Background

The accounting and auditing industry is a vital industry, reflected in the 1.3 million businesses earning a combined $495 billion USD in 2017 and growing at 5-10% annually. It also employs more than 6 million people directly. The “Big 4” firms alone accounted for $135Bn, with $42Bn related to audit and assurance making it the largest and most important sector for them.

"Big 4" Firms Revenue 2017

Investigating further, public companies paid an average of $7.1 million in audit fees in 2013 while private companies audit fees averaged $175K. This is due to the number of audit hours required, with public companies requiring an average of 17,525, at an estimated average cost of $249 per hour, and private companies requiring an average of 2,927, at an estimated average cost of $179 per hour. Despite the amount spent on audit, fraud still occurs and cost companies on average 5% of revenue and $6.3Bn in total in 2016. Cash assets were the most commonly misappropriated accounting for 83% of frauds. The following illustrates some of the largest fraud cases which has occurred in the past.

Fraud Cases

In the case of Parmalat, documents were forged to reflect inflated cash balances on a quarterly basis. Parmalat managed to evade detection for so long because its auditor requested all financial information through the company’s internal mail system. The auditors never sent any confirmation requests directly to the company’s banks or other third parties. In short, they accepted Parmalat’s information at face value.

Another market opportunity viewpoint that can be looked at is the cost of trust. Ledgerium essentially will remove the need for intermediaries, which are essentially the trust brokers in any transactions. In the USA alone, approximately 35% of the labour work force are involved in the “trust” profession, ranging from lawyers and accountants to law enforcement agents. Within the business and financial industry, more than 50% are involved in the “trust” profession. This adds up to over $29 trillion a year.

source: Davidson, Novak and Potts, 2018