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Paper proposes blockchain to track Scope 3 carbon emissions

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Accounting researchers say they have uncovered a theoretically possible solution to simplify the tracking of Scope 3 greenhouse gas emissions up and down the value chain using smart contracts and non-fungible tokens on a blockchain platform, easing the carbon reporting process and allowing for increased automation. 

Under certain regulations in the European Union, California and other jurisdictions, entities need to report direct emissions from a company’s facilities and vehicles (Scope 1), indirect emissions from the energy used to run its operations (Scope 2), and emissions from upstream suppliers and downstream end users that buy a company’s products (Scope 3), which are generally understood to be the most complex and difficult to track. The accounting researchers—from Auburn University and John Carroll University—believe they have found a technological solution that, theoretically, could make this process easier. 

The theoretical solution, outlined in the Accounting Review paper Using Blockchain, Non-Fungible Tokens, and Smart Contracts to Track and Report Greenhouse Gas Emissions, consists of a system that would take the form of a web-based connection that allows companies involved in a value chain to enter their emissions data. This data, with proper permissions, could then be accessed by third parties along the value chain who need to report on not just their emissions but those of their suppliers upstream and their customers downstream. 

smokestack-emissions.jpg
Emissions rise from smokestacks at the PKN Orlen SA oil refinery in Plock, Poland.

Bartek Sadowski/Bloomberg

More specifically, each component of a tangible asset would have an associated NFT minted by a self-executing smart contract once that component enters the value chain as a blockchain input. This NFT is assigned data showing Scope 1 emissions associated with creating the component; a separate NFT is then minted for the Scope 2 emissions generated to create the component. As these components move through the physical value chain, the corresponding NFTs move between the same firms on the blockchain. When components are combined in manufacturing, smart contracts would “burn” the associated NFTs and mint new ones that represent the updated in-process assets and their aggregated emissions to that point in the value chain. Each one of these updates is recorded onto the blockchain ledger, which the researchers said would be collectively maintained and approved by consortium members. 

“This system creates a near real-time cradle-to-grave provenance for tangible assets and their associated emissions as they move through the value chain and allows all emissions to be counted and claimed. Furthermore, all value chain participants can use this system to determine the total emissions associated with a product and their classification as Scope 1, 2, or 3 from their reporting vantage point,” said the paper. 

Their system also has the ability to turn on and off different levels of privacy to protect each company’s proprietary information. Participants also can view just the upstream and downstream Scope 3 emissions by categories such as purchased goods or services, transportation and distribution and end-of-life treatment for sold products. When their system is fully built out, according to the paper, any company with authorized access can query the blockchain ledger to see the value of each of their products’ total emissions along all three scopes. 

This is in contrast to current practices, which is generally seen as a complex and arduous affair that relies heavily on manual processes. 

“In the process of conducting our research, we interviewed one [individual] who works for a large retail company, and he manually enters data from about 4,000 vendors into a spreadsheet and then performs calculations,” said Jenkins, noting that this method is time-intensive and could result in data entry errors and the double-counting of emissions,” said Greg Jenkins, one of the study’s authors. 

The paper, however, did not say this technique was a slam dunk. It noted there are many practical hurdles to overcome before such a system could be fully implemented, as well as many risks that must be accounted for. While technologically feasible, experts the researchers ran the concept past pointed to, one, a need for governance and coordination, two, a lack of trust in the blockchain, and, three, blockchain latency. This is on top of other anticipated difficulties such as the challenge of obtaining accurate emissions data to enter into the blockchain in the first place, differences in reporting calendars potentially disrupting coordination, potential exposure of confidential information, and other risks that the technology is meant to address. However, the researchers believe that these challenges can be overcome, and that it will be worth it once they are. 

“Notwithstanding the need for future research and refinement, our proposed solution and the prototype we demonstrate can improve the tracking and reporting of value chain emissions. If implemented, it would enable a cradle-tograve provenance for emissions tracking. With its ‘hand-off’ of emissions between firms, the ecosystem allows for tracking emissions as they move between parties, thus alleviating concerns about having to use secondary data sources to estimate upstream and downstream Scope 3 emissions. It would also alleviate concerns around the timing of emissions reporting, by making emissions data available to all value chain participants in near real-time. Finally, the complete and linear provenance of emissions recorded in a verified and secure ledger should help provide a path to higher levels of assurance on emissions disclosures (i.e., reasonable rather than limited assurance),” said the paper’s conclusion. 

The emissions tracking technology is protected by a U.S. patent, “System, method, and computer-readable medium for using blockchain, NFTs, and smart contracts to track and report greenhouse gas emissions,” filed in May 2024.

While blockchains have the potential to be very energy intensive themselves, thus creating significant greenhouse gases, Mark Sheldon, another of the study’s authors, noted that specific applications do not necessarily have to be.

“Blockchains use different consensus mechanisms to ensure the various nodes (computers) agree on updates to the underlying ledger. Proof-of-stake, an option to use with our solution, is very energy efficient when compared to proof-of-work which is the one everyone hears about with Bitcoin. In fact, the Ethereum blockchain recently changed from proof-of-work to proof-of-stake and reports to be 99% more energy efficient. There are other factors that also come into play with our specific model, but this is the big one for energy efficiency,” he said in an email.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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