Blockchain technology clearly has the potential to revolutionize industries. The technology has ignited curiosity among industries and sectors, especially in finance. Blockchain has often been called “the future of financial services infrastructure”. While the financial sector has dominated the headlines over the past couple of years, other industries are beginning to embrace this technology in a bid to democratize markets.
For accountants, using blockchain provides clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency.
Current State of Accounting
Automation is the key in any business. If there’s a task that’s still being performed manually, it’s costing company a lot of time. To achieve its daily targets the industry still relies on mutual control mechanisms, checks and balances. This affects everyday operations. Among other things there are systematic duplication of efforts, extensive documentations and periodical controls. Most of them are manual, labour intensive tasks and they are far from being automated.
Modern financial accounting is based on a double entry system. Double entry bookkeeping solved the problem of managers knowing whether they could trust their own books.
Blockchain comes to the rescue
Blockchain has the potential to further enhance the accounting industry by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets.
With the help of blockchain, instead of keeping separate records based on receipts, companies can write their transactions directly into a joint ledger, creating an interlocking system of enduring accounting records. As all entries are distributed and cryptographically sealed, chances of destroying or manipulating them is practically impossible. This will allow auditors to verify a large number of data in a short period of time. The cost and time necessary to conduct an audit would decline considerably.
Advantages of Blockchain Technology in Accounting
Here is a list of benefits that blockchain technology promises to bring to the world of accounting:
- Reducing Errors and Costs : An advantage of blockchain technology in accounting sector is its ability to make almost negligible errors. Once data is in the chain, smart contracts will make many accounting functions automatic, reducing human error. Following initial adoption cost, accounting firms can expect to see rapid cost savings over conventional accounting systems.
- Increasing Efficiency : Using blockchain, getting data into and out of the system can be done more efficiently than interacting with legacy accounting software applications.
- Reduces Fraud : The immutable nature of blockchain makes it difficult to perpetrate and extremely difficult to manipulate. In order to modify a record, the same change would have to be made on all copies of the distributed ledger at the same time, which is highly infeasible.
- Reduces Time : With the use of smart contracts, many auditing functions can be automated which will reduce the time that an auditor needs to look into the records. The inherent traceability built into blockchain makes auditing fast and easy.
Blockchain as a source of trust, can also be extremely helpful in today’s accounting industry. It can be gradually integrated with typical accounting procedures: starting from securing the integrity of records, to completely traceable audit trails. This will lead to a future where the fully automated audits will become a reality.
How Should Accounting Industry Prepare Itself
Accountants are experts in record keeping, application of complex rules, business logic and standards setting. They can transform how blockchain will be used in the future and how the development of blockchain-led solutions and services take place.
There is almost no need to confirm the accuracy of blockchain transactions with external sources, but there is still a lot of work that needs to be done on the part that how these transactions are recorded and recognised in the financial statements, and how judgemental elements such as valuations are decided. In long term, more and more records could move onto blockchains, and auditors and regulators with access would be able to check transactions in real time.
What are your views about blockchain technology entering the accounting sector? Let us know in the comments section.