
managed and updated.
Divided we fall, distributed we stand Executive summary 6
The professional accountant’s guide
to distributed ledgers and blockchain

If the dominant requirement in the It will take time to gauge the impact of
Blockchain presents network is speed or more effective distributed ledgers on overall revenues for
new areas for analysis regulatory compliance, then the cost accountancy firms. But the most likely effects
and effort of establishing trust between on the revenue mix may be clear sooner.
and consideration, and
strangers is not relevant, and private
the sooner professional network technologies may be preferred. There may be a gradual move away from
accountants increase low-margin activities (for example,
their awareness, the Bitcoin blockchain is a public network transaction checking) towards a greater
better prepared they will ledger where transactions are grouped into emphasis on higher-margin work (for
blocks and validated through mathematical example, interpreting technical accounting
be to engage with it. techniques (such as encryption and policy to a given situation). Over time, this
hashing). The underlying governance is may affect the revenue model, with greater
handled by a consensus algorithm that emphasis on paying for expertise and
verifies and confirms that a block contains advice (outputs-based rate card) rather than
valid transaction information and can be for time (inputs-based, per hour billing).
added to the existing chain of blocks. A
linear chain of blocks containing Whether this evolution in revenue mix
transactions creates a single view of the occurs or not depends on the ability of
truth, capturing the details and sequence distributed ledgers to achieve large scale
of transactions as they occur. and mainstream adoption. Views on this
vary but, one way or another, it is
Distributed ledger technology (DLT) refers anticipated that over the course of the
to technologies built primarily to suit the next five years the answer will become
needs of private permissioned networks. It clear. If it looks likely that the revenue mix
shares the characteristics of a digital record will evolve, then accountancy firms may
without a central validator, and where the want to evaluate their structure and
ledger is replicated across different organise themselves differently to prepare
participants. These participants have been for the future.
selected to enter the group and share the
ledger: for example, a network of banks This might involve providing those
that have all agreed to common terms and offerings with potential to be standardised
conditions for using the shared ledger. and automated (eg data collection, records
Also, some participants may have been checking, bookkeeping or exceptions
appointed to hold specific pre-agreed reporting) via a platform interface such as
roles (such as validation) within the an accounting-as-a-service offer.
network. DLTs are typically designed to be
faster than public network shared ledgers. In addition, the professional accountant of
The Hyperledger project is working on the future will need a forward-looking
creating a collaborative, open source outlook and skills and abilities that are well
platform for DLT to support business rounded, resilient and adaptable to changes
transactions and create enterprise-relevant in the business environment. For example,
ledger solutions. there may well be new areas of knowledge
that need to be better understood, such as
As DLT matures, the shared ledger’s how to measure and account for value as
common view of records and transparency assets transfer via a distributed ledger from
of transaction history could reduce one owner to another.
reconciliation across different databases
and drive significant efficiencies. Business Blockchain presents new areas for analysis
processes that are characterised by and consideration, and the sooner
inefficiencies (eg trade finance), or exist professional accountants increase their
because of a lack of trust (eg Know Your awareness, the better prepared they will be
Customer requirements in financial services) to engage with it.
or poor supply chain visibility (eg for global
garment supply chains) are all key areas for
distributed ledger applications.
Report structure 7

This report comprises three main sections:

The aim of this report is 1. Introduction to concept
to illuminate this area by
exploring what a distributed 2. Commercial applications for distributed ledgers
ledger is, where it might have 3. Distributed ledgers and professional accountants
commercial applications and
how it relates to accountancy The report complements a recent report from ACCA’s strategic alliance partner,
and finance professionals. Chartered Accountants Australia and New Zealand (The Future of Blockchain:
Applications and Implications of Distributed Ledger Technology).

The aim of this report is to illuminate this area by exploring what a distributed ledger
is, where it might have commercial applications and how it relates to accountancy
and finance professionals.
1. Introduction to concept 8

New technologies are allowing us to Around the world, governments,

Around the world, governments, reimagine the way we live and interact with technology providers and businesses are
technology providers and one another. In doing so, they have evaluating what distributed ledgers might
businesses are evaluating what brought several new ideas to the fore, each mean for them. As part of this, the
claiming to be the ‘next big thing’. But accountancy profession will also need to
distributed ledgers might mean
some of these technologies are understand fully the implications of this
for them. As part of this, the establishing themselves as having the technology, and many are on the journey
accountancy profession will also ability to drive significant changes. to doing so.
need to understand fully the
implications of this technology, One of these is the distributed ledger, also 1.1 THE BASICS – THE CLUE IS IN
and many are on the journey commonly referred to as ‘blockchain’. This THE NAME
to doing so. has the potential to transform the way an
The headline words, namely ledger and
entire ‘eco-system’ of organisations, such
as within a particular industry, is set up. It distributed, are a good place to start.
challenges assumptions about the ways in
which organisations can share information 1.1.1 Ledger
and trust each other, while still generating Unsurprisingly, a distributed ledger is in
sustainable economic returns. And in doing fact what a ledger normally is: a database
so, the distributed ledger is crossing over of records which, in this case, is held in a
from a topic of discussion among digitised format. Participants can view
technologists to one that is familiar to a records and contribute information to
generalist or business audience. update these records.
Divided we fall, distributed we stand 1. Introduction to concept 9
The professional accountant’s guide
to distributed ledgers and blockchain

The concept is that of a shared system of By combining the actual transaction with
By combining the actual records that the participants can see, and the record of the transaction, distributed
transaction with the where the technology ensures that all ledgers bring significant efficiencies.
copies are kept updated and synchronised.
record of the transaction,
In this type of ledger, doing a transaction 1.1.2 Distributed
distributed ledgers bring and recording it are combined into a single ‘Distributed’ (or ‘shared’) is another way
significant efficiencies. view of an event. of saying that all the participants in the
network can see the same set of ledger
In current systems this is not the case. records at any given time. So if thousands
When selling shares, for example, one of people are looking at the records in a
database records the transaction details distributed ledger from their individual
as the transaction occurs. These details personal computers, they will all see exactly
are then manually re-entered into a the same account balances and positions.
second database that is responsible for
‘settlement’. Settlement is the process Now, if one of them makes any change to
by which transaction details are checked, this distributed ledger, say by selling some
after which shares are transferred and assets to another participant in this
monies exchanged. network, that change gets updated in
everyone’s view of the ledger. The common
The above involves manually re-entering view that they all see is preserved. This
the same information, checking between common view is distributed across the
multiple databases and, where there thousands of people sharing the ledger, ie
are differences due to human error or they are looking at a localised copy of the
delays in updating a database, a common view on their machine.
reconciliation process. When scaled up,
these factors introduce material amounts To examine this a bit more, let’s assume a
of inefficiency. In the case of shares this simple world with only two banks and two
can mean several days of delay before customers, with transactions between
transactions are settled. them as shown in Figure 1.1.

Figure 1.1: A simple world with two banks and two customers

Bank 1 (B1) Customer 1 (C1)

B1 lends £250k to C1

B1 1
of rece oC
£7 ive 0 kt
50 s d £ 15
k f ep ds
£1m from B2
B1 borrows

m osit en
C2 B 2l

Bank 2 (B2) Customer 2 (C2)

B2 receives deposit of £500k from C2

Borrowing or lending relationship between the two counterparties

Divided we fall, distributed we stand 1. Introduction to concept 10
The professional accountant’s guide
to distributed ledgers and blockchain

The existing method for representing this in this one common record and the view of
If a participant system would be for each organisation to the ledger seen by all participants would
makes an update in record the transactions, from its be synchronised to reflect this update.
perspective, within its database as shown in
a distributed ledger,
Figure 1.2. This creates a total of 10 records In the current approach participants in
the new information across the system. The multiple records for different organisations (or, indeed,
is validated using the the same transaction held in different different departments in the same
technology and then databases need to be agreed upon, and organisation) may use different systems,
added to the ledger, with reconciled where there are differences, often resulting in reconciliation breaks
before further transactions can occur. between them. These could be due to a
everyone’s localised copy time lag in recording information between
of the record getting Let’s assume now that, instead of each the systems or just human error linked to
updated at that point. participant using its own database, all multiple data entry points.
participants use a common database. This
would involve the creation of a common On the other hand, if a participant makes
record that captures all the transactions an update in a distributed ledger, the new
within the system; a representation of this information is validated using the
is shown in Figure 1.3. This would mean technology and then added to the ledger,
that a change or update for any with everyone’s localised copy of the
participant’s transaction would be reflected record getting updated at that point.

Figure 1.2: Separate records in each of the organisations

3 records 3 records

Ledger: Bank 1 Ledger: Bank 2

Counterparty: B2 C1 C2 Counterparty: B1 C1 C2
I am owed (I owe): (£1m) £250k (£750k) I am owed (I owe): (£1m) £150k (£500k)

Ledger: Customer 1 Ledger: Customer 2

Counterparty: B1 B2 C2 Counterparty: B1 B2 C1
I am owed (I owe): (£250k) (£150k) I am owed (I owe): £750k £500k

2 records 2 records

10 records across
the system

Figure 1.3: A common view of transactions

Distributed ledger Distributed ledger
Debtor Creditor Amount Debtor Creditor Amount
B1 B2 £1m B1 B2 £1m
C1 B1 £250k C1 B1 £250k
C2 B1 £750k C2 B1 £750k
C1 B2 £150k C1 B2 £150k
B2 C2 £500k B2 C2 £500k

5 records across Bank 1 Bank 2

the system
5 records across
the system

Distributed ledger
Distributed ledger
Debtor Creditor Amount
Debtor Creditor Amount
B1 B2 £1m B1 B2 £1m
C1 B1 £250k C1 B1 £250k
C2 B1 £750k C2 B1 £750k
C1 B2 £150k
C1 B2 £150k B2 C2 £500k
B2 C2 £500k

Customer 1 Customer 2
Distributed ledger Distributed ledger
Debtor Creditor Amount Debtor Creditor Amount
B1 B2 £1m B1 B2 £1m
C1 B1 £250k C1 B1 £250k
C2 B1 £750k C2 B1 £750k
C1 B2 £150k C1 B2 £150k
B2 C2 £500k B2 C2 £500k
Divided we fall, distributed we stand 1. Introduction to concept 11
The professional accountant’s guide
to distributed ledgers and blockchain

1.2 THE NETWORK EFFECT A traditional double-entry system ensures

At its heart, At its heart, a distributed ledger is about
internal consistency within an organisation,
a distributed ledger connecting participants, via a network, to
so that if its books balance (eg an increase
in loan liabilities is matched by increase
is about connecting transact more effectively. There are in
in cash assets) it has confidence in the
participants, via a principle, two options1 for this network.
entries. But as transactions occur it is
network, to transact easy for the view of the transactions
1.2.1 Public network
more effectively. A ‘public’ network offers an open,
across organisations to become out of
sync with each other.
permissionless invitation for anyone to join.
If the dominant requirement is a trust
Distributed ledgers allow external
mechanism between strangers who know
consistency across organisations. If an entry
nothing about each other, then a public
is validated on the ledger, the view of all
network may be the way to go. For digital
participants in the network synchronises to
or crypto-currencies such as bitcoin this as
reflect this entry. So rather than just an
an enabler for driving greater adoption
individual organisation having confidence
globally, with more people being able to
in the entry, all users of the distributed
make purchases with these currencies.
ledger have confidence. This is a so-called
‘triple-entry’ system.
1.2.2 Private network
A ‘private’ network, also sometimes called
‘closed’ or ‘permissioned’, enforces a 1.3 QUICK REALITY CHECK
membership process for participants. If 1.3.1 Data privacy
participants are pre-selected, and the In the earlier example (Figures 1.1, 1.2
dominant requirement is speed or more and 1.3), Bank 1 would typically face legal
effective regulatory compliance, then the restrictions on allowing Customer 1 to see
cost and effort of establishing trust the bank’s transactions with Customer 2,
between strangers may not be as relevant. and vice-versa. The permissioned
distributed ledger has mechanisms in place
For example, a group of banks that have to ensure that users can only see data that
extensive contracts in place may not need they are authorised to see, or that
to vet each other before each transaction transactions can be viewed without the
as if they were total strangers. But these identities of the participants being shown,
banks may benefit from being on a network providing extra assurance. So a common
that allows them to agree balances and shared ledger doesn’t necessarily mean
transact faster. They may also be governed that everyone can see every detail; controls
by a common regulator, who may use a can be put in place if needed.
distributed ledger to monitor, for example,
the concentration of risk across banks and 1.3.2 Human error and fraud
its potential systemic impact. Distributed ledgers can significantly
reduce, but not completely remove, human
1.2.3 Majority consensus error or fraud: the technological
Whichever type of network is chosen, a architecture of the ledger makes fraud and
common feature is the ‘peer-to-peer’ error difficult.
checking of records. The agreement of the
majority of network participants is required The consensus mechanism has
before a record can be added or changed. safeguards to prevent either collusion
The consensus mechanism also defines the between participants or the acquisition of
governance, performance and security of too much influence by a single participant
the blockchain, replacing the role of a within the network.2 The validation of
single designated central authority (such as transactions by majority consensus makes
the clearing houses that perform checks it difficult for a rogue actor to single-
before shares are transferred and monies handedly disrupt the network.
paid) for validating transactions.

1 Hybrids of public and private distributed ledgers are also being explored by the industry.
2 Proof of Stake consensus is based on economic investment, the consensus also limits too much economic power from building in up in one node (see section 1.5.1 below
for more on nodes). Byzantine Fault Tolerance is a parallel consensus for detecting participants (nodes) misbehaving.
Divided we fall, distributed we stand 1. Introduction to concept 12
The professional accountant’s guide
to distributed ledgers and blockchain

The use of encryption, a mathematical 1.4 THINGS WE WANT TO KNOW BUT

Bitcoin is a technique that allows for a secure digital DON’T ASK
cryptocurrency, signature, checks that a transaction was in
1.4.1 Bitcoin, blockchain and distributed
fact between the stated buyer and seller
so unlike a traditional ledgers: what’s the connection?
and for the amounts involved.
(‘fiat’) currency, Bitcoin is a cryptocurrency, so unlike a
traditional (‘fiat’) currency, its supply is not
its supply is not 1.3.3 Accountability controlled by a national government. It
controlled by a Records are shared among network operates on a digital peer-to-peer basis.
national government participants and co-owned by them; this is Encryption tools are used to ensure that
similar to a model of mutual ownership. the bitcoin transfer occurs between the
Since these mutual distributed ledgers are designated source and recipient address.
owned by all participants, questions can Also, when bitcoin transfers occur they use
arise about accountability in the case of balances from individual transactions, and
fraud or human error.3 do not net-off balances across transactions
into a single balance.
There is a certain level of accountability
inherent to the concept of a distributed Suppose A has five bitcoins (5 BTC)
ledger. For example, changes to a obtained from C in a previous transaction.
consensus mechanism in any ledger would A needs to send 4 BTC to B. Rather than
need to be voted upon. Parties cannot splitting its balance obtained from C, the
enforce changes to the underlying source transaction occurs in two parts: A’s balance
code. They cannot secretly add a new of 5BTC is sent across the network
version without everyone’s knowledge and (retaining its link to the 5 BTC obtained
agreement. Consensus is therefore a pillar from C), and of this 4 BTC are credited as a
that supports governance, assurance, transaction from A to B while 1 BTC is
privacy, security and performance. re-credited back to A.

Therefore any regulation from The bitcoin blockchain is the underlying

governments needs to consider the technology that provides a transparent
balance of priorities carefully. On the one view of bitcoin transactions as they pass
hand is the priority of legal certainty and from one network participant to another.
protection in an area where issues are not Hence bitcoin has become a well-known
well understood by all. On the other, there example of a ledger record that provides a
is the additional regulatory burden that reliable permanent view of transactions –
could affect innovation at a time when characteristics that are the basis of all
appetite for adoption is increasing. distributed ledgers.


This is based on an idea called public key cryptography. A user in the bitcoin
network has an address with associated public and private keys. As the names
suggest, the public key is visible to everyone, while the private key is known only to
that user. The public key is used for encryption while the private key is used for
decryption. Let’s assume user 1 wishes to pay (ie transfer) bitcoins to user 2.

User 1 generates a coded message with user 2‘s public key and sends this to user 2
to inform them that bitcoins are to be transferred. User 2 uses their private key to
decrypt this coded message. User 2 can check that it was indeed user 1 that sent the
message with the help of user 1’s public key. In effect, the public keys ensure that
the transfer happened from the correct source and went to the correct destination.
The private keys ensure that only the authorised person (user 1) associated with
that source address can spend the money, and the authorised recipient (user 2)
associated with that destination address can access (‘receive’) the money.

3 M. Mainelli and S. Mills, The Missing Links In The Chains?, November 2016.
Divided we fall, distributed we stand 1. Introduction to concept 13
The professional accountant’s guide
to distributed ledgers and blockchain

This technology checks that transactions 1.4.2 Do transactions stay on the

A block contains are genuine by referencing previous blockchain for ever?
a summary of the transactions and grouping them into ‘Immutability’ refers to the inability to
‘blocks’. These blocks then get added to a remove or amend transactions once they’ve
transactions, including
‘chain’ of successive events to create the gone through the process of validation,
time stamps showing single, accurate view of the full list and achieved majority consensus, and been
when they occurred, sequence of transactions for all network added to a block that is part of the chain of
a link to the block participants to date. blocks that constitute the shared ledger.
immediately preceding
A block contains a summary of the Once an entry has been created in the
it and proof of the transactions, including time stamps ledger, it cannot be removed or changed in
validation that was used showing when they occurred, a link to the any way. This means that the ledger provides
to create the block. block immediately preceding it and proof an uncorrupted view of all entries recorded
of the validation that was used to create by participants from when the ledger was
the block. This creates the ‘chain of blocks’ first created – a perfect audit trail.
that has given rise to the term blockchain.
As a corollary, if a transaction is incorrect,
So, a distributed ledger is a mechanism for it cannot be amended; instead a new
reliably recording and tracking reversing transaction in the opposite
transactions, assets or other information in direction must be entered to cancel it out.
a digitised format in a way that is shared
between participants. Distributed ledger Immutability is indispensable in the public
technology (DLT) generally refers to the network environment, where the lack of
application of this technology to suit the trust means it is highly valuable for records
needs of private permissioned networks. to be absolutely unchangeable. Trust is
achieved in an environment where
Blockchain is a technology used to create a participants have separate economic
distributed ledger (using chains of blocks), interests yet want to ensure that the value
though the two terms are often used and integrity of the blockchain is protected.
interchangeably in common usage. Bitcoin Against this, it does bring into question the
is a cryptocurrency that uses a distributed practicality of storing infinitely increasing
ledger, in this case the bitcoin blockchain, amounts of data that cannot be removed. In
to record bitcoin transactions in an open the bitcoin blockchain, for example, there is
and transparent way, using chains of blocks. a 1MB block size that can house about 1500
Divided we fall, distributed we stand 1. Introduction to concept 14
The professional accountant’s guide
to distributed ledgers and blockchain

transactions, with signatures taking a large algorithm). The level of processing power
For a block of amount of space. Therefore distributed needed makes it an investment in time and
transactions to be archiving solutions are being developed considerable amounts of electricity to
which may mean that all the data doesn’t power the computers needed for the task.
successfully added to
need to be held in the primary storage area. Also the answer to the puzzle changes if
the chain it needs to the contents of the block are altered. The
be validated by solving While the above storage issues relate more difficulty of the hashing process serves as
a computationally to public networks, some question whether, an effective deterrence to tampering.
intensive mathematical within private permissioned networks,
there are some circumstances where After the puzzle is solved,4 the participant
puzzle. immutability may need to be suspended. who achieved this presents evidence of this
This might occur in regulated industries to the network, and the majority of
such as banking, where there may be a participants must agree through a process
need to amend transaction errors rather of network voting that it was correctly
than leaving them permanently on the solved. At this point, the block joins as a
network. This may involve a mechanism for validated part of the chain.
amending records, albeit one that leaves
permanent evidence (a record) of this Now, suppose someone wanted to go
action. Like many things in this area, these back and change the transactions inside
are ideas being tested and refined, and in one of the blocks in the chain. Since the
time the situation will become clearer. contents of the block have changed, the
answer to the puzzle has also changed. So
1.4.3 What’s the barrier to tampering they need to expend computation power
with transactions on the blockchain? to solve the puzzle all over again. There are
The answer depends to some extent on the mechanisms5 for detecting suspect
architecture of a given distributed ledger. behaviour and warning the network.
For the sake of specificity, the account below
is based on the bitcoin blockchain, though Furthermore, as mentioned earlier (1.4.1),
other ledgers will have similar protections. each block contains a reference to the
previous block. This means that the next
For a block of transactions to be block following the tampered block
successfully added to the chain it needs to contains a reference to the tampered
be validated by solving a computationally block. This in turn means that the contents
intensive mathematical puzzle (hashing of this next block have also now changed.


The process, called proof-of-work, is based on a ‘hash’, which is an algorithm (ie a

computer program) that can convert any sequence of characters (bitcoin
transactions, land title, share certificates, or indeed anything else) into a string of 64
letters or numbers. Any change, however small, in the details of any of the inputs
will cause the algorithm to create a completely different string after hashing.

The hash of previously validated blocks is publicly visible on the blockchain. The
hashing algorithm is now applied to a sequence of characters comprising three
elements: the hash of the immediately previous block in the chain, the transactions
in the current block and a randomly chosen number. This results in a string that is
the hash of the current block and which is then visible to the network. Validation
happens when a participant in the network called a ‘miner’ solves the puzzle of
guessing what that random number is.

Strange as this process may seem, there is a rationale for it. The probability of
guessing the correct random number is very low owing to the large number of
permutations. The only way is to use brute computing power, to repeatedly try
numbers through trial and error. This need for computing power forces the miner to
do some ‘work’ before they are allowed to validate a block; and it acts as a
deterrent for those wanting to interfere with the network.

4 Referred to as ‘Proof-of-Work’.
5 Known as ‘Byzantine Fault Tolerance’.
Divided we fall, distributed we stand 1. Introduction to concept 15
The professional accountant’s guide
to distributed ledgers and blockchain

Therefore the puzzle solution used for It is important to note here that there is
To tamper with blocks, validating the next block has changed nothing in the code creation process to
the amount of computing – and the rogue actor must expend more allow access to the contents of the title
computing power to also re-solve the deed itself. This validation occurs
power required to change
puzzle for the next block. independently of being able to look at the
a block and all blocks underlying document. This is valuable in
following it is a barrier for In fact this logic applies for all blocks business scenarios where third parties need
an individual rogue actor. following the tampered block. So to to assess risk without breaching data privacy.
tamper with a block a rogue actor would
need enough computing power not just to 1.4.5 Is it possible to mount a
resolve the puzzle for the tampered block, cyberattack on a blockchain?
but for all blocks that followed it as well. Yes, as mentioned (1.3.2) fraud is possible; in
addition, a cyberattack cannot be ruled out.
1.4.4 If it is like a database, am I viewing Like any technology, distributed ledgers
the underlying data? have a design – and that design will have
It was mentioned (section 1.3) that controls points of weakness which unscrupulous
can be put in place so that one can view a attackers could try to exploit. Sybil attacks
record only if one is authorised to do so. (identity theft) and distributed denial of
But what does ‘viewing a record’ actually service (DDoS), which can overwhelm a
refer to? network and disrupt genuine transactions,
are all threats to be considered.
The blockchain technology might allow
participants to record and track the The precise way in which this happens will
movement of assets, for example the title depend on the design, and to build on
deed for a property as it gets bought and observations to prevent tampering (1.4.3)
sold. But the deed itself is not held on the let’s look further at the example of the
blockchain. Rather, the ledger holds a bitcoin blockchain.
string of characters.
Block validation depends on expending
This string is a mix of alphabets and computing power to solve a puzzle, an
numbers that is created by applying a exercise carried out by participants in the
piece of code to a set of information that network called ‘miners’. To tamper with
includes the contents of the deed. This blocks, the amount of computing power
string is now linked to that particular title required to change a block and all blocks
deed as of that point in time. following it is a barrier for an individual
rogue actor. But what if lots of actors join
At a future point in time, one might check together to pool their computing power?
the authenticity of a deed by presenting it There are safeguards in the system to make
to the ledger and checking that the this difficult, with the consensus
generated string is the same as the original mechanism that sits on the nodes (see
string associated with the title deed when 1.5.1 below) being designed to prevent
it was added to the ledger. this, by detecting nodes that may collude
or work against the wider interests
The Swedish land registry has been
working towards putting all its real estate Historically this was not a great a risk but, as
transactions on a distributed ledger. Once bitcoin has increased in use, it has become
a contract is made between buyer and financially viable for participants to pool
seller, it could be put in a shared ledger together and invest in large data centres to
and viewed by all concerned parties, such increase their joint computation power.
as the buyer, seller, government and estate
agents, depending on their level of access.
Divided we fall, distributed we stand 1. Introduction to concept 16
The professional accountant’s guide
to distributed ledgers and blockchain

The impact of this has been to subvert transparent way, with changes made
A smart contract the decentralised ethos of the bitcoin through procedures agreed between them.
automatically fulfils network. The system involved an implicit Clearly, this will not be possible if the two
assumption that the majority of parties hold the information in their
obligations from one
participants corresponded to the majority respective databases, each under its
party to another when of computing power. But with pooling, owner’s sole control. This is why smart
trigger conditions are a numerical minority acting in concert contracts have come into prominence now
met, using a piece of could control the majority of computing that the option of a shared ledger view
self-executing code. power, and hence control which blocks exists. Generally, different DLTs have their
get added to the blockchain. own version of smart contracts.

As shown in Figure 1.4, four such groups The obvious question that arises is: in what
controlled over half of the computation situation would this be useful?
power in the bitcoin blockchain in January
2017. They could collude to introduce fake A typical scenario is when there is a trigger
transactions into the blockchain since their to set off a particular set of actions as part
joint computing power means they could of a pre-agreed obligation. In the title
overwhelm any opposition. It remains to be deed example previously mentioned, the
seen whether this would be economically distributed ledger allows the authenticity
attractive to them in the longer term as it of the title to be validated, while enabling
could erode value from the network – most access to underlying title documents only
miners hold large values of bitcoins to authorised persons.
themselves so it may not be in their best
interests. In any event, so far this risk has not This provides a snapshot view, ie who owns
materialised, but it is theoretically feasible. the title to which property as at a given
point in time. Naturally, transactions occur,
1.4.6 What is a smart contract and is it and titles change hands. This is where
code or ‘contract’? smart contracts come in. They can use the
A smart contract automatically fulfils distributed ledger infrastructure to assess
obligations from one party to another veracity of the title, buyer and seller.
when trigger conditions are met, using a Subject to a list of pre-agreed trigger
piece of self-executing code. If both conditions (eg buyer funds approved,
concerned parties are to trust this code, it identification checks), such a contract can
must be accessible to both of them in a effect a transfer of title from seller to buyer.6

Figure 1.4: Market share of largest mining pools

AntPool, 20%
F2Pool, 18%
BTCC Pool, 8% 20%
BitFury, 8%
Other, 45%




Source: Blockchain (2017) accessed 25/01/2017. Percentage in the pie chart refers to the proportion of total
computation power that is controlled by a given mining pool.

6 Referred to as ‘Proof-of-Work’.
Divided we fall, distributed we stand 1. Introduction to concept 17
The professional accountant’s guide
to distributed ledgers and blockchain

Smart contracts are still at a relatively early This is the network effect discussed in
The entire concept stage, and are being explored across a section 1.2 above. A distributed ledger
of this technology spectrum of possibilities. This ranges from can be effective for serving the needs of
using a piece of code within a contract an individual organisation (if it is large
rests on transforming
purely for effecting payments at and complex enough). But it is likely to
an eco-system, appropriate times, to writing a full contract be truly transformative if that organisation
rather than just an entirely in code. also transacts with other stakeholders –
individual organisation. such as suppliers, customers or maybe
The latter would be what is commonly even competitors – on the same shared
understood as a ‘contract’ backed by law. ledger. Some take an extreme view:
There are questions to be answered about the whole world could, in theory, be on
the legal enforceability of these proposed one blockchain!
contracts, and this is a tricky aspect that
may take time to be resolved. In practice the more likely scenario is that
pools of participants will join together to
In the near-term it may be more feasible to form their own distributed ledger on the
envisage a situation where the contract basis of shared or complementary interests.
exists within traditional legal jurisdictional This leads to a world with multiple
frameworks, with the ‘smart’ element being distributed ledgers covering different
restricted to providing payment triggers for industries or parties that are linked by a
fulfilling the contract at a pre-agreed time. common set of transactional activities.

Therefore as things stand, it may be more Various technologies are being developed
accurate to think of ‘smart contracts’ as and tested that allow for participants in
self-executing code rather than contracts in one blockchain to be able to transact or
the legal sense of the word. obtain information from participants in a
different one.7 This may be an important
1.5 COOPERATING TO DRIVE WIN-WIN requirement for scalable use, with ideas
OUTCOMES such as ‘sidechains’ being developed to
explore this.
Traditional management thinking over
most of the second half of the last century Also, to collaborate in a world with multiple
has focused on what is needed for distributed ledgers, it will be important to
organisations to compete effectively in establish some level of interoperability, ie
their markets. Ideas such as garnering a way of ensuring that these ledgers are
market share and out-performing the based on common principles so that
competition, through lower prices or developers can build functionality using
greater product differentiation, focus on the same set of ground rules to enable
how an organisation can increase the scalability. Some examples include Z/Yen’s
percentage of the market that it can software suite, ChainZy, which provides the
capture for itself. base architecture for a range of
applications, and the Hyperledger project
Technology has shifted this mindset by (discussed below).
increasing the emphasis on enlarging the
market, rather than fighting for a bigger 1.5.1 The Hyperledger project
share of static, or in some industries The Hyperledger project brings together
declining, sales. Nowhere is this mindset experts from different organisations and is
more in evidence than in the area of attempting to establish a framework for
distributed ledgers. The entire concept interoperability and thereby bring a degree
of this technology rests on transforming of standardisation to the underlying
an eco-system, rather than just an architecture of distributed ledgers.8
individual organisation.

7 Transaction format, block size and token values are different between different chains – all part of the challenge in this area.
8 The standardisation of the underlying architecture will help in the case of permissioned DLTs. Integration of various permissioned and public blockchains will need
meta-chains, for example as suggested by Kwan and Buchman in their paper on Cosmos (2017) and Wood in his paper on Polkadot, 2016 or 2017.
Divided we fall, distributed we stand 1. Introduction to concept 18
The professional accountant’s guide
to distributed ledgers and blockchain

Founded from the open source Linux Hyperledger is a shared system of records
Hyperledger is community, Hyperledger offers blockchain that helps member organisations to
also developing a options with an integrated tool set called integrate their legacy operations with the
‘Hyperledger Fabric’ to connect with the blockchain and start using it; the various
legacy world and create and build a participants may have different roles,
approach which can business network. known as nodes, on the blockchain. For
help customers create, example, a peer node monitors ledger
deploy and manage As a membership based permissioned state, an endorsing peer verifies and
blockchain networks, blockchain, the emphasis on the validates transactions and an ordering peer
Hyperledger implementation is the organises transactions into blocks for entry
all enabled through a business transaction, delivering a hierarchy to the ledger and communicates with other
cloud-based system. of roles and actors that support ledger nodes. Unlike many other blockchains,
updates, consensus, events, systems Hyperledger can handle transactions and
management, wallet integration and smart messages through different channels, so
contracts. Tokens can be added or used. improving overall performance.

Members have different levels of Hyperledger is also developing a

participation, but all have access to their ‘blockchain-as-a-service’ approach which
own transactions and keep a copy that is can help customers create, deploy and
synchronised by the network, ensuring that manage blockchain networks, all enabled
privacy is maintained and identity (which through a cloud-based system. This may
can remain private) assured. It is a over time make blockchain a much more
community-based collaborative accessible proposition for a range of
environment that provides industries with organisations that would find it difficult to
an effective way of working together to create a blockchain on their own.
solve industry issues, with certain aspects
of governance exercised through a
centralised authority that certificates
actions, decisions and transaction types.
2. Commercial applications for 19

distributed ledgers

2.1 SOLVING THE RIGHT PROBLEM Many potential commercial applications

When considering commercial When considering commercial
have been suggested and, in general,
applications, the starting point applications, the starting point is a critical,
three problem areas are consistently
is a critical, unbiased analysis unbiased analysis of what the problem is
emerging as the most suitable, as shown in
Figure 2.1: those where there is a deficit in
of what the problem is that that needs to be solved and why
efficiency, visibility and/or trust, which we
needs to be solved and why distributed ledgers might help. This is
will consider in more detail in section 2.2
distributed ledgers might help. essential to avoid the risk of meddling with
below. These areas are not mutually
a business process that is already ‘good
exclusive, of course, and, in reality, a given
enough’ for what is required.
use will overlap across multiple or all
problem areas, even if it is primarily
To manage this risk, it is worth considering
targeted on one.
the following concerns.

Fear of missing out: are distributed

ledgers being experimented with 2.2.1 Efficiency deficit
because they are a shiny new tool that Industries that involve a large amount of
needs to be tried out? manual processing, ‘legacy’ systems or have
heavy reliance on outdated and/or offline
• F
 itting the question to the answer: modes of working could benefit. One
are distributed ledgers intended to example is in dealing with trade finance
solve this sort of problem or are they transactions, as shown in Figure 2.2.
being force-fitted to do something for
which they were not designed? This is a mature area with long-standing
practices. These practices have evolved so
• U
 sing a sledgehammer to kill an ant: that importers and exporters do not have
it’s the right type of problem but does it to deal with banks in a foreign country and
involve enough complexity or scale to can therefore avoid the complications of
justify use of distributed ledgers or foreign regulations and of establishing
would a traditional database do the job? credit worthiness overseas. The process is

Figure 2.1: What problem are we trying to solve?



Trust deficit
Divided we fall, distributed we stand 2. Commercial applications for distributed ledgers 20
The professional accountant’s guide
to distributed ledgers and blockchain

paper heavy with original documents, even company, regulatory bodies, shipping/port
Distributed ledgers in today’s digital world, often sent as hard authorities and other relevant stakeholders,
allow banks to improve copy by courier and needing a manual would be able to access the ledger.
efficiency levels without
Encryption restricts access to authorised
compromising trust. It can take one to three weeks for a parties for relevant parts or ‘events’ of the
transaction to be completed. When scaling transaction. For example the event
this to the many thousands of importers between the importer and their bank in
and exporters operating in hundreds of creating the letter of credit would not be
jurisdictions around the world, the result is visible to the exporter. The latter’s view
a trade finance industry that is incredibly would be restricted to the events
inefficient for banks. pertaining to its receipt of the letter of
credit from its own (ie the exporter’s) bank.
The industry has evolved in this way to
solve a trust deficit problem between Parties on the ledger achieve consensus
importers, exporters and overseas banks. on the digital record of a transaction event
In solving this problem, however, a massive before it gets legitimately added to the
efficiency deficit problem has been created. ledger. At the end, in order to fulfil the
transaction (ie make payment to exporter) a
Distributed ledgers allow banks to improve smart contract would trigger the instructions
efficiency levels without compromising once certain pre-conditions, such as receipt
trust. The ledger would contain the contract of goods by importer, had been met.
between importer and exporter, letter of
credit, shipping receipt and a range of Ultimately, banks deal with documents
more detailed paperwork not mentioned in rather than the underlying goods, and
the simplified example above, such as trustworthy digitised copies of these
regulatory documentation (eg for customs) documents provide them with the
and insurance. Multiple parties, such as the material they need to establish trust via
importer, exporter, their banks, shipping shared ledgers.

Figure 2.2: Simplified outline of a trade finance transaction

g of
ippin 5a. Document
. Sh
5b confirming
goods receipt

1. Agree contract
Importer Exporter

2. Apply for Letter 6. All documents

of Credit (LoC) 4. LoC 9. Payment

3. LoC

Importer 7. All documents Exporter

Bank Bank
8. Documents check
and payment
Divided we fall, distributed we stand 2. Commercial applications for distributed ledgers 21
The professional accountant’s guide
to distributed ledgers and blockchain

2.2.2 Visibility deficit These consignments, now logged in the

Supply chain visibility Supply chain visibility refers to the ability to ledger, would be sent to the cotton mill. As
refers to the ability to track goods as they transit through the is always the case with distributed ledgers,
various stages of their creation, distribution these transaction events are also logged so
track goods as they
and sale. The increasingly global nature of there is a record of which mills received
transit through the supply chains means that seeing who is which consignments on which dates.
various stages of their involved is not always straightforward,
creation, distribution particularly if the supply chain is in a There is also the potential for an interface
and sale. foreign jurisdiction. Also, with frequent use with IoT technology, for example in the
of outsourcing and many processes now form of smart tags that can be attached to
handled outside the systems and consignments. As a result, when the cloth
processes of a company, it difficult to have was made from the cotton, it would remain
clear evidence of the product’s journey possible to see which consignments and
through the supply chain. farmers it originated from, and where it
had travelled when it left the factory.
The garment supply chain is a typical
example. In general terms a supply chain Smartphone applications can be used to
can be expected to involve certain scan these smart tags; this gives visibility
common actors, namely producers, of the full supply chain history as stored in
suppliers, manufacturers, wholesalers, the distributed ledger. This aspect
retailers and end customers. Taking the becomes particularly important as one
example of a shirt, this could translate to: goes further down the chain, with various
the farmer growing the cotton, the cotton consignments being sent to different
mill that converts raw cotton into thread, manufacturing units for the production of
the weaving factory that makes the fabric, shirts. It is likely that a given shirt will have
the shirt-making factory that stiches the cotton contributed from various originating
fabric into shirts, the garment warehouse sources and the smart tag offers a window
that buys shirts in bulk and the shop that into a robust distributed ledger record of
sells shirts to the general public. It is very all the events leading up that point.
possible, indeed likely, that these
stakeholders will be in different parts of the This immutable record is a valuable
world, often with the factory in a low-cost resource and its utility spans the full range
location, but retailers elsewhere. of involved stakeholders, who may value
it for differing reasons. The end customers
A typical mechanism may involve the may want comfort that the shirt they
integration of shared ledgers with other purchase is ethically sourced without the
technologies such as mobile systems and use of child labour. Or a regulatory authority
the Internet of Things (IoT) in order to may want data tracking the cross-border
achieve a solution that is user friendly and movement of materials so as to check
practical. As a starting point, in the above taxes or customs payment schedules.
example, cotton farmers might have been
certified by an independent body to confirm Provenance is a key benefit here. For
their credentials. This provides the starting perishables, the visibility of supply chain –
point for involving mobile technology. sometimes called ‘field to fork’ or ‘field
to shelf’ – is evidence not just of shipping
Mobile phones are accessible to users in but also of freedom from tampering.
many parts of the world, including in One global issue concerns counterfeit
low-income9 countries where penetration is products, where governments lose tax
60 mobile subscriptions per 100 people. revenue and brands are damaged by
So farmers could use mobile devices to faking, and people are dying because of
send a text message, which would be used dangerous products. Distributed ledgers
to generate an entry in the shared ledger. may be a useful part of the solution.
This could confirm, for example, that a given
numbered consignment of cotton bales
was produced on a given date and sent to
an identified mill for further processing.

9 World Bank, Mobile Cellular Subscriptions (per 100 People), 2015.

Divided we fall, distributed we stand 2. Commercial applications for distributed ledgers 22
The professional accountant’s guide
to distributed ledgers and blockchain

2.2.3 Trust deficit individuals, including third parties who are

If all the participants This goes to the heart of distributed due payments under claims.10
could look at a ledgers as a ‘trust engine’ that can allow
network participants to have confidence in This means their each re-doing the same
secure encrypted
the information contained in the ledger. process, on the same source information,
common view via a for the same reason. Clearly, this creates
distributed ledger, it could Another example concerns know-your- an inefficient cycle of repeats – all linked
potentially reduce the customer (KYC) documentation, required to a regulatory requirement to obtain
duplication significantly, by many regulators. The KYC process exists the same information. This is a source
because one doesn’t know enough about of costs and delays, for no real additional
reduce costs and free the counterparty one is transacting with insight into the customer or reduction in
time for other activities. and requires further information to their risk profile.
establish trust that it is safe to proceed.
If all the participants could look at a
Let’s consider how this works in a simplified secure encrypted common view via a
situation within the insurance industry. To distributed ledger, as shown in Figure 2.3,
ensure that customers can get advice it could potentially reduce the duplication
about a range of options available in the significantly, reduce costs and free time
market, the industry structure is based on for other activities.
broker intermediation. So the broker would
request documentation from the customer The distributed ledger could be used
to cover the information required (ID to record all the customer’s personal
checks, for example) for the KYC process. documents and evidence of validation
held by the organisation or by an
The broker then proposes the case to the outsource service provider. All documents
underwriter. Because it is the latter that will on the ledger would be encrypted, with
take the risk onto its books, it will conduct only the customer having the keys, thus
its own KYC on same customer. This will be resolving a set of regulatory issues around
based on the same information already privacy and data protection.
obtained by the broker for the same
purpose. In addition, underwriters often use The customer could then present the
a reinsurer to transfer risk, and the reinsurer ledger with an appropriate subset of keys
will then redo the whole KYC process. to the next institution with which they want
to do business. This institution would then
Essentially brokers, insurers, and reinsurers be able to rely on the validation done
all have to perform KYC on all their initially, eliminating delays, reducing costs
counterparties, both legal entities and and time spent on KYC procedures overall.

Figure 2.3: Placing KYC documents in a secure distributed ledger






10 Michael Mainelli and Bernard Manson, Chain Reaction: How Blockchain Might Transform Wholesale Insurance, July 2016.
3. Distributed ledgers and 23

professional accountants

3.1 STARTING WITH THE PRESENT It appears to be relatively difficult,

There is an inherently futuristic There is an inherently futuristic element to
expensive or otherwise impractical to
element to any discussion about any discussion about distributed ledgers.
unilaterally introduce false transactions
distributed ledgers. There is, There is, however, also a reality that defines
into the network.
however, also a reality that the current working life of professional
Valuation Asset valuations may depend on
defines the current working accountants and will be used here as a
a variety of factors, including business and
life of professional accountants starting point when assessing what operating conditions, future expectations
and will be used here as a distributed ledgers could ‘mean’ to them. and technology. Valuation is not an exact
This situation is fast changing and evolving.
starting point when assessing science and distributed ledgers do not
So rather than final answers, the aim of the
what distributed ledgers could account below is to provide food for
appear to be designed to help the auditor
‘mean’ to them. thought and a more granular understanding.
with this sort of analysis. It is not the sort of
calculation that can be trivially derived
from the ledger record of transactions.
3.1.1 The auditor11
Completeness The distributed ledger Classification and understandability
removes multiple, disjointed internal and It may be helpful – from an understandability
external databases of records that need point of view – for transaction information
reconciling – and should reduce the risk of or account balances to be aggregated (to
inadvertently missing transactions through avoid missing the bigger picture) or
timing mismatches or booking errors. dis-aggregated (to see major risks that
might otherwise get netted off). It is
Auditors conduct testing on the basis difficult to specify a way in the code that
that the organisation may not always have allows for this flexibility.
the best intentions. Could a rogue employee
intentionally leave certain entries outside Accuracy Transactions booked in a
the ledger to understate liabilities? How transparent manner and without involving
would a distributed ledger remove the need intermediaries could help maintain accuracy,
for the auditor to exercise judgement in although human error remains a factor. But
knowing what to look for and how to test for the transparency safeguards should ensure
it, such as by examining related accounts? that everyone can see when there has been
an inaccuracy, and if immutability is
Occurrence Use of public and private respected the audit trail will be preserved;
encryption keys in the shared ledger a correcting entry is added rather than
validates both source and destination in a removing or changing historical entries.
transaction. Also, new transactions may only
be added if validated by the majority of Nonetheless, the auditor needs to
users, which may neutralise a rogue actor. combine the ledger information with

Table 3.1: Using distributed ledgers to test audit assertions


1 Completeness All transactions are recorded in the financial statements √√

2 Occurrence The transactions in the financial statements actually happened √√√

3 Valuation Items in the financial statements have been included at √

appropriate amounts
4 Classification and Financial information is correctly categorised and disclosures are √
understandability clearly communicated
5 Accuracy Data is recorded at the correct amounts, which are verifiable in √√
source documents
6 Rights and Correctly establishing right to use or dispose of assets as well as √
obligations obligations to pay off liabilities
7 Cut-off Recording of transactions for the correct accounting period √√√

* More √ indicates greater potential for direct benefit. Excludes indirect benefit where DL might improve data quality in general terms which creates knock-on benefits

11 Refers to the external auditor in the context of conducting a statutory audit.

Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 24
The professional accountant’s guide
to distributed ledgers and blockchain

policies and generally accepted Finance business partnering This requires

Nonetheless, the auditor accounting principles, such as when testing the auditor to be the gatekeeper who
needs to combine the accuracy of depreciation amounts. views the business from a risk perspective,
but also a business unit staff member who
ledger information with
Rights and obligations The distributed can contribute insights to help increase
policies and generally ledger provides a robust view of ownership, divisional revenues. Building trust in this
accepted accounting but it may be less straightforward to context requires superior communication
principles, such as when establish the rights and obligations skills and a high emotional quotient. These
testing accuracy of linked to it. skills are not connected with the type of
transaction management that distributed
depreciation amounts. With third-party warehousing, the inventory ledgers improve.
may be flagged as owned, but the
organisation may not have unimpeded Regulatory compliance The emerging
access to the warehouse where it is stored. area of ‘RegTech’, combining regulation
On the other hand, with consignment and technology, may change the current
inventory, the assets may be available for operating environment, since proof of
use by the retailer, but the ownership may compliance requires data from transactions
still be with the supplier. Distributed to be readily available and trustworthy.
ledgers do not seem suited for capturing Distributed ledgers may give the
this type of nuance and interpretation. regulator a more transparent view of an
organisation’s ability to meet requirements.
Cut-off In the distributed ledger, the digital
record of the transaction is firmly linked to Strategy and performance This work is
the transaction itself. In other words, the unlikely to be directly affected but those
record of the transaction and transaction involved in it will need to understand
event itself are triggered simultaneously. distributed ledgers as they could affect the
This makes it difficult to envisage a business case for certain activities
situation where a transaction that does not conducted by the finance function.
belong to one accounting period can be Technologies like this, in combination with
included within the records for that period. others – such as robotic process automation
– may have a significant impact on the
3.1.2 The accountant working within return on investment of the finance function.
the organisation
Management accounting Distributed 3.1.3 The picture so far
ledgers help transaction-level data to These initial explorations suggest that
be compiled, checked or reconciled but distributed ledgers increase trust in
their role in non-financial information transaction data, but that the accountant’s
(as required for integrated reporting) or role involves certain aspects of financial
qualitative commentary on performance and organisational performance that are
is less clear. not solely linked to superior transaction
management and therefore will not be
directly affected by this technology.

Table 3.2: Distributed ledgers and the roles of accountants working within an organisation


1 Management accounting Preparation and use of financial and non-financial √√
2 Finance business partnering Supporting divisions or business units to deliver √
organisational outcomes
3 Regulatory compliance Policy and implementation level adherence to regulations √√√
relevant to the organisation’s activities
4 Strategy and performance Direction setting, and driving organisational performance √
to deliver strategy

* More √ indicates greater potential for direct benefit. Excludes indirect benefit where DL might improve data quality in general terms which creates knock-on benefits
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 25
The professional accountant’s guide
to distributed ledgers and blockchain

3.2 LOOKING AHEAD 3.2.2. Can distributed ledgers help

With a distributed ledger 3.2.1 Why might things be any different?
with audit?
it is possible to generate Immutability Key to audit is the immutable
Volume of data In a world of big data and
record of the full list of transactions from
an exceptions report that the Internet of Things (IoT), the volume of
the time they first entered the ledger. The
reviews all transactions data that is expected to be generated in
potential for a comprehensive audit trail
rather than just a the years ahead is enormous. It represents
that cannot be tampered with by malicious
a step-change rather than a steady
selected sample of them. increase, as is evident from the fivefold
actors is appealing. This may reduce the
costs of fraud detection if there is no, or
increase in the number of devices
significantly reduced, need for further
forecasted to be transmitting data in the 10
checks on the transaction data.
years from 2015 to 2025 (Figure 3.1).
Sampling This immutable record is likely to
This increased data will translate into
have implications for sampling. The current
quadrillions of transactions creating
process of selecting a representative
greater complexity and volume for systems
sample from within the population of
and databases to handle. This level of
transactions is necessitated by human
scaling also has the effect of magnifying
limitations on the time and cost of
inefficiencies. Inefficient processes or
reviewing transactions.
reconciliation requirements are painful
even at current levels of volume – at this
With a distributed ledger it is possible to
future level of scale it is unclear if current
generate an exceptions report that reviews
ways of doing things (even adjusting for
all transactions rather than just a selected
steady improvements in processing power)
sample of them. From a probabilistic point
would be practical.
of view, this is more robust and results in
less uncertainty about the audit conclusions.
Tokenisation A token is a digital
representation of an underlying entity, such
Timing In addition, the current audit
as an asset. It may be used to establish one’s
process, again because of the time and
claim to that asset, and to transfer ownership
effort invested in it, is typically an annual
of the asset, via the distributed ledger, to a
exercise. Distributed ledgers may make it
new owner. Smart contracts could determine
possible to conduct more frequent audits
the conditions for the transfer to occur.
on a quarterly or monthly basis. Taken to
its logical extreme, even a real-time audit
Tokens can also be used to associate
is conceivable.
fractional ownership of assets such as art,
commodities, financial instruments,
This could make it practically impossible
copyright, profit sharing and dividends and
for transactions to be adjusted in advance
work with several decimal places,12 allowing
of audit scrutiny and could present auditors
value to be syndicated in new ways, and
with exceptions reporting on a continuous
creating new tradable instruments.

Figure 3.1: Internet of Things (IoT) installed number of devices, in billions





2015 2020 2025

Source: IHS *Compounded Average Growth Rate

12 Bitcoin has eight decimal places, others vary.

Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 26
The professional accountant’s guide
to distributed ledgers and blockchain

year-round basis. This improves the set of input activities, as captured in the
The aim is to reduce auditor’s understanding of the business, as audit work papers for that engagement, is
risks from unknown- the engagement is no longer based on a designed to build trust in the output – which
snapshot at a given time of the year. This is the view expressed in the audit report.
unknowns within the
can facilitate the ability to spot trends or
transaction data. future risks proactively. Since the fee is linked closely to input
activities it has historically made sense to
True and fair view This greater contextual charge on a time basis with a per-hour
understanding will increase confidence that billing rate.
auditors are getting a true and fair picture.
It will also provide time to deepen The aim is to reduce risks from unknown-
understanding of the overall business unknowns within the transaction data. If
model, rather than reducing the audit to a auditors know of a risk, they can test for it
tick-box compliance exercise. Initiatives and decide whether it is material or not. If
such as the extended audit report are they do not know of it, there is nothing
already laying emphasis on developing this they can do about it. The rigorous set of
deeper understanding of the business, and input activities governing the audit process
distributed ledgers might have arrived at acts as a mechanism for sweeping up all
the right time to advance this priority. possible areas that need to be considered,
and reducing the likelihood of an
3.2.3 Considerations for the unknown-unknown.
accountancy firm
Any possible future model for the The future business model If a distributed
accountancy firm will depend, at a ledger can give a definitive view of the
minimum, on the business model for entire transaction data set rather than a
generating revenues, and on the operating selected sample, it might be possible to
model that determines the processes and reduce the risk from unknown-unknowns.
people to realise the business model.
The auditor role may pivot towards non
The current business model Audit transaction-management elements requiring
revenues are linked to the hours required, human judgement, business context and
with charge-out rates being calibrated to knowledge of technical accounting policy
reflect experience and skills. This is so and of the outputs created by the
because an audit job involves an identifiable application of these elements to specific
volume of work based on a well-defined questions within the audit, for example the
set of tasks, usually linked to statutory fair value of assets (Figure 3.2).
requirements. This rigorous and defined

Figure 3.2: Business model for accountancy firms: possible direction of travel?


Outputs based
Basis for revenue

rate card

Per hour billing


Increasing margin
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 27
The professional accountant’s guide
to distributed ledgers and blockchain

For the auditor, revenues generated may forensic accounting, etc. But they are all
The auditor’s role may be increasingly tied to providing a view in likely to share the common attribute of not
now be less standardised response to specific questions, which may being a standardised and repeatable
vary from assignment to assignment. The answer to a generic question.
and prescriptive across
auditor’s role may now be less standardised
assignments, and pivot and prescriptive across assignments, and It will take time to gauge the impact of this
away from checking pivot away from checking transaction data. shift on overall revenues for audit. But what
transaction data. could become clear sooner is a likely
The auditor may still need to be able to change in the revenue mix. The catalyst for
interrogate or provide some form of this may be a gradual move away from low
assurance that the outputs of the margin activities, towards a greater
technology can be trusted. While the emphasis on paying for expertise and
details will differ, this may not be hugely advice rather than for time required.
different in approach to systems assurance
as currently conducted. The Operating model – platform-based
operations? If the revenue mix does
The revenue generated by audit firms evolve, some firms might choose to
may become increasingly de-linked from explore the role of platform-based
a standardised prescriptive list of input operating models for certain services, such
activities and the time and effort they as data collection, records checking,
take. And move towards a more outputs bookkeeping or exceptions reporting.
based approach. These might be performed through
platforms jointly held by a firm and its
Over time, this might increase the platform partner, with the client getting an
proportion of revenues linked to an outputs ‘accounting-as-a-service’ offer for certain
rate card, rather than a per-hour billing rate. standardised tasks.

The outputs might be achieved in a range It is useful to examine what is already being
of situations – anything from a technical explored at present. Accounting software
accounting policy opinion, an audit view on providers are a group to be understood
materiality for a difficult-to-quantify value, more closely in this context and they may
mergers and acquisitions implications, to play a key role in future events.
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 28
The professional accountant’s guide
to distributed ledgers and blockchain

One cloud accounting application is The operating model – the skills outlook
The professional exploring the sharing of API13 keys Assuming the critical caveat that
accountant of the between customers and suppliers. This distributed ledgers achieve significant
enables the direct passing of transaction mainstream adoption, they could cause
future will benefit hugely
data to ledgers on each side of a the form and content of services to evolve.
from an outlook that is transaction without the need for And so the skills needed to deliver these
well rounded, resilient verification and manual rekeying of data. services may have to evolve as well.
and adaptable
to changes in the If both parties use the software provided The professional accountant of the future
for all messages, they are fully will benefit hugely from an outlook that is
business environment. synchronised. This creates a channel well rounded, resilient and adaptable to
between the two trading entities that can changes in the business environment.
speed up administrative processes, There may well be new areas of knowledge
improve transaction efficiency and enhance that need to be better understood, such as
accuracy of reporting. the emergence of new ways of syndicating
and transferring value, ownership and
This seems to be moving in the direction of rights using token-based cryptocurrencies.
triple entry bookkeeping. Next steps might This may require new ways of measuring
be increasing scalability in a network and accounting for value, as tokens pass
environment, with a large number of from one owner to another or indeed from
simultaneous transactions and delivery of one blockchain to another. Implicit in all
encrypted receipts.14 this, before even getting to this level of
detail, is an assumed, at least high-level,
The compliance sector is also exploring knowledge of how these mechanisms work.
the ‘as-a-service’ model, with platforms
emerging to provide risk and compliance But alongside acquiring this knowledge,
reports. While many of these relate to there is the need to recognise that learning
bitcoins and public blockchains, it is not must be continuous and lifelong. The
inconceivable that bespoke platforms for professional accountant of the future must
the needs of specific sectors will emerge be able to incorporate this and embody
in due course. the skills quotients15 outlined in Figure 3.3.

Figure 3.3: Professional quotients for success

13 Application Programming Interface: building blocks for creating application software.

14 Other industries are also exploring new ways of working via shared ledgers, eg legal services.
15 ACCA, Professional Accountants – the Future: Drivers of Change and Future Skills, 2016.
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 29
The professional accountant’s guide
to distributed ledgers and blockchain

Bringing it all together A big part of 3.2.4 Legal and regulatory framework
Accounting firms achieving success, when there are really It seems less likely at this stage that the
that stay abreast of big changes involved, is effective fundamental regulation of business form
leadership. While all can be leaders at their (partnership law, company formation
developments may
own level, some have a particular law, etc.) will change significantly in the
find they are better responsibility. Whether they are chief short term.
prepared for future financial officers (CFOs) in an organisation
client retention and or partners in an accountancy practice Statutes change slowly, and legislators will
increasing market share. working with client organisations, the take time to understand the features of any
leadership skills of senior practitioners will new model before creating blockchain-
often be the single biggest determinant in specific corporate bodies. Some are making
arriving at the right response strategy. It is a start, with the European Union (EU)
for them to take the first step and, as Table considering inclusion of cryptocurrencies
3.3 outlines, this can be kept fairly simple as part of upgrading the Anti-Money
to begin with and gradually built up as Laundering Directive – though this may
more information emerges. take some time to be fully analysed.

Accounting firms that stay abreast of Time will show whether smart contracts can
developments may find they are better replace a traditional natural language
prepared for future client retention and contract, with all the complexity and
increasing market share. Firms that can subtlety that contracts used in a court of
drive the client relationship towards a more law involve. Investors will want to see a
output-based proposition, and keep the defined and explicit linkage or alignment
door open for possible service platform to an established legal system before
models if required, may be well placed for engaging with such tools in any meaningful
future developments and resilient against way. There will also need to be evidence of
future threats. effective dispute resolution where these
smart contracts are involved, so that
confidence builds.

Table 3.3: Taking the first step


Establish baseline What is the current level of understanding in my organisation?

Do we need a designated lead to coordinate work in this area?
Is there a case for organising basic training or knowledge building?

Evaluate landscape Which of my organisation’s partners, clients or suppliers might be

considering a proof of concept application?
Which of my organisation’s clients are in an industry that is actively
exploring this (such as financial services)?
Are there lessons to be learned from industries or sectors other than
my own?
What is the regulator or government saying about this in our jurisdictions?
Which of our existing competitors is starting to explore this area?
What new types of organisation could become future competitors?

Estimate impact Can we identify any possible role for distributed ledgers in our main
revenue generating activities?
On the basis of the above, roughly how much of our revenue could be
‘at risk’ in 3 years?
If ‘at risk’ revenue seems nil at present, when should the next check-
point be to re-assess this?
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 30
The professional accountant’s guide
to distributed ledgers and blockchain

RegTech is an area that is fast emerging as rather than hardware may offer the benefits
In practice, the ability a case example of what a partnership of instant refund payments where due,
of the government between nimble start-ups and regulatory reduce scope for fraudulent transactions
bodies might look like. Regulatory ‘sand- and facilitate low-cost instant transmission
machinery to understand
boxes’ provide start-ups with the of verified tax information to facilitate
and engage will be a big opportunity to test their ideas. This gives prompt repayments.
part of incorporating regulators early visibility of potential
distributed ledgers financial products/services and may enable In practice, the ability of the government
and cryptocurrency them to respond effectively. machinery to understand and engage will
be a big part of incorporating distributed
arrangements into the It allows the regulator to think ahead about ledgers and cryptocurrency arrangements
mainstream. the best regime for balancing innovation into the mainstream. There is no regulatory
and risk. This is much more powerful than framework for bitcoin. It isn’t owned by
trying to retro-fit existing clunky regulation anyone, and crosses borders and
to new areas that have quickly grown and jurisdictions. Like the transmission control
caught regulators unawares. protocol/internet protocol (TCP/IP) on
which internet communication depends, it
3.2.5 Implications for taxation cannot be controlled or regulated. The
For some areas, such as value added network is independent, an ‘eco-system’ of
tax (VAT) and customs duties, the anonymous ‘miners’. This therefore will
implementation of Fiscal Till programmes require a different mindset from traditional
might prove helpful. Fiscal Tills are secure government approaches.
transaction recording tools that retain a
tamper-proof record of cash transactions 3.2.6 Future risks
to form the basis of a business’s tax Managing scale As distributed ledgers
records, typically VAT/GST (goods and move beyond proof-of-concept, and
services tax), but potentially profits-based projects such as Hyperledger become
income taxes as well. more mature, it will become clearer
whether the architecture has sufficient
Currently, systems have a number of control and governance to ensure that all
potential cost and security shortcomings, actors work in the best interests of the
such as being based on specific hardware community and that the safeguards are
that needs system-specific software. adequate to prevent collusion.16
Distributed ledgers based on software


Achieving the right balance between innovation and regulation is crucial to financial
regulators from the perspective of risk management and industry development.

The approach used by the Monetary Authority of Singapore (MAS) stresses that
regulation must not run ahead of innovation. Introducing regulation prematurely
may stifle innovation and potentially disrupt the adoption of useful technology.
Further, as technologies mitigate existing risks but may create new ones, MAS also
seeks to focus on the balance of risks and minimise these new risks.

To achieve this, two basic tests are applied to regulating blockchain and emerging
technologies more generally: materiality and proportionality.

Materiality refers to bringing in the regulation only when the risk posed by the new
technology becomes material or crosses a threshold. Once this has been established,
the weight of regulation must be proportionate to the risk posed. The regulatory
approach must encourage risk mitigation while restraining the new risks.

In other words, the regulator must run alongside innovation, rather than ahead of it,
if it is to promote safety, soundness and long-term sustainability in the provision of
financial services.

16 Particularly for Proof of Stake and permission chains, with owners. Users may be concerned the owners are not neutral and have adapted the code for gain.
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 31
The professional accountant’s guide
to distributed ledgers and blockchain

Sovereign intervention Fiat currencies Recent hacks have found vulnerabilities in

Cryptocurrencies may be open to manipulation by electronic wallets held on mobile phones
are based on libertarian governments; often the basis for an and desktops where the owners have not
argument that the current system of kept their private keys safe. There is also
views, offering a the example of the DAO19 hack where flaws
Fractional Reserve Banking17 isn’t working.
permissionless, Cryptocurrencies are based on libertarian in the smart contracts code allowed
trusted, ‘level playing views, offering a permissionless, trusted, USD50m in value to be moved.20 In
field’, particularly to ‘level playing field’, particularly to the addition, quantum computing may present
the unbanked in unbanked in emerging markets. New a key challenge to the ability to use current
options may arise for issuing sovereign encryption techniques to safeguard data.
emerging markets. debt using cryptocurrencies to create It can complete operations while using less
stability, fungibility and liquidity. computing power and with greater speed.
This may make it easier to perform more
But on the other hand, sovereign states intensive calculations and hack systems.
that have had a tough time economically
or a political agenda that is disruptive 3.3 SO WHERE DOES ALL THIS LEAVE
might be attracted to cryptocurrencies for THE ACCOUNTANT?
the wrong reasons. This is, after all,
The importance of leadership skills in
programmable money that an unscrupulous formulating the organisational response
government might try to manipulate, has been discussed. But there is also the
exploiting the perception of an open, fair individual response. Individuals working
and transparent distributed ledger. across an organisation have their own
views that might or might not agree with
The big hack As any new technology that of their organisation.
matures it will be under constant attack
from cybercriminals and hackers testing 3.3.1 The sceptic
and probing for vulnerability. For a long Distributed ledgers are seen by sceptics
time, decentralised and distributed as a ‘solution looking for a problem’.
computers were thought to be more
vulnerable than a centralised approach. As with many other fads that came and
Whether it is a Sybil or distributed denial of went before them, the belief is that they
service (DDoS) attack,18 the blockchain has will generate a lot of discussion but that
so far proved especially resilient and has ultimately the status quo is unlikely to be
not been successfully attacked. materially altered.

Figure 3.4: Professional accountants – view on distributed ledgers

Sceptic Maintaining
status quo

Creating Protecting
upside downside

17 Bank reserves are a fraction of deposits.

18 Sybil and Denial of Services attacks relate to decentralised computing where individual nodes can be probed for vulnerability and where nodes could collude and work
together for commercial gain. The Byzantine Fault Tolerance algorithm was specifically designed to identify actors operating against the interests of the network.
19 Decentralised Autonomous Organisation.
20 Source: O. Kharif, ‘A $50 million Heist Unleashes High-Stakes Showdown in Blockchain’, Bloomberg Technology, 23 June 2016.
Divided we fall, distributed we stand 3. Distributed ledgers and professional accountants 32
The professional accountant’s guide
to distributed ledgers and blockchain

Whether this represents Luddite zeal or In many ways, this approach ensures that
A detailed understanding foresight is of course something that time there is a connection with underlying skills
of how the data was will reveal. As has often been noted with requirements despite evolving business and
new technologies, there is the possibility operating models. As an analogy, being a
generated may become
of over-estimating impact in the short-term cab driver in the 19th century involved the
more important than but under-estimating it in the long-term. skill of controlling a horse. The same job in
checking the data itself. Sceptics will no doubt focus on the first the 20th century involved the skill of driving
part of that claim. a car. Looking ahead, with the prospect of
driverless cars, the job of a cab driver in the
There are, however, a few factors for them 21st century may well involve understanding
to consider. the software that controls the car.

Firstly, in a digital age, it is easier to Similarly, the auditor may no longer need
‘fail fast’. The time it takes to concept to understand sampling techniques or
test ideas, launch them, fail, refine/change query individual transactions. But in its
and try again, may not be as much of a place the job of an audit may place a much
barrier as in previous waves of technology. greater emphasis on the skill of querying
This raises the likelihood of eventually the technology, and knowing where and
getting a solution that works. how to look for potential issues in the
system or the use of data. A detailed
In addition, there appears to be no understanding of how the data was
shortage of capital to fund innovation in generated may become more important
this area, whether it is from commercial than checking the data itself.
banks forming consortiums, central banks
willing to test blockchain solutions, or the So the pragmatist is likely to prioritise an
range of venture capital financiers seeking understanding of new skills requirements
the next successful technology. Again, this that might stem from this technology as an
raises the likelihood of eventually getting insurance policy covering unforeseen events.
a solution that works.
3.3.3 The evangelist
Finally, because these ledgers have impact These are the people who genuinely
across the whole economy, even if one believe in distributed ledgers, and who see
works in an organisation that doesn’t them as an opportunity rather than a
have much time for all this, the suppliers distraction, inconvenience or threat.
or customers might use it and, in order to
transact cost-effectively with them, it may The mindset of these early adopters is
become necessary to use this technology often shaped by the view that the upside
in order to operate. opportunity is exciting and important. It
allows professional accountants to increase
None of this guarantees large-scale their value to the organisation, and spend
mainstream adoption, of course, as less time on tasks that the technology can
sceptics will point out. But the bottom line handle faster, with fewer errors and on a
is that five years is viewed as a reasonable much larger scale.
time frame for the technology and its use
to mature – so one way or another it won’t As the use of distributed ledgers, and
take for ever to find out. indeed of FinTech more generally, starts to
grow, the evangelists see a whole new
3.3.2 The pragmatist sector in which to get involved. Some
The pragmatist doesn’t have a particularly accountancy practices, for example, now
strong view on distributed ledgers, but offer FinTech services within their sectorial
would like to be prepared for any change offerings, specifically with an eye to
– just in case. The emphasis is on increasing their size and their revenues
protecting against the downside and is from this new base of clients.
generally accompanied by a relatively
neutral emotional response to these Evangelists would argue that this is just
ledgers; the pragmatist is neither the start and a whole new set of
dismissive of the technology nor a possibilities lie ahead.
cheerleader for it.
4. Conclusion 33

Whatever one’s opinion about distributed business model and eco-system-level

Whatever one’s opinion about ledgers, they look likely to be the focus of transformation. That’s a bold aspiration,
distributed ledgers, they sustained attention over the coming years. the evolution of which will be closely
look likely to be the focus of Innovation, where it concerns new watched in coming years.
technologies in particular, tends to be a
sustained attention over the
constant iterative process of improvement And the answer as to whether it ultimately
coming years. by trial and error. And this distributed succeeds or not might not be binary.
ledger technology is very much in the early Just as online learning did not eliminate
to middle stages of that development. the classroom teaching model, distributed
ledgers may prove to be at their best
Its attractiveness is as an idea that creates when used alongside human experience
more than a technology process and judgement.
improvement. It aspires to create a
Appendix 1 34

Organisations involved in blockchain development

• The first blockchain company to offer triple entry bookkeeping • Ethereum Live transaction dashboard is the home of Ethereum
was Balanc3 (part of the Consensys spoke model): markets:
• Assembly is a blockchain business that allows collaborative
• Consensys is a leading Ethereum platform and valuable value creation and profit sharing using APPCoins:
blockchain vendor business creating solutions for accounting,
music, asset management and content management; it was
founded by Joe Lubin, also an Ethereum founder: • Ambisafe is a blockchain asset-management platform that allows the tokenisation of any assets:

• Chain Inc. is a blockchain business that supports the • Nxt and Ardour is an alternative to bitcoin and Ethereum; it
digitisation of currency as tokens: provides a decentralised asset exchange:

• Abra is a next generation payments and remittance provider • Exscudo is a new blockchain exchange, four years in
using blockchain: production, providing the gateway between capital markets
and the cryptocurrency market 2.0 Platform:
• Microsoft has committed to blockchain and offers a fully
integrated ‘blockchain as a service’ option linking to its
enterprise software called Bletchley: • Banking 4.0 is the next generation of banking for the previously unbanked, using BIO Identity software:

• cashaa is a blockchain remittance and payment company • Ethereum Foundation is a decentralised autonomous
working with unbanked people in Africa and using bitcoin organisation or DAO:
financial systems:
• Tokenmarket exists for creating tokens, distribution,
• Cryptocompare is a blockchain comparison website offering and crowd-sale hosting for initial coin offerings:
crypto economics/currencies comparisons:
Appendix 2 35

Key data sources, references and further reading

ACCA (2015), The Data Revolution. < Kharif, O. (2016), ‘A $50 million Heist Unleashes High-Stakes Showdown in
dam/IMA/pdf/Technology/Data/data-revolution-report.pdf>, accessed Blockchain’, Bloomsberg Technology, 23 June. <
5 April 2017. com/news/articles/2016-06-23/a-50-million-heist-unleashes-high-stakes-
showdown-in-blockchain>, accessed 5 April 2017.
ACCA (2016), Professional Accountants – the Future: Drivers of Change and
Future Skills. < Kwan, J. and Buchman, E. (2017) , ‘Cosmos: A Network of Distributed
images/campaigns/pa-tf/pi-professional-accountants-the-future.pdf>, Ledgers’. <
accessed 5 April 2017.> accessed 5 April 2017.
Ace Cloud Hosting (n.d.) ‘Blockchain: All that it Has to Do with Your Mainelli, M. and Manson, B. (2016), Chain Reaction: How Blockchain Might
Accounting’. < Transform Wholesale Insurance. <
technology-with-your-accounting/>, accessed 5 April 2017. LongFinance_How_Blockchain_Technology_Might_Transform_Wholesale_
Insurance_July2016.pdf>, accessed 6 April 2017.
Ali, R., Barrdear, J. et al. (2014), ‘Innovations in Payment Technologies
and the Emergence of Digital Currencies’, Bank of England Quarterly Mainelli, M. and Mills, S. (2016), The Missing Links In The Chains?
Bulletin Q3. < <
quarterlybulletin/2014/qb14q3digitalcurrenciesbitcoin1.pdf>, accessed Distributed_Ledger_(aka_blockchain)_Standards_2016.11_v2.4.pdf>,
5 April 2017. accessed 4 April 2017.
Allen & Overy, Decentralized Autonomous Organizations. Myers, R. (2017), ‘Betting on Blockchain’, CFO Magazine, March.
< <
Decentralized%20Autonomous%20Organizations.pdf>, accessed 5 content=bufferd5232&utm_medium=social&utm_source=twitter.
April 2017. com&utm_campaign=buffer>, accessed 5 April 2017.
Blockchain (n.d.), ‘A view of global blockchain mining and transaction Smith & Crown, ‘ICOs, Token Sales, Crowd Sales’.
activity’. <> accessed 5 April 2017. <>, accessed 5 April 2017.
Blockchain (2017), ‘Hashrate Distribution’. <>, The Shared Ledger (n.d.), ‘Blockchain for Auditing’.
accessed 5 April 2017. <>,
accessed 5 April 2017.
Brown, R.G. <
replicated-shared-ledgers-from-first-principles/>. Wikipedia (n.d.), ‘Satoshi Nakamoto’. <
Satoshi_Nakamoto>, accessed 5 April 2017. (live), ‘A bitcoin trading dashboard bitcoin network’.
<>, accessed 5 April 2017. Willis, R. (2015), ‘Distributed Accounting Ledgers’,, 20
January. <
Del Castillo, M. (2016), ‘“Big Four” Accounting Firms Meet to Consider d527d31870fe#.51i0qb611>, accessed 5 April 2017.
Blockchain Consortium’, Coindesk, August. <
big-four-accounting-firms-meet-to-weigh-benefits-of-blockchain- Wood, G. (2016 or 2017), ‘Polkadot: Vision for a Heterogeneous Multi-
consortium/>, accessed 5 April 2017. Chain Framework’. <
EtherScan a Blockchain web explorer Ethereum Market Stats and Views. Heterogeneous%20Multi-chain%20Framework.pdf>, accessed 5 April
World Bank (2015), ‘Mobile Cellular Subscriptions (per 100 People).
Financial Reporting Council (2016), Key Facts and Trends in the <
Accountancy Profession. < P2?locations=XM&name_desc=true>, accessed 6 April 2017
Professional-Oversight/Key-Facts-and-Trends-2016.pdf>, accessed 5
April 2017. xBRL (), ‘An Introduction to XBRL’. <
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Grigg, I. (2005), ‘Triple Entry Accounting’. <
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Report’. <
auditing.html>, accessed 5 April 2017.
Glossary 36

Blockchain Consensus
A blockchain is a type of technology used to create a distributed Consensus is the pillar of any blockchain or distributed ledger; it
ledger. A blockchain records data blocks with each block defines the governance of a blockchain and sets the underlying
cryptographically ‘chained’ to the next in a linear chain of blocks, parameters of performance, privacy, authentication, reward, fault
each containing transactions that create an historic immutable, tolerance and structure. There an several types of consensus:
tamper- and censorship-resistant record of historic truth that Proof of Work, Proof of Stake, Byzantine Fault Tolerance, Proof of
cannot be changed or altered. Bitcoin, Ethereum, and NXT are Elapsed Time, Stellar, DPoS, Paxos, Raft, Distributed
open permissionless architectures that anyone can use. Concurrence and Practical Byzantine FT.

Cryptocurrency Distributed ledger technology (DLT)

A form of digital currency based on mathematical representations DLT refers to shared, replicated databases that are synchronised
of value (of trade) between one or more parties in a network, the across geographies, locations and companies, and that generally
nodes of which create the digital currency as a reward for operate in a closed or permissioned network. They may not use a
processing transactions. Cryptocurrencies are a digital token (cryptocoin) and are deployed within an industry or large
representation of money or value and there are more than 900 in organisation as a community. Permissioned ledgers are generally
circulation. Not all cryptocurrencies are used as money, some are faster and perform better than permissionless ones. They can be
used for rewards and others are used to tokenise things/assets so more energy efficient than bitcoin-style blockchains and
they can be traded across a peer-to-peer network. therefore more economically viable for large-scale enterprise
Permissionless networks are open to any participant, and Smart Contract
transactions are verified against the consensus algorithm that Smart contract is software code that executes terms of an
defines the underlying rules of the network. All participants can agreement, better known as a smart transaction or object that
view transactions on the blockchain ledger. Bitcoin, NXT and operates autonomously. Technically neither a contract nor very
Ethereum are examples of permissionless networks. smart, the software code is a reliable way of making sure terms of
an agreement are executed, monitored and completed without
Permissioned human intervention. Different distributed ledgers have versions
Permissioned networks nominate certain participants within what is of this – Hyperledger uses a concept called ChainCode and other
normally a ‘permission distributed ledger’. Participants are allowed DLs have their own version of a smart contract that are great for
to see only the transactions relevant to them. The Hyperledger automating payments, moving title or ownership, and monitoring
Project is founded to support the development of permissioned and ensuring terms are complied with.
blockchains and is a successful example of this approach.
Acknowledgments 37

Alasdair Blackwell Dr Garrick Hileman

Alasdair is head of technology at Everledger. Garrick is a senior research associate at the
Everledger is a permanent, global, digital Cambridge Centre for Alternative Finance
ledger that tracks and protects diamonds, fine and a researcher at the Centre for
art and other valuable items as they are traded Macroeconomics. He was recently ranked as
over time. Using the technology database one of the 100 most influential economists in
network behind Bitcoin, Everledger provides the UK and Ireland and he is regularly asked to
traders, insurance companies, financiers, consumers, claimants share his research and perspective with the FT, BBC, CNBC, WSJ,
and law enforcers with an immutable history of an item’s Sky News, and other media.
authenticity, existence and ownership.
Garrick has been invited to present his research on monetary and
In 2011 Alasdair co-founded Decoded with the goal of teaching financial innovation to government organisations, including central
the world to code. He helped oversee Decoded’s growth, scaling banks and military colleges, as well as private firms such as Visa,
the company to a team of over 100 people across London and BlackRock, and UBS. Garrick has 20 years’ private sector experience
New York, and up-skilling teams from Google, Talk Talk, British with both start-ups and established companies such as Visa,
Gas, and the Cabinet Office (UK). He has also worked on The Lloyd’s of London, Bank of America, The Home Depot, and Allianz.
Good Jobs Campaign, developing technology-focused learning
pathways for young people. Garrick’s technology experience includes co-founding a
San Francisco-based tech incubator, IT strategy consulting
for multinationals, and founding MacroDigest, which employs
David Gorman a proprietary algorithm to cluster trending economic analysis
David has worked in IT for 28 years; he is and perspectives.
currently part of the IBM CTO Europe team,
specialising in blockchain, and is based at the
IBM Hursley Laboratory in Hampshire. The team George Osborne
is the centre of blockchain client enablement George is innovation director for the financial
worldwide for IBM. institutions business within Barclays’ global
transaction banking. He is charged with
David works with customers across a broad spectrum of industries, ensuring that the best of Barclays’ innovation
enabling their understanding of blockchain and of making best work is brought to bear for clients and works
use of the technology within their respective industries. closely with the innovation functions across
Barclays’ businesses. He has been a mentor on the accelerator
programme, and is leading on a number of areas in Barclays’
Dave Treat positioning for new sectors within FinTech.
Dave is a managing director and the global
head of Accenture’s Capital Markets Previously he managed banking relationships in FinTech at
Blockchain practice. Barclays, developing his interest in Strategic Innovation. Before
joining Barclays he served as an British Army Officer in various
He has 18 years of experience in financial roles, leading soldiers in the UK, Northern Ireland, Germany,
services, split between consulting and industry Cyprus, Kenya and Iraq. He holds an Executive MBA from
roles, with the last decade being focused on capital markets. London Business School.
Dave has expertise in running strategy functions, innovation,
strategic cost management, large-scale restructuring, customer
relationship management, M&A, outsourcing and offshoring and
process excellence.
Divided we fall, distributed we stand Acknowledgments 38
The professional accountant’s guide
to distributed ledgers and blockchain

Greg Unsworth Professor Michael Mainelli FCCA FCSI

Greg is PwC’s Digital Business Leader, based in FBCS
Singapore, and also leads the risk assurance Michael co-founded Z/Yen, the City of London’s
practice. He has significant experience advising leading commercial think-tank and venture firm,
clients in the technology, media and in 1994 to promote societal advance through
telecommunications sectors on the impacts of better finance and technology. A qualified
technology, disruption and risk. Greg has broad accountant, securities professional, computer
overseas and regional experience, having been based previously specialist and management consultant, educated at Harvard
in the London, Sydney and Tokyo offices. While in Tokyo, he was University and Trinity College Dublin, Michael gained his PhD at
responsible for the coordination and provision of services for IBM London School of Economics where he was also a visiting professor.
throughout the Asia-Pacific region, as well as advising a number
of leading Japanese and multi-national telcoms companies on a He has led Z/Yen from creating mutual distributed ledgers (aka
range of key business, risk and governance issues. blockchain technology) through Taskforce 2000, the Financial
Laboratory, Long Finance, the Global Financial Centres Index and
He has significant US GAAP and SEC reporting experience and the Global Intellectual Property Index.
has worked with both large and emerging media companies. He
has also recently served as the technology and research and
development working committee for the Singapore Paul Warrunthorn Kittiwongsunthorn
Government’s 2025 Infocomm Media Masterplan. Paul is the co-founder of OnePay and chief
operating officer of TenX (its parent
Greg is a member of a number of PwC’s global advisory and organisation). TenX is working on a cross-
editorial committees involved in the development of our industry blockchain interoperability technology allowing
thought leadership around risk, digital disruption and emerging any blockchain to send assets securely and
technology, and regularly works with global and regional industry instantly across blockchains. The network
networks and specialists. enables any blockchain to link to another, whether they are
open-blockchains such as bitcoin or Ethereum or a bank’s private
blockchain, with near-zero cost.
Leon J. Perlman
Leon is a specialist consultant on digital financial Paul has a background in design thinking and innovation and has
services, emerging payments, mHealth, been trained at the Kyoto Institute of Technology and Stanford
mAgriculture, big data, and cryptocurrencies, University. He is fascinated with the world of finance and technology,
concentrating on commercial, technical and and views blockchain as the perfect intersection of these fields.
regulatory aspects of these ecosystems.
He is currently focused on making the future of money as
He is currently an affiliate research fellow at CITI at Columbia free and easy as sending text messages; with the help of
University Business School in New York, exploring the regulatory, blockchain technology.
disruptive and commercial aspects of DFS, emerging payments,
big data, and the crypto-economy.
Dr Rajan Chadha
Rajan is director of IBN, where he patented a
Dr Mathias Bucher disruptive digital infrastructure that assists
Mathias is the founder and CEO of Diamond organisations to improve their processes for
Digital Inc., and of the consulting company risk, audit and compliance, as well as Diamond Digital is facilitation of tools for accounting and
the company behind Diamond Coin, the first reporting, and to manage supply chains
digital currency globally to be fully automatically using blockchain technologies.
collateralised by high-grade diamonds.
He has served in the United Nations, Barclays Bank/SWIFT
He is the project Coordinator of ‘OTC Swiss Blockchain’, (inter-banking community), BP, Thames Water, Ford, and the fuel
globally one of the first OTC clearing and settlement platforms and power industries, and attained a high level of expertise in
on the blockchain that is currently being implemented by a large strategic planning, executing complex projects, and bridging
Swiss consortium. innovative technologies with business requirements. As a special
adviser to Barclays Bank/SWIFT (UK, Brussels, US) he managed
Mathias holds a PhD in finance from the University of Zurich, regulatory affairs, focusing on networks for digital banking and
and a Master in Economics from HEC Lausanne and Universidad payments, including mobile payments.
Carlos III Madrid. He lectures on blockchain technology at the
Lucerne University of Applied Sciences and Arts. He holds a doctorate in physics from Imperial College, London.
Divided we fall, distributed we stand Acknowledgments 39
The professional accountant’s guide
to distributed ledgers and blockchain

Robert (Bob) Hayward Dr Shantanu Godbole

Bob is a digital business leader, advising senior Shantanu is a senior technical staff member at
executives on technology innovation, trends IBM Research and a member of the IBM
and their impact, strategic opportunities, and Academy of Technology. He leads the newly
driving transformation. In recent years, he has launched IBM Center for Blockchain Innovation
focused primarily on distributed ledgers/ (ICBI) in Singapore. He has been with IBM
blockchain, intelligent automation (robotic Research for over 10 years and has worked in
process automation (RPA), cognitive computing, machine research and in development for global analytics offerings. He is
learning), FinTech, RegTech, IoT, Smart City, cloud transition, currently interested in topics at the intersection of technology
platform/eco-system strategies, cloud transformation, digital and business, such as blockchain and cognitive computing.
operating models and other emerging technology-related
strategic concepts.
Shue Heng Yip
Bob works closely with IT leaders in business to implement IT Shue Heng is director of services of the Sectoral
operation model change and with the challenges of IT Innovation Group within Infocomm Media
governance, architecture, organisation, culture, skills, cyber-risk, Development Authority of Singapore (IMDA). In
vendor management and other challenges that make up the his current role, he has helped shape numerous
chief information officer’s agenda. trade finance innovation initiatives together with
the banking industry and the regulator. One of
He has worked as an entrepreneur (co-founder of Qualix, the initiatives for an irrevocable distributable ledger, which he
Omniscien Technology and inQbator); as a business leader forged together with Standard Chartered Bank and DBS Bank,
within Asia Pacific (vice president of the region for Gartner, garnered the 2016 Global Finance award for product innovation
Candle Corporation and KPMG IT Services) and independent and process innovation.
board member (AIIA, Strategic Publishing Group, NSW
Government IT Advisory Board). Before joining IMDA, he was the regional chief architect of Citi
Transaction Services before assuming the role of regional
technology head of channels, information, client delivery,
Roger Willis liquidity management and the Innovation Lab at Citibank. Before
Roger is the developer relations lead at R3, a Citibank, he spent 10 years with Microsoft, where he assumed
financial innovation firm that leads a consortium various roles across technical consulting and solution sales.
partnership with over 75 of the world’s leading
financial institutions. R3 aims to design and As part of sectoral transformation within the services sector, Shue
deliver advanced distributed ledger Heng plans to co-create new business models for
technologies to the global financial markets. implementation with industry partners in the accounting and
legal sectors, leveraging technologies in distributed ledgers and
As someone with formal computer science and accountancy cognitive computing.
training, Roger is interested in the applications of distributed
ledger technology to automate audit and accounting. At R3, he
supports developers using Corda, R3’s distributed ledger platform.

He has previously worked at Ernst & Young in audit and data

analytics, in bitcoin companies, as well as in his own start-up.
Divided we fall, distributed we stand Acknowledgments 40
The professional accountant’s guide
to distributed ledgers and blockchain

Siân Jones Sopnendu Mohanty

Siân is the founder of EDCAB European Sopnendu is chief FinTech officer at the Monetary
Digital Currency & Blockchain Technology Authority of Singapore. He is responsible for
Forum, an independent Brussels-based public creating development strategies and regulatory
policy platform. Siân heads COINsult, a policies for technology innovation to improve risk
regulatory compliance consultancy focusing management, enhance efficiency and strengthen
on digital currencies and consensus-based competitiveness in the financial sector.
technologies. She also heads EDCAB, where she helps EU
policymakers and legislators shape sound policy and regulation Before joining MAS, Mohanty was global head of the Consumer
relating to virtual currencies and distributed ledger technology. Lab Network and Programs at Citibank, where he drove
innovation programmes and managed innovation labs globally.
Siân is a founder member of the UK Digital Currency Association He played a significant role as a subject matter expert in driving
and co-led its Regulation and Banking Group from 2014 to 2016. Citibank’s global smart banking programme, to transform the
She is an ambassador for the Emerging Payments Association bank’s physical network to a digital first, smart and innovative,
and also works with Credits, the first and only blockchain client-centric and highly effective customer engagement centre.
platform provider awarded a UK government G-Cloud
framework agreement. Mohanty is co-author of various patented works in area of retail
distribution in the financial sector. He is based in Singapore, loves
travelling, reads history and pursues culinary innovation as a
Dr Simon Rice hobby. He was in the Institutional Investor list of Fintech’s Most
Simon is the group manager (technology) at Powerful Dealmakers of 2016.
the Information Commissioner’s Office (ICO)
in the UK government. The technology team
advises on the technical aspects of complaints William Gee
received and data breach investigations. They William is a partner in the Risk Assurance (RA)
also monitor the technology environment to Practice at PricewaterhouseCoopers China.
identify the developments that may have an impact on William is one of the partners responsible
information rights. for FinTech in China, and is a member of the
PwC Think-tank on Innovations and Disruptions,
Between 2005 and 2011, Simon was a database and software with responsibilities over innovations for RA
developer at the Health and Safety Laboratory, the principal at a national level.
source of scientific support for the Health and Safety Executive.
Before joining the Health and Safety Laboratory, Simon studied He is a chartered accountant, and has over 30 years’ experience
for his PhD at the University of Manchester in the field of data in providing a wide range of assurance and advisory services
mining. His research used a range of machine-learning relating to the assessment of, and response to, business and
techniques to extract information from large collections of technology risks, as well as the design, review and enhancement
numeric and textual data. of business and technology processes and controls.

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