Business Disruption - The Big 4 Example


#1

Welcome to the discussion about this lecture. Here you can ask questions or post feedback about this specific lecture.


#2

Hi @ivan,

Very interesting to see you use the Big 4 as an example for how blockchain (and AI) can impact established companies and industries.

I have been working at a Big 4 firm, in audit, for about 4 years now. I figured I’d give my two-cents on this topic as, although I believe the industry will be disrupted, it isn’t possible to completely remove it. I’m curious to hear whether you think there’s a way that blockchain could circumvent my points below:

Here’s why I think accounting cannot be completely replaced by blockchain:

  1. Although validating whether a transaction actually occurred may no longer be an issue, without an accountant it would not be possible to validate whether the transaction had business rational. Who’s to say the company didn’t pay for a new house for the CEO in bitcoin? Or that thousands of dollars were sent to the CFO’s son for not valid reason?
  2. Many accounting treatments require judgment. Not everything in accounting is black and white. As many accounting treatments require the interpretation of meeting a set number of criteria (example: capitalizing R&D, or determining whether improvements on a building are considered Capital expenditures vs Operating expenditures), I think any financial statement caption requiring interpretation cannot replace an accountant.
  3. Preparing financial statements and note disclosures require company-specific information, including information that is not necessarily related to quantitative figures (example: accounting policies chosen, whether the company has subsequent events, whether the company has any measurable and likely contingencies, etc.). An accountant is needed to prepare the financial statements for stakeholders
  4. Accounting firms also provide valuations of internal controls. For banks, governments and shareholders, it is crucial to determine whether there are adequate controls in place to mitigate the risk of fraud and financial manipulation. It would be up to the auditor to ensure that there is a policy in place and whether it is adhered to for controls such as, for example: Who has access to the private keys in a company? Where are the private keys stored and who can access them?
  5. Lastly, Big 4 firms have a TON of different services that they provide to clients. Examples include: cyber security, consulting, tax, due diligence, mergers and acquisitions, management consulting, etc. Although practically all of these services can be impacted by blockchain, I believe these firms have enough fall-back plans to be able to delay demise, even in the most reactive of strategies.

I won’t bore you with additional examples. But my point isn’t that accounting is “safe”, but rather that the Big 4 and other medium-sized firms have to adapt to the changing business landscapes in order to stay relevant. Blockchain is only a threat to this profession if the firms don’t come up with a strategy on how they can provide VALUE to new blockchain clients.

Regulators and stakeholders will always want a “stamp of approval”, in my opinion. Accounting firms have the opportunity to use their expertise to provide some comfort to these stakeholders. If anything, I think it’s really important to have these firms start accepting clients that are in the blockchain space and advising those who aren’t on how the technology can improve their businesses. This helps provide credibility over the blockchain ecosystem.

I think the most important factor that could lead to the destruction of the Big 4 is complacency and bureaucracy. Everything in these firms moves slowly because of the approval required between hundreds and hundreds of partners across a geography. I sincerely believe that the survival of these companies will be because of the evangelical few within the organizations that can prove that blockchain needs to be taken seriously NOW.

I’m extremely interested in chatting about this more if you, or anyone else is interested.

~Josh


#3

The Big 4 would be well placed to write & maintain the smart contracts in blockchain technology, this may very well be a more lucrative business opportunity for them.


#4

Hi @Carla,

Actually, because of “self-review” threat to independence, an accounting firm would not be able to do the programming of smart contracts AND provide audits for the same client.

This could work, in theory, but the firm would have to decide upfront that they will not audit the client going forward. Given that audit fees are recurring in nature (quarterly and/or annually), I don’t think this would be the likely decision they’d make. Audits would likely bring in more annual revenue.

And lastly, they’d have to hire an abundance of savvy coders who would know how to write smart contract code while working hand-in-hand with a new legal team.

If I were to re-guide your thought it would be that the Big 4 have an opportunity to provide assurance over smart contracts and blockchain technology. By providing an audit opinion over the controls surrounding the code, the firm is also able to audit the client’s financials as well.

So, in summary, I agree there is a big opportunity. I just don’t think it’s in actually writing and maintaining smart contracts :slight_smile:


#5

Whatever Firm you’re working at needs to give you a raise.


#6

I was thinking of insurance companies and have my own in mind, need some more basic stuff though, even though a differentiated Smart Contract is applied to the individual, the company need an easy way to implement it into existing systems.


#7

Just started the course, very interesting example of the Big 4. They are certainly preparing for a shift and incorporating blockchain Technology in their strategy (source : job interview plus LinkedIn articles). @FaierPlay’s points are on spot and I am curious to see how these mastodons will adapt :slight_smile: in the coming years.


#8

NAILED IT!

As an Economist in the US- BA only- work is hard to find. I have often been working as a temp in low-level accounting, essentially it is torture, it is archaic.

This video was like a breath of fresh air.