Blockchain took the accounting profession by storm during the height of the bitcoin frenzy a few years back. Then bitcoin crashed in value during 2017. And as blockchain was the ledger system developed to facilitate bitcoin trading, its ardor grew thin.
But that was yesterday. The accounting profession is taking another look at blockchain, with a keen eye on its great potential.
What Is Blockchain?
The CPA Journal defines blockchain as “a decentralized database that enables real-time verification and communication of information.” Blockchain is likened to a Google document accessible to network members. Different members have different levels of access, and each level is provided with cryptography and other tools to secure information.
Each level is connected by the block and chain components, the article says. Individual records and transactions are batched into blocks and each block has a “cryptographic hash” or mathematical algorithm that is unique and chains that block to the preceding block of information. This connection is the virtual link that connects the blocks and forms the blockchain. Any change to the ledger or any block makes the code inoperable, thus allowing it to be traced.
Is Blockchain the Future of Accounting?
The implications of blockchain for the accounting profession are many, according to an article on the ICAEW website. It has the potential to reduce the costs of processing and maintaining ledgers. It could also be the tool to provide absolute certainty to the ownership of assets.
According to Hackernoon, blockchain offers many other benefits. Some of them are:
- Once data is in the chain, smart contracting, or cryptocontracting, will automate many accounting functions, thereby reducing human error.
- Adding or taking data out of a blockchain system is faster and more efficient than doing so in current accounting software systems.
- The more efficient blockchain system, with its reduction of errors, will lead to lower costs compared to more conventional accounting systems.
- Fraud will be reduced because the blockchain is difficult to penetrate and even harder to manipulate.
- The improved traceability of blockchain will make auditing faster and easier.
Blockchain Living Up to Its Promise?
Blockchain came under extreme scrutiny during the bitcoin bust in 2017-18, but it is finally beginning to live up to its promise, according to an article by Ranica Arrowsmith in Accounting Today.
For example, Arrowsmith says Gilded recently released an accounting and finance platform built around blockchain that handles invoicing, payments, and accounting and tax reporting for cryptocurrency. It is one of the first blockchain applications that can be used today by accountants.
The PayPie platform promised accounting built on blockchain in 2017. The value of its blockchain-based cash flow management and analytics platform will be in single-ledger accounting.
Because blockchains are resistant to modification and can efficiently and permanently record information between two parties, it is an excellent system for audits, which are basically dominated by large accounting firms. For smaller firms, blockchain must prove capable in accounting, bookkeeping and tax and client services. That’s a niche PayPie, Gilded and other blockchain developers seek to fill, the Accounting Today article said.
Skills Needed in a Blockchain Accounting World
ICAEW said blockchain is poised to transform the accounting profession. For example, while reconciliation and provenance assurance functions will be reduced or eliminated, areas such as technology, advisory and other value-add functions will expand.
Other implications, according to ICAEW, include the following:
- With blockchain there is no need to confirm accuracy or existence of transactions with external sources. This means the auditor’s focus can shift to how those transactions are recorded and recognized in financial statements and how elements such as valuations are decided.
- Accountants must be able to advise clients of the impact blockchain will have on their businesses. They will serve as the link between those who develop and apply the blockchain technology and their business stakeholders.
- Gaining an understanding of the principal features and functions of blockchain will call for accountants to expand their skill sets.
Blockchain is poised to revolutionize the accounting profession, and accountants who understand its impact on their businesses and clients will have a professional advantage.
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