Real-Time Attestation

In the market currently, there is a misalignment between the need of users and current third-party assurance mechanisms and accountability processes. Whether these form part of financial statement audits and/or controls assurance reporting. There are countless examples where these forms of reporting and services could be served to management and intended users of reporting in a far superior manner. Given the technology, we now have access to which:

1.    Provides the capabilities to deliver assurance more frequently,

2.    At a lower administrative cost, and

3.    Is made more widely available.

The question arises as to whether the current rails used to deliver these services are the most beneficial to the intended users, situation dependent, or is there a better solution?

The historic static reporting procedures, which is the common practice we see today, do not necessarily meet the needs of users and do not offer the expected transformational levels of trust and transparency. This is underpinned by the following:

1.    It is made available infrequently,

2.    It is backward-looking; and

3.    It’s not widely available.

At the end of the day, traditional assurance processes and mechanisms, need to adapt and catch up. Not at the cost of any stringent technical and professional standards which underpin the foundation of the profession’s trusted role in society. But we have embraced the opportunity to innovate and optimise the delivery of services to better serve the users’ needs. It is imperative to walk in the shoes of the end customer to better understand their expectation and derive the optimal solution to meet these expectations.

Consumers, rightfully so, have come to expect trustworthy real-time assurance which is easily available and transparent. With the emerging technology at hand, we are able to pivot our traditional approach to aspire to meet these expectations. We have seen a rise in financial technology products and emerging digital asset applications (models) which are clear examples of use cases where technology has been leveraged to provide more trust and transparency for both B2B & C2C markets in a highly available or real-time manner.

So, what is the solution?

Embracing change and working with (not against) the standards:

The audit profession must evolve and embrace proven technologies to enable the collection of more audit evidence, issue audit reporting more frequently, and make such reporting more widely available. Part of our ability to achieve real-time attest reports is that we have embraced this need for change by empowering our people to experiment with new technology and by investing in ideas with potential.

One key feature of the story of real-time attest is that we sought to provide a real-time attest solution that meets the current audit and professional standards, not one in contravention of those important standards.

What is the opportunity?

The combination of transparent blockchain technology to query token balances, the use of real-time connections to financial institutions for asset balances, and the support for such a real-time solution in the emerging audit standards all supported this move and quite frankly a service that any user deserves.

Blockchain Ecosystems

Public blockchains and digital assets have provided a disruptive force to traditional concepts of trust and transparency, mainly by the removal of intermediaries. In fact, public applications of some blockchain-based business technology models maintain some level of centralisation and thus speak to the need for innovative and improved third-party assurance solutions.

Similarly, for private and hybrid applications of blockchain and distributed ledger technology (DLT), full decentralisation is not yet seen to be preferred, nor even possible in its current form. Whether by design or by default, these models are less than sufficiently decentralised and the need for third-party assurance solutions is imperative.

Blockchain use cases present new and emerging needs for adaptive and innovative third-party assurance. Arguably, some blockchain use cases would seem to require a vehicle for independent assurance, which is more continuous and made available in real-time.

What is Real-Time Attest? 

Real-time attestation is the process whereby an independent firm, with the aid of information technology, collects sufficient audit evidence and performs substantive procedures - in order to issue on-demand audit reporting to intended users while meeting obligations under the then-prevailing standards and professional ethics requirements. It is the process of an independent firm rendering an opinion on a subject matter in an on-demand and highly available manner, almost necessarily by collecting audit evidence in real time. It is important to note that as the market evolves “real-time attest” and “real-time audit” may branch into different classifications or required standards. However, at this point in time, this is the perspective we adopt.

Importantly, real-time attest is not explicitly a “continuous audit,” although they are related in many ways. “Continuous audit” is a method of internal audit and monitoring of internal controls over financial accounting, reporting, and other key business processes and cycles. Thus, real-time attest is not a “continuous audit” as it is known in accounting circles today.

In my opinion, technology can and has been, applied by management and by external auditors in order to get coverage over more voluminous transactions, or more complex transactions. It must be stated that creating highly available audit reporting where the “as of date” and the “report date” is the same has not yet been achieved in its entirety, however, we are ever closer to making this a reality.

Asset-Backed Tokens:

Asset-backed tokens present a prevalent use case, where trust and transparency require assurance over off-chain data (in whichever form or asset the token is backed by). This could be in the form of fiat currency (what we’ve come to learn as stablecoins), securities, real property, net asset value, and the like.

In our view, this will no longer be a “nice to have” but rather a regulatory requirement.

Stablecoins:

These digital assets are used for facilitating the onramp of fiat currency to enable trading on digital asset exchanges and for peer-to-peer transactions. Centralised asset-backed stablecoins offer the paradigm-shifting benefits of low-cost, low-friction, borderless, immediate, and immutable transfer of value, combined with trust in redeemable and stable fiat asset backing. However, this equation relies on adequate asset backing to support redeemability, which is confidential data of the stablecoin issuer and preserved off-chain by financial institution partners. Asset-backed stablecoins present a perfect use case for a real-time audit given their relative simplicity. However, they are not the only use case.

As more aggregate value is transferred and recorded across public, permissioned, and hybrid blockchain networks, there will be an increased need for third-party assurance for both financial accounting/reporting and internal controls, as well as real-time assurance over off-chain data.

Asset-backed stablecoins minted on public blockchains present a unique use case for assurance. Users of stablecoins, whether organisations or individual retail users, must place trust in the blockchain-enabled token generation and management, as well as the more opaque asset backing that supports the token value and redeemability. What has emerged in the asset-backed stablecoin space is a demand for third-party, independent attestations over asset backing or collateral supporting a given token.

While periodic monthly reporting supports user trust in the given stablecoin, it does not offer a high degree of transparency, and it is not highly available or real-time due to prohibitive monetary and administrative costs.

Conclusion

Blockchain technology was born from a unique and powerful combination of existing technologies. Similarly, real-time attest was born from a combination of existing technologies and methods to form something new. Real-time attest is a way of issuing reports, but also a methodology of its own that can, with careful consideration, be applied to myriad use cases.