Blockchain potentially ‘disruptive’ to corporate reporting

Blockchain technology is not going away, and preparers need to consider its potential disruptive impact, but its growth in corporate reporting is likely to be gradual and restricted to certain use-cases, according to a report from the Financial Reporting Council’s (FRC’s) Financial Reporting Lab 

The report considers how current developments and use-cases of blockchain technology might impact corporate reporting processes in the future. 

It concludes that, while cost, complexity and lack of standardisation of blockchains might be inhibiting factors, the technology does have potential to change some aspects of corporate reporting, but this is unlikely to be imminent or all-encompassing.

It recommends ‘consideration and cautious experimentation’ by preparers, regulators and others involved in the corporate reporting ecosystem.

The Lab says blockchain has the potential to improve the efficiency and timeliness of error/ tamper-free records (across markets, industries and companies) and increase the speed of consolidation within groups, particularly where there are multiple participants. However, this depends on whether issues around cost and interoperability can be solved.

The use of blockchain as a single source of credible, useable corporate data across Europe is a real possibility (and it is already being worked on by the European Commission via the European Financial Transparency Gateway), but ultimately success is dependent upon any solution being easy to use.

Additionally, using blockchain to form an unalterable group of communications (to meet reporting requirements) across different formats and entities has some potential, and could lead to different ways to meet regulatory requirements, perhaps leading to more engaging reports. However, the need for wider adoption may reduce the likelihood of its use.

The report recommends regulators, standard-setters and professional bodies are encouraged to monitor blockchain developments and consider how they may impact corporate reporting.  It recommends the creation of a forum where all those involved in corporate reporting can share and learn.

It warns that the use-cases remain immature and says preparers and users should focus on gaining a greater level of understanding and consider experimentation and cautious innovation when costs and benefits are balanced.

Phil Fitz-Gerald, director of the Lab, said: ‘At its heart, blockchain is a technology that promises greater trust and resilience in the recording of transactions and information.  These are both essential elements in the system of corporate reporting. 

‘Whilst it is not clear whether blockchain is the answer, the current rapid developments in blockchain use mean that it has the potential to have a significant disruptive impact on corporate reporting processes.’

Blockchain and the future of corporate reporting: How does it measure up? is here:  https://www.frc.org.uk/getattachment/58866565-ab3b-44d3-93e1-1ef7158968d...(June-2018).pdf

Report by Pat Sweet

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