Accounting is an industry that has often been influenced by technology, and digital tech has replaced manual and analog tools more and more over the last twenty years. However, blockchain is a relatively new technology that has the opportunity to change the face of accounting and its processes on a fundamental level.
This article will look at the effect blockchain will have on accounting by digging into the following areas:
- What blockchain is
- Benefits of blockchain to accounting
- Implications of blockchain to auditing
- How blockchain will affect the accounting profession
What is blockchain?
Blockchain is a technology system that records and stores data in a shared database using a chain of data ‘blocks’ (hence the name). It’s mostly used to record transactions made using cryptocurrency (digital money such as Bitcoin). This recording technology means that there is a single record of a transaction and can also show the historical transfers of the digital currency or data.
Storing information this way eliminates the need for each party in a transaction to have separate entries and records and removes any charges for a third party (like a bank) to make the transfer of money. You can also refer to the ‘money’ in this transaction as ‘assets’ as it’s value is equivalent to cash but not physical currency.
Blockchain technology makes the transfer of assets in this way much quicker, more reliable, digitally protected and leaves an unchangeable record. So, blockchain makes these transfers very secure.
Even though the process of this technology is complex, for accountants, the benefits of having an impenetrable historical record of transactions that cannot be tampered with, are clear. In short, blockchain technology allows:
- Automated transactions with less error in data on both sides of the transfer.
- Less fraud and more trust in transactions.
- Increased transaction security and less bad data.
What are the benefits of blockchain for small business accounting?
Eliminates ledger maintenance
As the blockchain is accessible to both parties in a transaction, it removes the need for each party to have a ledger to update (whether that be a physical ledger, with written transactions, or a digital statement or transaction list). This saves both companies (or individuals) time and bookkeeping admin for their accountants.
Providing one record of ownership of an asset (the total value of the digital currency) removes the need for reconciliation. The blockchain record is accessible to both the parties involved and means there is no need to balance these checks as it’s already recorded on the blockchain.
Provides clarity over ownership of assets
Accounting is mostly concerned with the measurement and analysis of a company (or individuals) financial data. A professional accountant will often spend time understanding ownership and rights over certain financial assets, or responsibilities attached to property, as well as planning how to manage financial resources.
With blockchain, there is no debate over the ownership and past ownership, due to the secure record it creates. Because of this, blockchain can provide more efficiency in accounting.
Saves time on transactional bookkeeping
Blockchain technology allows the transactional aspects of accounting and bookkeeping to be taken care of. This means that the accountants can spend their time working on interpreting economic data instead of doing financial admin. It will free up their time to analyse the economic reality of an asset and how much it is truly worth to a business.
Though blockchain makes the ownership of the asset (the digital currency) clear, its true value in the current economic state will still need to be confirmed. This is a task for an accountant to make sense of with their extra time.
What are the implications of blockchain to auditing?
Blockchain can change the way audits are performed for accounting firms. Confirming a company’s financial status wouldn’t be necessary if all the transactions performed for a company are visible on blockchains.
This use of blockchain would free up accountants from doing audits, to let them consider larger issues at play and use their judgement instead of simply verifying financial status.
For example, auditing is not simply checking the details of a transaction (who it was from/to, and how much) but it’s about classifying it correctly. For example, is this payment an outflow of expenses, paying a debtor in accounts payable, or the creation of an asset?
This kind of activity is a judgement exercise for accountants that requires context the blockchain cannot always provide. With the blockchain in place, it allows the auditor time to focus on managing these judgement calls, instead of the financial checks.
How will blockchain affect the accounting profession?
First of all, the regulations (or lack of) around cryptocurrency mean that accountants will have to learn and stay on top of the legal issues surrounding blockchain use. But the growing use of digital currency technology like this means that accountants need some knowledge of cryptocurrency. This knowledge will allow accountants to be able to work with clients who potentially trade or invest in digital currencies.
This ongoing learning about blockchain and cryptocurrency means the skillset for accountants will evolve. Work like reconciliations and audits will be reduced, whereas consulting or advisory work will likely be more common.
Accountants will not need to become experts in how the technology actually works. Still, they will need to be able to advise on how their clients can adopt blockchain and the impact it will have on their business (such as how their liquidity changes).
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