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  • Electronic Signature is NOT Digital Signature: Know Which Is Better

Electronic Signature is NOT Digital Signature: Know Which Is Better

on 04 May 2020

Electronic signatures make it possible to associate intent with an electronic document as writing a signature on paper does, no more.

Digital signatures add validation and authentication possibilities that electronic signature don’t offer.

Electronic signatures are to digital signatures as a PDF financial statement is to an Inline XBRL financial statement. One puts it on the computer, no more; the other changes from people reading things with no real understanding whether it is authentic to adding some real processing power with the possibility of automated checks.

For twenty years, I have been working to encourage our profession and the stakeholders in our information supply chain to collaborate on digital signatures. The current pandemic has finally provided the catalyst for change – but the wrong “technology” seems to be being adopted.

Thanks to the challenge of passing along paperwork “in person” when offices are closed and business is done WFH (work from home) and in line with the continued transition from paper to electronic documents, the subject of signing documents has been in the news lately. In most cases of those news stories that I have seen, a graphic is there to catch the eye, which says “Digital Signature”. However, two times out of three, the text says “Electronic Signature” rather than “Digital Signature”. Is that a problem? Aren’t they the same thing? When it comes to computers, isn’t everything a matter of 1s and 0s and digital?

There has been a history of laws from nation to nation (or region to region) that make electronic signatures an acceptable counterpart to the handwritten (“wet”) signature made by pen to paper. Laws differ from region to region; my business law teacher so many years ago indicated that real estate law was one of the few that that required a written, as opposed to oral, signature. Those laws, in the US at least, are largely aimed at “intention” and contracts. They are not about means of authentication; a simple mark (“X”) is as legally binding as the most ornate “John Hancock”.

A simple search for “(pick a major audit firm) signature” on an image search engine (e.g., images.google.com, images.bing.com) will result in many images gleaned from online audit reports that can be pasted into another document with a “copy” and a “paste”. I’ve added my own signature to electronic documents by that means.

So electronic signature – be it digitizing a signature, copying and pasting a graphic, or even recording the clicking of a box or capturing a verbal assent through a microphone – are as legally binding as writing on paper, but provide no more authentication or tracking.

In contrast, digital signatures are far more powerful. Not meant to mimic a handwritten signature, digital signatures provide for secure information (it is an automated process to see if the information has been altered in any way) and to associate the signature with a particular party for authorization or authentication purposes.

Signatures on auditor reports are outside of the normal use of handwritten or electronic signatures. They are meant to convey trust to the reader, not provide contractual intent. In the US, the signature is of the CPA firm but in the handwriting of the signing partner. With the advent of the PCAOB Auditor Search (https://pcaobus.org/Pages/AuditorSearch.aspx), the two can finally be made unambiguous.

When is “digital” not digital? It is important to know that analog information that is digitized is not the same as information structured to take advantage of computers. A picture of text looks like text to you and me, but not a computer – not without Optical Character Recognition (OCR). An image of a cat looks like a cat to you and me, but not a computer – not without artificial intelligence trained to identify cats in images. (And even then, clever people know how to fool AIs - https://mashable.com/2017/11/02/mit-researchers-fool-google-ai-program/). An the image of a signature is no more a mark recognized by a computer as an authorization tool for a specific party than a tub of guacamole. But you can use guacamole to create a perfectly legal signature on paper.

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    https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

     

    [1] https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

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