A new approach to financial accounting is needed: Fraudulent behavior must be eliminated from the start. Traceable, immutable financial transactions, processed on secure, transparent distributed ledgers — this is what governments should require from all publicly listed companies.

Blockchain technology may represent the next level of accounting: Instead of keeping separate records based on transaction receipts, companies can write their transactions directly into a shared ledger, creating a system of historically consistent, enduring accounting records. All entries are distributed and cryptographically sealed, therefore falsifying or destroying them to conceal activity is practically impossible. 

Benefits
Companies would benefit in many ways from the real-time traceable accounting we are developing at Datarella as a key component of our RAAY Digital Operating System: 

• Automation: A high degree of standardization enables auditors to verify a large portion of the most critical data behind the financial statements automatically
• Minimized Costs: The cost and time necessary to conduct an audit would decline considerably
• Value Add: Companies and auditors could spend freed-up time adding value to the company’s controlling: e.g. data analysis and algorithmic predictions on the future company (and market) development
• Inclusion: The auditor and compliance officer can be included in the entire accounting process by running a trust node

It is not feasible to start with a joint register for all accounting entries. The Blockchain, as a source of trust, can also be beneficial in today’s accounting structures. It can be gradually integrated with typical accounting procedures: starting from securing the integrity of records to completely traceable audit trails. At the end of the road, fully automated audits may be the reality.

Trust in Public and Private Blockchains
Whereas Public Blockchains are designed as truly decentralized, or ‘trust-less” systems; i.e. networks that don’t need a specific trust anchor since they come with integrated trust through algorithm-based consensus mechanisms, Private Blockchains are lacking this integral trust. Private Blockchains are mostly run as centralized networks, by companies or organizations, that have full control of the data flow. Blockchain technology provides historically consistent immutable data records — but under the sole responsibility and control of the respective company. Governance Models, in which rules and processes of the Blockchain are defined, allow for a wide acceptance of the system with all participants. However, third parties that are prevented from participating in the permissioned network, can’t falsify or verify the data output.

Step 1: Adding Trust With A Trust Node
Datarella’s Traceable Accounting concept adds trust to Private Blockchains by integrating a ‘trust node’ run by a trusted third party, s.a. an audit firm or compliance officer. Additionally to the nodes run by the company itself, an audit firm runs a node with full access to the network, therefore servicing as a notary in the first place. The auditor conducts a real-time audit to verify a large portion of the most critical data. Through smart contracts, this audit can be automated to a high degree and save time and money. The audit engagement is mapped in a Governance Model, which allows for full transparency among the network’s participants as well as towards external stakeholders, s.a. stockholders, etc..

By adding trust to a Private Blockchain system through a trust node, a key inherent weakness of a partly-decentralized system is eliminated: Through the integration of audit firms in the company’s data flow, its accounting becomes trustworthy, and innovative at the same time: Traceable Accounting allows companies to run AI-based data analyses that provide valuable data to the finance department for improved controlling capabilities.

Step 2: A Fully Trustless System
At a later stage, the Private Blockchain should be morphed into a Public Blockchain that provides all interested parties with access and audit opportunities. The architecture and mechanisms of a Public Blockchain allow for the participation of entities in the network that do not have to trust each other — a Public Blockchain is designed as a ‘trustless’ system: it works without the existence of trust between the parties. 

A Public Blockchain can be designed as a permissioned or a permissionless system. In a permissioned system, there is a regulatory body that sets-up a governance model defining the rules for access and behavior in the network. In a permissionless system, anyone can participate.

Traceable Accounting — Blockchain-Based Automated Real-time Accounting

Developing a fully trustless system must be the final goal for regulatory and legal bodies when envisioning a new framework for financial auditing. It meets all due diligence criteria, especially those that have fraudulently been bypassed in the Wirecard scandal. Furthermore, traceable accounting will e required by future modularized value chains; i.e. processes of providing products and services based on the collaboration of various partners.

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First, Sven Gabor Janszky described a typical day in 2017, when we all will consume media in a totally different way as we are used to it today. Then LMU-Professor Hess showed some interesting findings concering user motivation to participate in the web 2.0. After these more theoretical parts Sefan Winners of Tomorrow Focus AG beamed with joy presenting the numbers of Europe’s biggest hotel rating portal holidaycheck. And then Ibo Evsan of the videoportal sevenload surprised the old media audience with the notification of a speedy death of the old television business models. Ibo simply yelled that message down from the lectern — so we wake up and could start the coffee break.

After some tasty bavarian cakes Tobias Oswald, CEO of SevenOne Intermedia, Sacha Tueni of Vodafone Marketing, Claas van Delden, VP Holtzbrinck Networks, and Patrick Warnking, Head of Media and Entertainment Google Germany, held short but informative presentations about their web 2.0 strategies. Vodafone does not seem to have any, ProsiebenSat.1 is consistenty adjusting theirs, Holtzbrinck is proud of StudiV and waits for the attack by Facebook (no, for sure they will not let Facebook buy them and Google asks itself why others aren’t familiar with the latest web 2.0 media strategies and gives some advice on that matter.

Afer the second break Terry von Bibra of Yahoo Germany and David Eicher had a hard time to keep the audience awake. Terry insisted that Yahoo Go would be a very user-friendly way of using mobile devices — he himself trusts the application concerning flight informations when he is late — and David asked the crowd for more trust in user generated content, a request which was accepted with distrust by the old media audience.

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