TECHNOLOGY

Auditing the Blockchain: PwC, Northern Trust Find Way to Enable Real-Time Capabilities on Distributed Ledgers

Accounting firms can now carry out audits of specific transactions directly from the blockchain and record audit transactions on it in real time. The tool was developed by asset management firm Northern Trust, working with PwC Channel Islands and other auditing firms in Guernsey.

The latest enhancement allows auditors to access from their own offices a “golden copy,” meaning an immutable master record, of blockchain data, explains Northern Trust. The auditors can then transfer the information into internal applications to complete the audit process.

Audit firms can also develop new tools to allow them to complete the audit directly from the blockchain. PwC Channel Islands, Northern Trust’s external auditor, is automating its audit process and continuing development of its audit capabilities to do just that.

Direct efficiencies

“We are excited to be able to leverage the distributed ledger within Northern Trust’s private equity system to innovate our approach to auditing private equity funds,” says Nick Vermeulen, partner at PwC Channel Islands. “Our ability to directly access distributed ledgers . . . will allow us to build upon our own blockchain investments.”

For his part, Northern Trust’s Pete Cherecwich expects “direct efficiencies” for auditor and auditee, and “a more timely and valued assurance product” for investors. Northern Trust launched the first commercial deployment of blockchain technology for private equity in February 2017.

Extending the tool

This year’s first enhancement to that system was developed based on the open-source Linux Foundation Hyperledger Fabric. Northern Trust uses the IBM Blockchain Platform on the IBM Cloud to develop and run the distributed ledger network, and to enable hardware-assisted cryptography and key management designed to enhance security and scalability.  

This particular blockchain use case applies to private equity events recorded on Northern Trust’s distributed ledger, but the solution is transferable to other types of transactions. Northern Trust says it “will explore expanding the new solution into other asset classes and jurisdictions based on its success with its initial platform.”