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Introducing Auditchain, Decentralized Continuous Audit & Reporting Protocol Ecosystem

It has been estimated that theoretically, the larger, more complex and automated the enterprise, the higher the likelihood that anomalies are detectable using standardized independent audit assessments, as independently performed and will likely lead to the ability to arrive at a fair representation of system and data integrity. Anomalies provide clues that enable the detection of error and fraud. The substantiation of this theory is based on the relative reliability from a historical point of view of independent assessment using these and other “through the computer” standards and methods but its reliability is also dependent on the prevention of unauthorized console intervention. Additional audit practices suggest that the theoretically high probability that volume, repetition, and uniformity of accounting and ERP systems data is sufficiently deterministic in order to arrive at a reliable independent conclusion. Such conclusion is an opinion and is based in part on written representation by the management of the enterprise that is further conditional upon and subject to management’s internal evaluation of internal reporting and disclosure controls.

Management Must Represent, not Prove, that Reporting Controls are Sufficient and Effective and that such an Evaluation was Performed

To the extent that tighter regulations such as the adoption of Sarbanes-Oxley have increased audit scrutiny and the likelihood of audit liability is the extent that auditors have been able to, in a subtle manner, relinquish “ownership” liability of certain work product reports and process performance back to enterprise management on the basis that auditor ownership of such would jeopardize independence but this is a subjective approach, not a statutory prohibition. The deferral is conditional in part upon the level of malpractice insurance carried by the auditor and also the confidence of the level of capabilities the auditor possesses. The deferral also poses a risk of defeating the purpose of independent audit exercise and review yet it is, in practice, frequent and acceptable. 

In order for an audit conclusion to be reached by the auditor and for a final comprehensive audit report to be issued, management of the enterprise must first perform its own evaluation of internal controls over financial reporting based on standards set by the Committee of Sponsoring Organizations of the Treadway Commission. Management must represent, not prove, that reporting controls are sufficient and effective and that such an evaluation was performed. Management also needs to share their assessment with the auditor which must include a list of all material weaknesses and deficiencies identified in the assessment.
The written conclusion of a typical comprehensive audit provides a statement by the auditor which includes opinions on the evidence of fair representations, not1 statements of accuracy. For example; the following statement concludes the report of independent registered public accounting firm PwC dated February 22, 2017, which is included as page 64 in the annual report of Exxon Mobil Corporation for the period ending December 31, 2016; “Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate”.

Introducing Auditchain, Decentralized Continuous Audit & Reporting Protocol Ecosystem

Auditchain proposes to embody an ecosystem that includes a blockchain protocol and an open source library of accounting smart contracts sufficient to capture, process, audit and report enterprise data and performance data on a real-time continuous basis under a continuous independent audit exceeding current accounting, audit and control standards. A public facing and/or permission-based presentation layer proposes to render in real time, at the close of every block; balance sheet, income statement, cash flow and statement of changes in stockholders’ equity reports that has the capacity to far exceed the reliability of existing reporting standards.

Auditchain is being structured as a for-profit GmbH based in Switzerland. Auditchain expects to foster adoption to the Auditchain Network through a combination of collaboration with the Alliance and direct marketing to an early collaboration with the enterprise community. We believe that Auditchain currently enjoys a first mover advantage as a decentralized continuous audit and reporting protocol ecosystem for enterprise and decentralized networks. Auditchain expects to generate revenue through the receipt of fees in connection with services and transactions on the Auditchain Network. Although it is premature to project the level of revenue and the magnitude of growth, we believe we can draw preliminary comparisons. The typical Fortune 100 enterprise generates more transactions per minute than all transactions combined on a per minute basis on the Ethereum and Bitcoin Blockchains. We believe that block rewards and AUDT Fees on the Auditchain Network have the potential to exceed the level of all transaction fees on a per block basis than the two largest public Blockchains with a single large enterprise or 10 medium-sized enterprises.

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